Will Tech Revolutionize Health Care This Time?

Will Tech Revolutionize Health Care This Time?

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After decades of bravely keeping them at bay, health care is beginning to be overwhelmed by “fast, cheap, and out of control” new technologies, from BYOD (“bring your own device”) tablets in the operating room, to apps and dongles that turn your smart phone into a Star Trek Tricorder, to 3-D printed skulls. (No, not a souvenir of the Grateful Dead, a Harley decoration or a pastry for the Mexican Dia de Los Muertos, but an actual skullcap to repair someone’s head. Take measurements from a scan, set to work in a cad-cam program, press Cmd-P and boom! There you have it: new ear-to-ear skull top, ready for implant.)

Each new category, we are told, will Revolutionize Health Care, making it orders of magnitude better and far less expensive. Yet the experience of the last three decades is that each new technology only adds complexity and expense.

So what will it be? Will some of these new technologies actually transform health care? Which ones? How can we know?

There is an answer, but it does not lie in the technologies. It lies in the economics. It lies in the reason we have so much waste in health care. We have so much waste because we get paid for it.

Yes, it’s that simple. In an insurance-supported fee-for-service system, we don’t get paid to solve problems. We get paid to do stuff that might solve a problem. The more stuff we do, and the more complex the stuff we do, the more impressive the machines we use, the more we get paid.

A Tale of a Wasteful Technology

A few presidencies back, I was at a medical conference at a resort on a hilltop near San Diego. I was invited into a trailer to see a demo of a marvellous new technology — computer-aided mammography. I had never even taken a close look at a mammogram, so I was immediately impressed with how difficult it is to pick possible tumours out of the cloudy images. The computer could show you the possibilities, easy as pie, drawing little circles around each suspicious nodule.

But, I asked, will people trust a computer to do such an important job?

Oh, the computer is just helping, I was told. All the scans will be seen by a human radiologist. The computer just makes sure the radiologist does not miss any possibilities.

I thought, Hmmm, if you have a radiologist looking at every scan anyway, why bother with the computer program? Are skilled radiologists in the habit of missing a lot of possible tumors? From the sound of it, I thought what we would get is a lot of false positives, unnecessary call-backs and biopsies, and a lot of unnecessarily worried women. After all, if the computer says something might be a tumor, now the radiologist is put in the position of proving that it isn’t.

I didn’t see any reason that this technology would catch on. I didn’t see it because the reason was not in the technology, it was in the economics.

Years later, as we are trending toward standardizing on this technology across the industry, the results of various studies have shown exactly what I suspected they would: lots of false positives, call-backs and biopsies, and not one tumor that would not have been found without the computer. Not one. At an added cost trending toward half a billion dollars per year.

It caught on because it sounds good, sounds real high-tech, gives you bragging rights (“Come to MagnaGargantua Memorial, the Hospital of the Jetsons!”) — and because you can charge for the extra expense and complexity. There are codes for it. The unnecessary call-backs and biopsies are unfortunate, but they are also a revenue stream — which the customer is not paying for anyway. It’s nothing personal, it’s just business. Of course, by the time the results are in saying that they do no good at all, you’ve got all this sunk cost you have to amortize over the increased payments you can get. No way you’re going to put all that fancy equipment in the dumpster just because it fails to do what you bought it for.

Is this normal? Or an aberration? Neither. It certainly does not stand for all technological advances in health care. Many advances are not only highly effective, they are highly cost effective. Laparoscopic surgery is a great example — smaller wounds, quicker surgeries, lower infection rates, what’s not to like? But a shockingly large number of technological advances follow this pattern: unproven expensive technologies that seem like they might be helpful, or are helpful for special rare cases, adopted broadly across health care in a big-money trance dance with Death Star tech.

Cui Bono?

But that is in health-care-as-it-has-been, not in health-care-as-it-will be. How we think about the impact of new technologies is bound up with the changing economics of health care.

Under a fee-for-service system the questions about a new technology are, Is it plausible that it might be helpful? What are the startup costs in capital and in learning curve? And: Can we bill for it? Can we recoup the costs in added revenue?

In any payment regime that varies at all from strict fee for service (bundled payments, any kind of risk situation), whether we can bill for it becomes irrelevant. The focus will be much more on efficiency and effectiveness: Does it really work? Does it solve a problem? Whose problem?

Many times, extra complexity and waste are added to the system for the convenience and profit of practitioners, not for the good of patients. For example, why do gastroenterologists like to have anaesthesiologists assisting at colonoscopies, when the drugs used (Versed and fentanyl) do not provoke general anaesthesia and can be administered by any doctor? The reason is simple: It turns a 30-minute procedure into a 20-minute procedure. The gastroenterologist can do three per hour instead of two per hour. In the volume-based health care economy, they make more money. The use of the anaesthesiologist adds an average of $400 per procedure to the cost without adding any benefit, lowering the value to the patient. Altogether this one practice adds an estimated $1.1 billion of waste to the health care economy every year.

So in thinking about whether these new technologies will propagate across health care, we can ask how exactly they will fit into the ecology of health care, who will benefit from their use, and how that benefit will tie in to the micro economy of health care in that system, with those practitioners and those patients.

Change Is Systemic

A cardiologist in an examining room whips out his iPhone and snaps it into what looks like a special cover. He hands it to the patient, shows the patient where to place his fingers on the back of the cover, and in seconds the patient’s EKG appears on the screen. Dr. Eric Topol, speaking at last summer’s Health Forum Summit, performs a sonogram on himself on stage using a cheap handheld device. These things are easy to imagine in isolation, as something a single doctor or nurse might do with an individual patient.

In reality, in most of health care, the things we need to do to incorporate such technologies are systemic. To be secure, reliable, HIPAA-compliant and connected to the EMR, they can’t be used randomly by the clinicians who happen to like them. They must be tied into and supported by the IT infrastructure.

Similarly, in moving from “volume” to “value” we are talking about changes that don’t happen at the level of a single doctor or single patient. In most cases we cannot treat the patients for whom we are at risk differently from those we are treating on a fee-for-service basis. When you are paid differently, you are producing a new product. When you are producing a new product, you are a beginner. The shift from “volume” to “value” demands and dictates broad systemic changes in revenue streams, which dictate changes in business models, compensation regimes and governance structures. Getting good at these new businesses means changing practice patterns, collaboration models and cultures.

Hospitals, integrated health systems and medical groups face a stark choice: They can either abandon the growing part of the market that demands a “value” business arrangement and stick to the shrinking island represented by old-fashioned “volume” arrangements. Or they can transform their entire business.

The use and propagation of these new low-cost technologies are entirely wrapped up in that decision. In old-fashioned fee-for-service systems, they will be used only where their use can be billed for, or where they lower the internal costs of something that can be billed for. They will not be used to replace existing services that can be billed at higher rates.

“That’s a Lot of Money”

Dr. Topol in his talks likes to make the point that there are over 20 million echocardiograms done in the United States every year at an average billing of $800. As he puts it, “Twenty million times $800 — that’s a lot of money. And probably 70 to 80 percent of them will not need to be done, because they can be done as a regular part of the patient encounter.”

Precisely: That is a lot of money. In fact, it’s a big revenue stream. It’s difficult to imagine that fee-for-service systems for which various types of imaging, scanning and tests represent large revenue streams are going to be early adopters of such technologies that diminish the revenue streams to revenue trickles. When you are paid for waste, being inefficient is a business strategy.

In the “value” ecology of the Next Health Care, the questions are much more straightforward: Does it work? Does the technology make diagnosis and treatment faster, more effective, more efficient? Does it make it vastly cheaper?

Imagine replacement bones (and matrices for regrowing bones) 3-D printed to order. Imagine replacement knee joints, now sold at an average price of €7000 in Europe and $21,000 in the United States, 3-D printed to order. (Imagine how ferociously the legacy makers of implants will resist this change, and how disruptive it will be to that part of the industry.)

Imagine the relationship between the doctor, the nurse and the patient with multiple chronic conditions, now a matter of a visit every now and then, turned into a constant conversation through mobile monitoring.

Imagine a patient at risk for heart attack receiving a special message accompanied by a special ring tone on his cell phone — a message initiated by nano sensors in his bloodstream — warning him of an impending heart attack, giving him time to get to medical care.

Imagine all of this embedded in a system that is redesigned around multiple, distributed, inexpensive sensors, apps and communication devices all supporting strong, trusted relationships between clinicians and patients.

Imagine all this technological change supported with vigor and ferocity because the medical organizations are no longer paid for the volume they manage to push through the doors, butfor the extraordinary value they bring to the populations they serve.

That’s the connect-the-dots picture of a radically changed, mobile, tech-enabled, seamless health care that is not only seriously better but far cheaper than what we have today.

With nearly 30 years’ experience, Joe Flower has emerged as a premier observer on the deep forces changing healthcare in the United States and around the world. As a healthcare speaker, writer, and consultant, he has explored the future of healthcare with clients ranging from the World Health Organization, the Global Business Network, and the U.K. National Health Service, to the majority of state hospital associations in the U.S.

You can find more of Joe’s work at his website, imaginewhatifThis article first published in Hospitals and Health Networks (H&HN) Daily 

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66 Comments on "Will Tech Revolutionize Health Care This Time?"


Guest
Feb 14, 2015

This procedure involves the burning of the top layer of
skin to promote new collagen production. Ignoring some of these
rules will just make you look like a jerk and possibly leave you humiliated.
If you own a centrifugal juicer and are annoyed by the foaming and the clogging switch to a masticating juicer.

Guest
Jul 23, 2014

This is indeed exciting. Was any attention given to standards for the data in the Health App, or will we have (like in every other platform) a cacophony of different data formats, ontologies, etc.?

Guest
Steve O'
Apr 16, 2015

Beware the MIPS.

Guest

Its such as you read my mind! You appear to grasp so much approximately this,
like you wrote the guide in it or something.
I believe that you can do with some p.c. to pressure the message home a little bit,
but other than that, this is fantastic blog. A fantastic read.
I will definitely be back.

Guest
William Palmer MD
May 31, 2014

@Steveofcaley
B’WA’ANA will so instruct his fellow witch doctors that they must deliver a mathematical fraction to his tribe. Not health or medicine, but a fraction. This fraction is outcome/cost. The outcome can go to hell as long as the costs decrease a little faster. If this happens the fraction will be increasingly positive and value will increase. Who cares if the outcomes go into the toilet? We want value.

” Our tribe has terrible outcomes but high value because we are cheap…are we ever”. We are called the VALUE tribe of the Au Courant Nation.

Guest
Steve O'
Apr 16, 2015

Brilliant, brilliant. Have you been to Wizard School? A proliferation of valueless opportunities – that’s what makes America what it is today (a loser in three-card-monte with China.)

Guest
Denver Brown
May 29, 2014

Is it possible these innovations have revolutionized medicine in huge ways by some standards, but that we are not as easily impressed as we once were? I remember when the first iPhone was released and how impressive it was. Now when processor is x8 faster or a battery lasts 80% longer, it is nice, but not seen as much of an advance. Equally, when someone comes up with amazing new technology that affects the medical system in huge ways, I feel we are underwhelmed because our expectations have become reflective of constant improvement

Guest
Perry
May 29, 2014
Guest
William Palmer MD
May 29, 2014

If we are really talking about outcomes/costs as equal to value [V=outcomes/costs] and if we are actually going to try to do this, then volumes are going to increase willy nilly. There is no way not to increase volumes.

First of all, all we have to do is to lower costs and do nothing to outcomes. This will increase value. But it is also going to increase demand. This will increase volume.

Secondly, lets try to improve outcomes and increase the numerator of the equation.

There are two outcomes that count and are prime in medicine. We increase the accuracy of the diagnosis is one. And/or we can increase the effectiveness of the intervention so that survivals and morbidity and quality of life are improved.

If we improve the accuracy of the diagnosis we are going to run into the fact of ubiquitous comorbidity. Everyone has multiple disorders. If we can’t find something physical, we can add the mental and always find some more. This means that in investigating this complex biology we are going to do more tests, images, scans, echoes, interviews, etc. This is volume.

The same is true for quality of interventions. If we want to improve the outcomes of our interventions we are going to have to not only follow improved quidelines and practices but we are going to have to increase the number of interventions to cover the added comorbidities. This is volume. A patient with a hip problem who has jugular distention is going to have to be worked up for CHF. A patient with a cough who has bilateral hilar adenopathy is going to have to be worked up for sarcoid.

So, to force value we are going to have to keep reducing the denominator–costs–in order to compensate for the added volume in the numerator–outcomes.

This, of course, is economic nonsense unless you want magic or slavery in the input factors of your health system.

Guest
May 31, 2014

“This, of course, is economic nonsense unless you want magic or slavery in the input factors of your health system.”
You pass by a long history of human civilization where magic AND slavery were operative elements for societal functioning.
The tradition of the IDOL is worth considering. Ever since mankind fired and turned clay into hard ceramic, we have had IDOLS. The gods are commanded and worshiped to deliver bounty to the people, to give crops and rain; and when the crops fail and the rain does not come, the IDOLS are desecrated, buried in dung and chastised, and other IDOLS are worshiped to make the gods jealous.
B’WA’ANA DOCTOR is the new American IDOL. B’WA’ANA DOCTOR will give bounty and health – but B’WA’ANA DOCTOR is lazy, and must be beaten to deliver good health. We must make B’WA’ANA DOCTOR obey and deliver obediently. We humble the pride of B’WA’ANA DOCTOR by yelling and lecturing, and insist that we will break B’WA’ANA DOCTOR if it does not perform.
And the rain will come.

Guest
Perry
May 29, 2014

I guess it would be interesting to compare the costs of chronic treatment vs Solvadi. The problem with Hep C is that it can evolve into hepatic carcinoma which is an even more devastating problem to treat.

Guest
Barry Carol
May 29, 2014

There are “only” about 6,000 liver transplants each year in the U.S. at a cost of $150,000 to $200,000 each. It would only take about 12,000 people to be treated with Sovaldi to spend approximately the same amount of money and, as noted previously, there are 3 million people with the condition in the U.S. alone and 150 million worldwide.

Guest
Perry
May 29, 2014

“Gilead Sciences has the gall to price it at $84,000 in the U.S. for a 12 week course of treatment”

I like the pun, Barry. But what’s even more galling is the fact that most Hep C sufferers can barelyafford to pay for any treatment, much less this type of cost. Who does the drug company think will pay for this medication?

Guest
Barry Carol
May 29, 2014

Perry,

Gilead expects insurance companies to pay for Sovaldi. It remains to be seen how the various states will handle payment for Medicaid patients. For those with managed care contracts, 2014 terms were set before Sovaldi hit the market and are working it out with insurers on an ad hoc basis. For Medicare patients that have Part D drug plans with private insurers, Medicare will wind up paying most of the cost of the drug under the risk corridor provisions of Part D if overall drug spending exceeds premiums collected from Medicare and members themselves. For the commercially insured population, the jury is out. It could be a Tier 5 drug that requires a 33% co-pay but, as you note, very few people could afford that so the drug company may have to greatly expand it financial assistance program.

What makes the Sovaldi case so unusual is, on the one hand, it offers a 90% cure rate in less time and with fewer side effects than existing treatments. On the other hand, there are about 3 million individuals with Hepatitis C in the U.S. and 150 million worldwide, mostly in less developed countries. I actually wouldn’t have a problem with the price if it treated a rare disease under the Orphan Drug Act of 1983 which is aimed at affected populations of less than 200,000 in the U.S. If the $84,000 price is allowed to stand, though, it has the potential to produce huge financial strain on the healthcare system when it’s already far more expensive as a percentage of GDP than any other health system in the world. There are competing products that should win FDA approval in the next year or so. Hopefully, they will be priced much more reasonably.

Guest
allan
May 29, 2014

Why do you think the investors put so much money into a risky investment? I too think the price kind of steep, but if they had lost their money would you be chipping in to reduce their losses?

If the investors were not permitted to earn a return on their investment to their satisfaction do you think they would continue to invest in producing this type of drug? They could have invested the money in Apple and gotten very good returns without having so much of the downside.

My question is what are government’s or other third parties doing that make it so investors feel that they should be producing drugs that can cost such amazingly high prices. My second question is how long it will take for competition to bring the price down.

Guest
Barry Carol
May 29, 2014

allan,
A unique aspect of healthcare services, tests, procedures, drugs and devices is that we buy them because we have to and not because we want to. It’s different from TV’s, computers, cars, etc. and all those other products have a wide range of choices that can fit most budgets.

Regarding investment returns, the long term total return from publicly traded stocks is about 9% a year of which 6% is real and 3% compensates for average inflation over the period. Higher risk alternatives like hedge funds, private equity and venture capital strive to produce about 300-400 basis points more to compensate for the higher risk and much lower liquidity. If investors perceived investment in large drug companies as above average risk, a return of 10%-11% per year, including dividends, should be satisfactory compensation.

The large, established companies likely have a weighted average cost of capital in the 7%-8% range over the long term which reflects lower cost debt as a significant percentage of capital. When they earn more than their average cost of capital, they are said to be adding economic value in an investment sense. So, a 10%-11% average annual total return to investors should be adequate in this context.

With respect to government actions in the drug space, the FDA generally approves new drugs if they work better than a placebo and the side effects are considered acceptable. The agency does not take into account efficacy vs. existing drugs already in the market. So, we often wind up with new drugs priced much higher than existing drugs but providing only marginal incremental benefits at best. We also refuse to say no to drugs that are excessively priced. We don’t make them pass a QALY metric to approve payment or keep them off most drug formularies though insurers will probably place them in a more expensive tier.

Finally, there is the issue of price discrimination. I don’t think it’s reasonable for drug companies to sell drugs for much lower prices in other developed countries than they do in the U.S. Other countries don’t dictate prices but they do negotiate over how much will be paid in order to approve the drug as part of the formulary. Medicare should do the same. The VA does do this but they take it too far, in my opinion. They pay much less for drugs but their formulary is highly restrictive. At the same time, I think it’s fine for drug companies to sell new drugs cheaply in less developed countries. I view this as a version of charity care.

For what it’s worth, I’m told that the actual production cost of Gilead Sciences’ Hepatitis C drug, Sovaldi, is $1,50-$2.00 per pill which they priced at $1,000 per pill in the U.S. I think they could easily satisfy investors with a considerably lower price even after paying for all of the R&D failures they may have had over the years.

Guest
allan
May 29, 2014

Barry, the vast majority of pharmaceutical usage has alternatives, yet we still want the newest and the ‘best’ that happens to be the most expensive. That desire is mostly realized because we have a third party payer system that is willing to pay for such luxury. If there were no third party payer such drugs would either not be produced or would be produced with a high price that quickly fell since greater numbers can make up for the reduced price. Third party payers that are willing to pay the high price can keep the price higher longer. High priced drug production is stimulated and thus the quest for lower priced solutions might disappear.

“If investors perceived investment…”

Investors choose to invest their money across all sectors. The pharmaceutical sector has not been the most profitable having many failures. With little knowledge or personal risk you seem to be willing to tell these investors what makes a good risk. Don’t you think those people that are investing huge sums of capital know a bit more than you about risks and rates of return?

When one talks about the FDA one should consider its failures. It should also consider the many lives lost due to slow approval processes. No one seems to want to look at the lost lives or lives liven in sickness due to FDA sluggishness. I am not for abandoning the FDA, but certainly there are many ways for it to do a better job and see to it so many lives are not lost or made worse.

Price discrimination: The US is the big consumer of pharmaceuticals. It is annoying that other countries get these drugs at a less expensive price than we do. Many that are egalitarians at heart should be happy to know that lower incomes can get these drugs at a lower price, but their egalitarianism exists only when it is other people’s money, not their own.

” I think they could easily satisfy investors with a considerably lower price ”

If the drug didn’t work or a competitor beat them to production or a competitors brand was better these investors might have lost every dime they invested. That happens very frequently, but you only hear about the wins.

Let’s assume the investor is earning on a risk based return 11% and we reduce the return to only 10%. It doesn’t seem like a big deal, but if Apple were providing the same risk based investment at 10.5% the drug would never have been produced. Investors are there to make money not to discover new medications or better i phones. That is what the market is all about. The dollar communicates need and value.

Guest
allan
May 29, 2014

“I had a 40 year career…”

Really? Barry, that doesn’t make you the expert that is entitled to spend or invest another person’s money. All things being equal when you were acting as an agent investing money for others you got the best return possible and didn’t take a lower return to be charitable. If you did tell me and I will pass it on and watch the sharks feed.

Thalidomide: Terrible tragedy, but how many people have suffered similar tragedy and death because of FDA delays in part due to thalidomide?

“new drugs are indeed expensive to develop and they need to be priced high enough to recover their development costs…”

No, they need to be priced high enough so that investors are willing to invest in new drugs.

“I don’t think there is a viable alternative to third party payment,”

Sure there is. Third party payment is when a third party provides the recipient with healthcare. That means that the insurer and the third party (government or employer) have to satisfy each other, but not the recipient.. The recipient is distanced from the decision. One can have the recipient purchase their own insurance if the tax ramifications are equalized and that solves tons of problems.

Guest
Barry Carol
May 29, 2014

“With little knowledge or personal risk you seem to be willing to tell these investors what makes a good risk. Don’t you think those people that are investing huge sums of capital know a bit more than you about risks and rates of return?”

allan,

I had a 40 year career in the money management business as a securities analyst and portfolio manager. For the last 18 years before I retired, I worked for a large corporate pension fund with $10 billion in assets of which about 60% was invested in equities and alternative investments. I covered many different industries over my career. I think I’m pretty knowledgeable about investment risks and returns.

Institutional investors know that they can always invest in a broad based index fund and guarantee themselves an average return from equities. Those actively managing equity portfolios need to do better than that over time to justify their management fees. The decision to invest in a particular stock or group of stocks goes something like this: First, judgments are made based on all available information about the company or industry’s sales, earnings, and dividend prospects over the next year, next several years and longer term. Price to earnings multiples are compared to the company’s own prior history and to comparable investment alternatives. Estimated long term cash flows are discounted at an appropriate discount rate to calculate what Warren Buffett calls intrinsic value. Management’s ability is evaluated as well, especially with respect to its record of allocating capital on behalf of shareholders. In the end, an evaluation is made as to whether the stock is undervalued, overvalued or fairly valued. Available information is imperfect and incomplete. Sometimes companies perform better than expected and sometimes they do worse. External shocks can affect the entire market environment. Drug stocks were great money makers for investors in the 1990’s, not so great in the 2000’s and pretty good again in the last couple of years.

Even the most sophisticated venture capital firms with incredibly smart people skilled at evaluating managements and business plans have plenty of failures when they invest their money. A few big winners pay for all the failures and then some. Nobody can know with any certainty how an equity investment will work out ahead of time.

Regarding the FDA, nobody wants to be the guy who signs off on the next Thalidomide. They have to strike a balance in requiring and evaluating drug trials and bringing new drugs to market quickly.

With respect to third party payment, new drugs are indeed expensive to develop and they need to be priced high enough to recover their development costs along with the cost of failures and all other costs of running the business including providing an adequate return on capital. I don’t think there is a viable alternative to third party payment, though there should be an appropriate level of cost sharing and putting drugs into different insurance tiers is a reasonable approach, I think.

The drug industry has done plenty to extend lives and improve their quality. I can personally attest to that. Numerous diseases, including heart disease, are now chronic conditions that can be managed rather that death sentences. That’s a good thing.

Guest
Peter1
May 29, 2014

“Imagine” technology bringing the prices down. Unfortunately it’s just in our imagination – not in the the reality of protected billings.

Guest
Barry Carol
May 29, 2014

I had a colonoscopy about a month ago. It was my 8th one overall. This time, I received Propofol instead of Versed, which I had in the past, and it was the easiest procedure ever except for the preparation. There was also an anesthesiologist during the procedure for the first time. The procedure took place at my nearby local community hospital which I noticed was considerably less busy than in the past. When I asked about this, I was told that the doctors moved more of their patients to ASC’s which they often had a financial interest in. I know that my GI doc is getting paid less for each procedure even before I became eligible for Medicare than he was paid in 1993 when I had my first one though the first one took about twice as long. I’ll check my EOB when it arrives to see how much the hospital was paid compared to five years ago when I had my last one. This is one procedure where, I think, either bundled payments or reference pricing would make sense.

In every other field that I can think of, technology drives prices down and functionality up. In the case of prescription drugs, innovation seems to drive costs up often for marginal benefit, especially in the area of cancer drugs, where drug companies seem to think a reasonable price for any new cancer treatment that can win FDA approval is $100,000.

In the case of the admittedly effective new drug, Sovaldi, to treat hepatitis C, Gilead Sciences has the gall to price it at $84,000 in the U.S. for a 12 week course of treatment or $1,000 per pill while they priced it at $66,000 in Germany, $57,000 in the UK and $840 ($10.00 per pill) in Egypt. Gilead’s rationale is that per capita GDP is higher in the U.S. so a U.S. patient should pay 30% more than a German patient just because U.S. per capita GDP is 30% higher. No other segment of the economy operates this way and, in my opinion, it’s unjustified and obnoxious on its face. Perhaps reference pricing would be appropriate here too and let the drug company try to collect the balance from the patient. Alternatively, medical tourism could be an option.

After a career in the money management business, I know all about risk and investment returns. Drug companies need to be able to earn a sufficient risk-adjusted return on capital to attract investment capital to finance R&D and other operating expenses. They don’t need to gouge payers to the point where other worthwhile priorities, both public and private, are crowded out.

Guest
allan
May 29, 2014

B. Carrol: “In every other field that I can think of, technology drives prices down and functionality up. In the case of prescription drugs, innovation seems to drive costs up often for marginal benefit”

You are right Barry, costs are driven up, but the prices of excellent older drugs fall. When that large LCD was produced you probably bought the older smaller one at a discount so both the price and the cost fell. In the case of pharmaceuticals when new drugs come out frequently you purchase the newer drug not taking advantage of the discounted price of the older one.

Take a look at the free drugs at some supermarkets and the $4 prescriptions at Walmart. The free drugs include top notch antibiotics and and hypertension medications. Some of these drugs were the expensive drugs of the past that were considered the gold standard.

Guest
Barry Carol
May 29, 2014

allan,

I know generic drugs save a lot of money as I take six of them myself. The last one of my brand name drugs to go off patent was Plavix. When it did, the cost of a 90 day supply fell from $546 to $24 overnight, a 96% reduction! While generics now account for about 80% of all prescriptions filled in the U.S., they account for only 15%-20% of the dollars spent on prescription drugs. Moreover, unlike brand name drugs, generics are actually cheaper in the U.S. than in other countries because multiple manufacturers competing for share of a larger market like the U.S. results in lower prices.

The pricing problem in the drug space relates mainly to specialty biologic drugs and traditional brand name pills for which there are no generic substitutes. Even when specialty biologics eventually lose patient protection, producing generic equivalents or biosimilars will be far more complex than replicating chemical compounds in pill form. Specialty drugs account for at least 25% of U.S. drug spending today and experts estimate that it will reach 40% within five years. Much of this spending is to treat cancer, MS and RA and often gives patients relatively little incremental relief or life expectancy vs. much less expensive alternative treatments.

Guest
allan
May 29, 2014

Barry, you realize that there were drugs used for the same condition before Plavix was released, right? Even the super rich used those drugs. You realize those drugs were much less expensive, but Plavix had advantages like the 30 inch plasma screen over the tube set. Now Plavix is off patent and you can get it for a lot less money just like you can get the 30 inch plasma since the 60 inch LED is the screen most coveted.

Yes certain drugs we have today that appeal to smaller audiences carry a higher price. That occurs everywhere so don’t be surprised if it occurs with pharmaceuticals.

Guest
Legacyflyer
May 28, 2014

I am going to add something here which may help to explain why anaesthesiologists are used during endoscopy.

First my qualifications: I did Invasive Radiology procedures for many years. Some of these procedures were more painful and dangerous than colonoscopy. I used conscious sedation – in the latter years with Fentanyl and Versed. These procedures were all monitored by a nurse and me. With a good nurse, there was little extra effort needed on my part. I don’t think these procedures would have been faster with an anaesthesiologist helping.

As a 60 year old, I have had a number of colonoscopies. They were all done in an outpatient center with anaesthesia by an anaesthesiologist. Apparently, if you want Propofol, you need an anaesthesiologist. If you don’t have one, you can’t get Propofol.

All of my colonoscopies, done with Propofol were very easy and pleasant (except for the prep). My Gastroenterologist told me that they would be more pleasant with Propofol than with Fentanyl and Versed. I believe him, although I have never tested it.

So we have the equation; Anaesthesiologist = more pleasant procedure, less worry for GI doc, and cost passed on to insurance. Now if someone was willing to give me the difference between Versed + Fentanyl and Propofol in cash, I might go the cheaper way. Otherwise, sign me up for the good stuff – the kind the Michael Jackson liked.

Guest
May 28, 2014

Thanks for the perspective, Legacyflyer.

Guest
May 28, 2014

You are correct that fear of litigation drives the extra biopsies after computer-aided mammogram readings. As I said in the article, the computer puts the radiologist in the position of proving that a circled cloud is _not_ a tumor.

But the case of the GI doc on the stand is different, in that having the endoscopy team administer the anesthetics is a well-established and widely-used medical practice. Using an anesthesiologist is only considered medically necessary for high-risk patients who require intensive monitoring. The waste that I am speaking of is all on low-risk patients. Please see the articles I cited in another reply.

Guest
May 28, 2014

This is the hard part, Joe. It’s not the nuts and bolts of healthcare – it’s simply the questions Who will make the final decision? and Will anyone back them if questioned?”
I know how juries should work; but there’s been so much vilification of doctors, juries will go with the plaintiff. You and I can reason about long complicated sentences like “only considered medically necessary for high-risk patients who require intensive monitoring.” Any decent trial lawyer can turn red in the face and yell “Greed! Death!” enough times to sway any jury.
Any bad outcome is now called malpractice, so the litigation-oriented medicine system continues to bankrupt everyone. Nobody SHOULD have a bad outcome. But if and when bad things happen, where should the authoritative decision have come from?
The VA system is leading the way. They save money by bureaucratic incompetence and, allegedly, malice. The worse they screw up, the more money is saved on healthcare.
We will hem and haw, and settle on a Federally-based decisionmaking system like an ongoing private jury to make healthcare decisions based on cost-benefit – let’s call it a Todentscheiden panel. With IT support of course – let’s let HAL make the life or death decisions, not a human.
We are talking about VERY serious things here, and it’s irresponsible to start a process that leads to a terrible outcome, and blame it on someone else. The way we’re going, we’ll all end up like the VA, with healthcare regulated by bureaucrats and hidden panels. Having clever machines will not save a citizenry that has lost its own humanity. Soon, we will give the computers the vote over our life and death, based on actuarial principles and cost-benefit tables. They will do it if we want them to.

Guest
allan
May 28, 2014

Joe, you are an intelligent individual educated in health care affairs so that is what you think. What does the jury think? They do not have your level of understanding. What does the attorney think? Juries make lousy decisions so let’s settle. Settling will give the attorney his ~30% so the value of a trial for ~10% more frequently isn’t worth his time. The defense attorney realizes that crazy juries can award crazy awards so let us settle.

The fear of the physician is not just loosing a case. Being unfairly sued and running the risk of loss of reputation and a crazy jury is a killer even if the physician was right and even if he wins.

Guest
May 28, 2014

Maybe. But at least in this case not so much that many GIs do not use anesthesiologists in colonoscopies with low-risk patients. And whatever the tort risk, it is always going to be a better argument for your defense attorney to make if you can establish that your actions conformed to the medical norm, or were explicitly sanctioned by the guidelines of your profession.

Guest
allan
May 28, 2014

Joe, you are making me wonder how many colonoscopies are performed without any anesthesiologist present.

Many colonoscopies are performed in hospitals and anesthesiologists would likely be somewhere in the vicinity.

Wouldn’t you think that centers where there are multiple procedures going on use at least one anesthesiologist?

What does that leave us with? The private doctor doing a colonoscopy in his own office.

Now we have to add up the numbers. I don’t have the answer, but it is an interesting question.

As to you last point one can sue a doctor for a bruised tomato. Ridiculous cases create a lot of physician stress and can also lead to ridiculous compensation no matter how good the physician was. Thus it behooves the physician for his own piece of mind to limit his risk of suit wherever possible.

Guest
Perry
May 28, 2014

The breakdown of basic clinical skills and judgment is only going to lead to more inappropriate use of technology, not less.”

This, then is what we will be left with if not careful. We also want to be careful that innovation is not squelched. Unfortunately, it takes money to research and develop technologies, so we can’t expect them to be necessarily cheaper.

Regarding the digital mammography and the anesthesiologists in GI procedures, I introduce another twist:

“But doctor, you saw that the computer said there were suspicious nodules in the plaintiff’s breast, but you did not think it wise to recommend a biopsy or some sort of followup?”
And to be frank, most radiologists are going to be extra careful regardless of the use of digital mammography, which makes this potentially very helpful test much less so.

“But doctor Williams, you are a gastroenterologist, not an anesthesiologist, yet you felt comfortable using these powerful and potentially dangerous anesthetics on the plaintiff during her colonoscopy?”

Guest
Granpappy Yokum
May 28, 2014

“Our belief in technology as the sine qua non of transformation in healthcare is a misplaced extension of our retail experience with technology elsewhere in our lives. The fact that Android and iOS phones and tablets make many lives easier and more productive (and make it easier to shop 24/7) does not logically lead one to the conclusion that the layering of more technology into healthcare environments, where, apparently, clinicians can no longer do effective histories and physicals, is going to fix what ails the system”

And what a great paragraph!