Monday, June 25, 2018
Blog Page 1008

TECHNOLOGY: Drug-eluting stents take off–With late afternoon UPDATE


As this study from Solucient shows the take off in the use of drug-eluting stents has been very fast, even before Boston Scientific’s Taxus stent hits the market. USA today has a good general article about them too.

This puts hospitals in a real bind, as the cost of the new stents means that they’ll be losing money on their use, unless they can get an increase in DRG payments from CMS. So watch this space. But don’t forget that restenosis rates are real even for drug-eluting stents and that a recent Stanford study showed you were better off getting a by-pass over time.

UPDATE: The FDA today as expected approved the Taxus stent from Boston Scientific. The stock is up about 30% so far this year.

TECHNOLOGY: Data on physician to patient eVisits


The online patient-physician communication thing seems to be getting off the ground. Relay Health has another deal with another Blues, this time Anthem in Colorado. It’s been a longish road for them (and I haven’t heard much of McKesson’s Medformation which was Relay’s big rival back in the 1999 boom days when it was called…oh, I forget but not Relay!). Anyway here’s an interesting recent presentation from the folks at Relayhealth which claims that online visits save money, increase physician productivity, lower the number of visits and are wildly popular among doctors and patients. OK so the docs and patients in the sample are self-selected, but it makes sense to me, and I wish my doctor had it.

Meanwhile, I’ve got my own problems there (much more buried in these comments over at DB’s Medrants)

POLICY: Harris Interactive’s take on 2004


Well this is a little late, but here goes anyway. At the very start of the year I interviewed Katherine Binns, who runs Harris Interactive’s Strategic Health Perspectives (SHP) program. SHP is a survey based research program that interviews virtually all the major players in health care and has done since the late 1980s. Back then it was called Health Care Outlook and was run in conjunction with the Institute for the Future. IFTF has since gone in a somewhat different direction with its Health Horizons program, which looks further out into the future and focuses as much on the wider meaning of health as it does on health care. SHP is focused on the next couple of years in the health care marketplace and has great up to the moment data on the realities and attitudes of the key players like doctors, consumers, employers, health plans and legislators. Katherine also has the good fortune not to only have a great team lead by Kinga Zapert to do the actual work, but also within Harris to have Humphrey Taylor and Bob Leitman to add color, and to be able to bring in old friends futurist Ian Morrison, Harvard policy, polling and politics guru Bob Blendon, and industry veteran Bill Rosenberg to help out. Full disclosure–I was part of that team from 1993-1999, but don’t let that put you off!

So what were they telling their clients at the end of last year and beginning of this one?

1) The Demonization of Pharma

The first issue concerns the pharma industry, and as I’ve hinted in THCB before the news on the PR front is terrible. What’s driving the demonization of the pharma industry? Consumers now perceive costs and value are seriously out of whack 61% of the public now perceives generic drugs as very or fairly good value. The number for branded Rx is now at 21%, only 7% above health insurance (and trust me you don’t want a score anywhere close to health insurance!). Incidentally, while overall the public that the pharmas are greedy profiteers and believes that it’s profit margins driving prices, seniors who are of course the most politically important group in health care see prices as being driven up by marketing and advertising. Meanwhile the basic awareness of drug prices being higher here than other countries is getting out. In 2000 41% knew that drug prices were much higher in the US than in other countries, and most of the rest just didn’t know. By 2003 that number is up to 63% and as consequence the re-importation furor won’t go away. Here’s a very recent Harris poll showing that people know health care (read: pharma) prices are higher here in relation to Europe, know that every thing else is cheaper here, and don’t like it.

One by-product of this is that trust in the pharma industry has dropped by 30% since 1997. They used to be closer to the top of list at 79%. By mid-2003 they were at 49% with a fall of 10% in the previous year–and these numbers were before the anti-AARP anti-pharma backlash following the Medicare bill. This means that there is plenty of mileage yet for the Democrats in bashing the pharma industry and linking it to Bush and the Republicans–so expect plenty more where that came from.

2) Consumers and the impact of cost shifting

Cost shifting and rising out of pocket costs really are beginning to be felt by consumers. Harris has created a schematic of three levels of consumers. The "Trade-up Players", the "Reluctantly Empowered", and the "Needy Shoppers". When they first developed this schema in the late 1990s, of those who were forced into a choice in terms of health plan and/or medical selection, there was a roughly 1 to 2 ratio of trading-up to trading-down. The ratio has now changed with even more trading down, or more value shopping. This has also been associated with increased non-compliance (as has been shown elsewhere in terms of the impact of three tier formularies). Whether the non-compliance is caused by out-of-pocket costs or by tiers, the higher their rates of non-compliance (such as pill splitting, not filling Rx, or delaying care) is in direct relation to out-of-pocket costs going up. Finally, the needy shoppers are going to the Internet instead of going to the doctor. Harris found that those with increased out of pocket costs in last year have had fewer in doctor visits and have increased their cyberchondriac use of the internet.

3) The Employers and the CDHP mantra

Employers have bought into the CDHP mantra to some extent, although in their view it’s not really any different from cost shifting. Employers say that higher out-of-pocket cost forces employees to be wiser consumers. However, they also think it makes them forgo needed treatment when they have a higher out of pocket cost at point of care. And they do believe that if employees get the chunk of money up front they are less likely to go for care. However, compared to cost sharing at the point of care (via copays and deductibles), employers are less concerned that CDHPs will lead to consumers making bad decisions about their healthcare needs.

However, like managed care products in the 1990s the Harris conclusion is that CDH is a phase. Harris asked the same questions about CDHP as it use to ask about managed care; employers are still confused, cranky, aimless and spineless. And they’re not sure that they’ll save money from this brave new consumer world.

Of course this year the role of health care in insurance disputes is picking up, particularly in the recent grocery workers strike in California.

4) So who’s happier then?

In a somewhat stunning reverse, the crankiest people in the health care system are happier than they were 5-7 years ago. Yup, the doctors may be furious with the lawyers, but they’re no longer so pissed at the government or more particularly the managed care UR nurse, since she stopped calling a couple of years ago. How long their distemper will stay improved is anyone’s guest. But it’s a significant barometer when the most appalling person a doctor can think of is a lawyer (even if he is John Edwards).

You can get more information about SHP and Harris from Katherine, but be warned, they’re not quite as competitively priced as THCB!

QUALITY: Matt Quinn on why we “need” malpractice litigation


From the THCB Sacramento bureau, Matt Quinn chimes in on the “value” of malpractice litigation. Matt has been annoying the doctors over at DB’s Medical Rants (in these long, varied and interesting comments) by defending trial lawyers–which is a little akin to a Satanist wondering into a Catholic mass. Over here in the more rarefied air of THCB, I’ve been trying to suggest that there’s a middle path in the malpractice debate. But like Matt I don’t think that the AMA policy of just putting a $250,000 limit on pain and suffering awards does anything to solve the problem. Matt picks up on a tragic case in Sacramento, where apparently one hospital follows a stricter guideline than another, and it really made a big difference. Matt comments:

    In summary, a woman’s doctor recommends that she go to UC Davis Medical Center for a days-long diagnostic procedure to try to determine the source of the aberrant electrical activity in her brain. She would be taken off all medications, and a video camera trained on her during her stay would record any seizures and collect corresponding brain activity. The data might later enable a brain surgeon to remove the tissue causing the seizures. During the “monitoring” the woman has a seizure and dies. Her family finds her about an hour after she died. Experts say there are no standards – only guidelines from the National Association of Epilepsy Centers – for running video-EEG monitoring units.

    “There is no national standard requiring that a human being be observing every patient on video monitoring 24 hours a day,” said Dr. Robert Gumnit, a Minneapolis neurologist who pioneered the technology more than 30 years ago. “The reason is that the information is being gathered to learn about the electrical activity of the brain and the behavior of the patient during a seizure – and that is always analyzed the next day or some other time. It’s not being used to ensure patient safety.”

    Nevertheless, some centers do more than others in that regard. At Sutter General Hospital in Sacramento, for example, a specially trained technologist sits in front of a bank of large monitors – one for each of four beds – 24 hours a day. Each monitor shows the patient in the bed and displays the patient’s brain waves, blood oxygen levels and respiration rates.

    Such monitoring would have probably saved this woman (or at least alerted a nurse to respond). I wonder if this has ever happened before (why does Sutter have more stringent guidelines?). Why wouldn’t the National Assoc. of Epilepsy Centers commit to standards? It would certainly make assessing liability (to mention nothing of ensuring that no harm is done) much easier.

I’m not sure that we need malpractice litigation in this case (especially as a California taxpayer I’m picking up the defense’s tab), but something should be done to make sure that UC Davis Medical Center does much better in the future, and that guidelines/processes aren’t implemented so differently in the same town. And if it takes a lawsuit to do that? Well, surely we can do better.

PHARMA: Drug re-importation bill reintroduced


From California Healthline, 2 Dems and 2 "liberal" Republicans (can you really call McCain that?) introduced a bill to allow drug importation.

In reference to my post yesterday about the possibility of PhRMA and the Republicans backing down on the importation issue in order to minimize the backlash against the Medicare bill, well now the mechanism is in place if the Republican leadership want to use it.

POLICY: S. Cal grocery strike is over, but the health issue rumbles on


The southern California grocery workers strike is over with the Union having “won” on the issue of no premium-sharing for now, and lost on the “two-tier” wages issue. The LA Times says

    “The union claimed a victory in healthcare coverage: Under the contract, veterans won’t have to pay for their coverage in the first two years, and not in the third year if contributions from the companies are enough to cover costs. If not, the estimated cost would be up to $5 a week for individual coverage and up to $15 a week for family coverage. But workers now will have co-payments for medical services that were paid in full by their insurance under the contract that expired Oct. 6. “

At one point (according to the radio report I heard this morning) the companies wanted the employees to pay up to $95 a week in premium sharing, which would effectively have priced their employees out of health insurance a la Walmart. However, hidden behind this victory is that even for the workers there now (rather than the cheaper ones coming on board in the future) the premium contribution from the company is a defined one, and if costs go over a certain number in 2 years time as they inevitably will, the workers will have to make a contribution to premiums. As it is they have already lost first-dollar coverage.

If I was John Kerry I’d be down at the last of the picket lines right now. Workers all over America are scared of foreign and domestic cheap labor and they are terrified of losing their health care coverage. These two facts are connected. An employee can probably get another job, but maybe not one with health benefits–and of course a bad health experience with no insurance can wipe out the middle American dream in a heartbeat. That’s why, as the StonyBrook survey showed last year, workers would rather keep their health benefits than get a pay rise. The Democrats have got a winning issue here if they can figure out how to make it presentable to the public. They don’t need a solution for now, they just need to reassert that they protect workers and seniors. Watch for the rhetoric here to heat up over the summer.

POLICY/PHARMA: Medicare polls galore


Medicare drug coverage is still a big issue and those seniors who know about it still don’t like it as the latest Kaiser Family Foundation poll shows. There’s much more in this chart pack including the fact that only 15% of seniors understand the bill, and only 32% knew that it had passed into law! Of those that did know that it was now the law 75% don’t like it! However, the Harris folk notice in their most recent poll that opposition to the bill is a little lower now than when it was originally passed, and the most contentious issue by far among seniors is the banning of Canadian imports. 84% disapprove of that segment of the bill.

If I was the Republicans or their PhRMA paymasters, I might bid a strategic retreat on that front, and see if I can win the war, rather than suffer near-certain defeat protecting an over-exposed hill top. Otherwise you can be sure that by next November the Democrats will make sure that every senior in America knows about the "bad" aspects of the bill brought to them by the Republicans and those nasty pharma companies.

PHARMA: Drug Prices here and there


There’s no question that in the US big pharma and its employees colleagues at USTR are on the attack over "low drug prices" in other countries, with the assumption that the US consumer is subsidizing R&D here and therefore allowing foreigners to get the benefit of new drugs without paying their fair share. Late last year I spent some futile time (aided by Derek Lowe who writes the excellent In the Pipeline blog) trying to get at the issue of whether this is true, and whether drug profit margins abroad are so low that they wouldn’t support said R&D. Of course the alternative is that drug prices are too high in the US (or at least higher than they need to be to attract investment in pharma R&D). It’s a common estimate that pharma companies make about 60-70% of their profits in the US. It’s also well known that net margins in the pharma industry are the highest of any major sector at roughly 17%, compared to the next highest, financial services at 14% and way above any other manufacturing industry, including software.

You don’t see software companies complaining about their need for government to ensure high prices to promote R&D, although monopolies by technology standards work equally well for one well known company. Pharma companies will argue the they only have limited time to make money, as patent expiration takes away their monopoly position and essentially forces them to start again from scratch, but in any other business, competitors will also come into the market using lower prices as their wedge in. (And to be fair to big Pharma they are by no means alone in looking to regulation or tariffs to protect them–which is why American car companies concentrate on minivans and SUVs, as there’s a 25% tax on foreign "light trucks"). Pharma companies also must essentially give away the fruit of their research to generic companies. So the whole issue is very complex.

Although my own effort to get original data was futile, I’ve recently seen two contradictory articles about the pharma R&D spend. One is a Bain report extensively quoted in The Trouble With Cheap Drugs in The Economist of January 31, 2004 and the other is an article called Will Lower Drug Prices Jeopardize Drug Research? by Donald Light of Univ of medicine and Dentistry of New Jersey and Joel Lexchin from York Univ in Toronto (yes he’s one of those naughty cheap old Canucks). These two papers take very different tacks. Given that Bain makes much of its living selling consulting to the pharma companies and Lexchin gets his salary from the Canadian government, you get no prizes for guessing which side of the issue they respectively fall on.

According to The Economist Europe is now spending 60% less per head on drugs than the US did compared to 30% less in 1992. That translates into $160 billion in annual "savings" compared to what the Europeans would have spent if their drug spending had gone up at the US’ rate of increase–which of course was very high over that time. Bain’s argument is that back in 1992 Europe and the US both spent $10bn a year on drug research but now whereas the US spends $30bn, Europe only spends $20bn. In consequence new drug development in terms of NCEs (new chemical entities) has gone down by half in Europe while it’s doubled in the US. While globally pharma profits are up from $60bn in 1992 to $121bn in 2002, the share of those profits made in the US has gone from less than 50% to 60%. The core of Bain’s argument is that new R&D goes where profits are made and that the loss of the high wage jobs in the drug business and the consolidation of pharma power in the US has hurt the European drug giants (especially the Germans like Bayer and Hoescht). So far so good, although in these days of everyone being headquartered in Bermuda, it’s pushing it to claim that any drug company is "national", given the success of GlaxoSmithKline in the US.

But Bain then goes on to argue that Germans get worse care and access to drugs than Americans because of spending constraints, and quotes some ridiculous numbers about cancer care mortality rates, which according to the OECD are virtually identical in both countries, and higher in both cases than in Switzerland, to back it up (and ignore plenty that would refute it such as relative life expectancy and child mortality rates). And then they claim that while Germany "saved" $19 billion on comparative drug costs, the cost of not having the R&D jobs, associated patents, and the cost of "worse health care" actually came to $22bn. This calculation, which is pretty hypothetical, appears not to reckon with the fact that not all the extra pharma spending would stay in Germany, but I guess that’s by the by. (For those of you remembering your Econ 101, the article also quotes the fact that there would be a "multiplier" effect from all that R&D spending, which is the first time that I can recall the monetarist Economist spouting long disparaged Keynesian theory).

So if the argument can be made that price controls — or more accurately as it happens in most of Europe relatively fixed global budgets for drugs — hurt the economy. Can you not argue the inverse–that expensive drugs hurt it too? Light and Lexchin certainly give that a good go. They have several arguments, some of which I’ll summarize here, but the whole document is short and worth reading.

They start by using British and Canadian government reports to demolish the "myth" of low profits hurting R&D.

    On the contrary, audited financial reports of major drug firms in the UK, show that all research costs are paid, with substantial profits left over, based solely on domestic sales at British prices (Pharmaceutical Price Regulation Scheme 2002). Likewise, 79 research drug companies in Canada submitted reports showing their R&D expenditures have risen more than 50% since 1995, all paid for by domestic sales at Canadian prices (Patented Medicine Prices Review Board 2002). Sales to the U.S. and elsewhere are in addition to the positive, domestic balance sheets.

The next allegation they refute is that price controls cause less R&D hence fewer new products, in fact their answer is that:

    R&D expenditures have been growing rapidly, though it is becoming more and more difficult to discover breakthrough drugs on targets not already hit (Harris 2003).

And claim that we don’t need all that many new products anyway

    The truth kept from Americans is that first-line treatment for 96% of all medical problems requires only 320 drugs (Laing et al. 2003).

As for the price gap that the Economist/Bain article points out

    The widening gap between prices for patented drugs in the U.S. and other countries is due to drug companies raising U.S. prices, not other countries lowering theirs (Sager and Socolar 2003; Families USA 2003).

In addition to all this, Licht and Lexchin claim that we spend more on R&D in the US because we’re not that good at it. Only about 18% goes on breakthrough research, the rest goes on me-too drugs and refinements of existing drugs to extend patent life:

    But while the U.S. accounts for 51% of world sales, it took 58% of global R&D expenditures invested in the US to discover only 43% of the more important new drugs (NCEs) (European Federation of Pharmaceutical Industries and Associations 2003). This means that other countries are helping to pay for the large, inefficient U.S. R&D enterprise, the opposite of what the editors of Business Week claimed (Business Week editors 2003).

They then, correctly in my opinion (and that of some of my other contributors) attack the often quoted $800 million sum that a new drug "costs"

    About half of the $800 million figure consists of "opportunity costs", the money that would have been made if the R&D funds had been invested in equities, in effect a presumed profit built in and compounded every year and then called a "cost." Drug companies then expect to make a profit on this compounded profit, as well as on their actual costs. Minus the built-in profits, R&D costs would average about $108 million 93% of the time and $400 million 7% of the time.

And they also claim that much of that money comes from taxpayer-funded research at the NIH, which again is true although the exact value in the marketplace of the NIH contribution is unclear, as Derek Lowe discusses here. Then they come to the rub of their argument, and this is the gist of the whole thing

    If American prices were cut in half, research budgets would not have to suffer unless executives decided to cut them in favor of marketing, luxurious managerial allowances or high profits. They probably would not, because R&D gets such favorable tax treatment compared to other expenses. Lower prices would save other Fortune 500 companies billions in drug benefit costs, and drug company profits could come into line with the profits of the companies who pay for their drugs.

To me this is the most compelling part of the argument. If drug prices were cut there would indeed be a lowering of costs within the drug industry. To this time, the highest ROI within big pharma has been in its marketing and sales function. The reason Pfizer became such a big player is that it had the marketing capacity to make a big success of not only its own drugs but others it licensed in or purchased outright, notably Lipitor. Merck’s story as the big Kahuna in the 1980s is roughly similar with many of its products licensed in. There’s even a whole industry doing just R&D called biotech, with an exit strategy of feeding the big pharmas’ marketing machines. So if prices go down, my first expectation would be for marketing efforts to increase (in order to make it up on volume!).

But there will inevitably be a drop-off in R&D. The question is how much? Given that overall margins are so high in the drug business, and given that prices pretty much equate directly to gross margins as production costs are so small, an R&D effort rewarded by even net margins of 12% is still better than a dollar invested in virtually any other industry.

So we have two anomalous situations in which neither system figures out the true "market" value of drugs. In Europe they have strict defined budgets or price controls which force a limit on the price or volume or both of all drugs and limit access to some drugs as a consequence. On the other hand in the US, as with the rest of health care, we have a supplier-induced patent-protected oligopoly market, with no effective market discipline due to our free-flowing third party payment system which can’t say no, (despite the attempts of managed care, CDHPs, etc, etc to bring rational choice "market" discipline to bear in medical care consumption decisions).

My guess is that the US will eventually end up somewhere in the middle, but that the pharma industry will remain the most profitable segment of the economy. In the end American’s love medical technology and will want their government to pay for it. But with the government slowly moving into the business of being a purchaser of drugs, the free-ride that the pharmas have enjoyed for so long won’t last forever.

QUALITY/CONSUMERISM: Treating patients like, well, people?


I’ve spent the last two days in a huge planning conference for Ascension Health, a Catholic multi-system (or multi-Ministry) chain that’s looking to transform its future. In fact they have a huge ongoing project they term their Call to Action and they have a system wide commitment to providing Health Care That’s Safe, that Works and that Leaves No One Behind. It’s a very ambitious program, and it’s great to see a provider system do something big and proactive. One arena that they are looking at transforming is their relations with consumers. I spent yesterday with a group of hospital marketing folks who essentially admitted that their organizations have not to this point made the patient experience their hospital’s central priority. And that is pretty typical of hospitals and providers across the country. For this system at least, that is going to change over the coming months and years.

This is not to say that the folks in the room don’t have shining examples of great patient-centered programs in their own facilities. One example is the Breast Cancer Center at St Agnes, Baltimore which provides a dedicated nurse to each patient to work as their advocate, and also puts together an immediate cross-specialty team to give each patient and their family the full range of information about available treatment choices. Longer-term observers of the health care scene may recall the experience of Andy Grove, then CEO of Intel, when as a newly diagnosed prostate cancer patient had to traipse around visiting multiple physicians, none of whom could give him accurate information about the relative likely outcomes of the procedures they offered.

Well as the WSJ’s Informed Patient column reported yesterday (sub req’d) there’s a new report out from a conference on Disease Management Outcomes sponsored by Johns Hopkins and American Healthways on the patient-physician relationship. Many of the informed consumer issues are reflected and it’s worth reading the full report. Here’s the executive summary/recommendations:

    1. All parties should acknowledge patients as most knowledgeable about their symptoms, and patient self-assessments should guide the nature and timing of both the physician’s response and of scheduled visits.

    2. Patients should recognize the importance of providing feedback for improving their care. Physicians and their offices should welcome patient feedback and establish safe ways that patients can provide it.

    3. Physicians should implement a social questionnaire as part of the initial intake, allowing the patient to communicate essential, non-medical information about their lives. This information should be integrated into ongoing care. Information captured on the social questionnaire should include: marital status and/or significant others, education and occupation, hobbies, religious preference, preferred methods of communication and the patient’s preferred level of involvement in health care decisions. Understanding what makes each patient unique can help personalize care and reduce the risk of misunderstanding, error or loss of rapport.

    4. Physicians and support staff must recognize the role of patients’ gender, age, race and religion in their treatment and ongoing care.

    5. Delivering traumatic news to the patient demands that physicians find an appropriate environment with adequate time and ample consideration for the concerns of the patient, family and/or advocate.

    6. Physicians must respect and incorporate the patient’s designated advocate into the care relationship. Patient advocates, caregivers and family members should be present when appropriate, so that their roles are integrated into the care plan from its outset. In recognizing the legitimate role of advocates and caregivers, physicians should be prepared to fully discuss (1) limitations imposed on their participation by privacy laws and other statutory and regulatory requirements and (2) how other legal instruments (such as durable powers of attorney, living wills and advance directives) may enhance their roles.

    7. Physicians are responsible for providing current, scientifically based “best medical practices” in an ethical and timely fashion. They should instruct patients on benefits and risks and inform them of all reasonable diagnostic and therapeutic options, even if an option isn’t covered by insurance or requires referral to another physician.

    8. Patients should seek–and physicians should promote–active, collaborative discussions with patients. They should take care to express medical information in laypersons’ terms to ensure full comprehension by patients. The
    stresses of illness can impair a patient’s ability to absorb details of the visit. Effective physicians summarize their recommendations and assess patients’ (and/or their advocates’) level of understanding, leaving time for additional

    9. The patient-physician relationship must mirror our daily lives by relying on methods of communication that are not limited to inflexible, one-on-one visits but may include e-mail and phone communication, disease management
    services, Internet access, written or verbal agreements, group visits and universal medical records that are accessible at the point of care.

    The outcomes we expect from improving patient-physician communication include:
    –Improved patient adherence to recommended therapies
    –Improved patient self-care
    –Improved comprehension of information given by the physician
    –Increased patient satisfaction and more word-of-mouth referrals from happy, established patients to potential
    new patients
    –Increased physician satisfaction
    –Improved capacity for physicians to see patients as whole persons, rather than diseases or organ systems
    –Improved ability for patients to see physicians as people who also want and need mutually satisfying, therapeutic
    relationships and are doing their very best to help patients

By any stretch of the imagination this is an ambitious set of goals. But nothing on this list is impossible, and if it’s all implemented successfully, those outcomes (and they are not purely clinical outcomes) will be the reward. Of course, as the group I met with yesterday acknowledges, health care organizations need to make some big changes to accomplish these goals.

HEALTH PLANS/POLICY: Consumer directed health plans


I saw a talk yesterday by Mike Parkinson, Chief Medical Officer of Lumenos–one of the leaders in the emerging CDHP movement. Lumenos has around 54 clients with around 100,000 covered lives in its products sold to self-insured employers. Another commenter at the same conference predicted up to 40m Americans (or nearly 25% of the commercial market) would end up in CDHPs.

Parkinson’s opinion is that consumers are connecting the flat line in their salaries with the increases in their health costs, and so are ready to take control of what they’re paying.

How does it work? The average employee health cost for their groups is around $6500 per capita. If an employee signs up for the Lumenos CDHP option they first carve out and cover preventative services. The employer puts somewhere from $2-6,000 per family goes into an HRA (or now an HSA) tax-free for spending on every day health needs (e.g. doc visits and drugs). Then there’s a bridge (or a donut hole) of out-of-pocket costs that the employee must pay before the catastrophic policy cuts in. The bridge tends to be roughly half of what goes into the HSA/HRA.

Lumenos has a fairly sophisticated web interface that gives comparative prices for drugs office visits and procedures. Their results, which apparently include a standard share of sick people based on risk profiles gathered from Health Risk Assessments. So far they are seeing:–12.5% cost reduction compared to prior years–14% increase in preventative visits–18% of reduction overall visits–15% reduction in spending on pharmacy costs–90-95% generic substitution

Even more remarkably, Parkinson said it also caused a big reduction in hospital admissions and hospital days, although he backed away from the 25% reduction in admissions number that he showed. Parkinson stressed over and over that the chronically ill are the ones who need these plans most. In fact they incent people to take health risk assessments, and the consumer can possibly cover their whole "break" by accepting working with a health coach, who’s job is to push the consumer into behaving better, eating better, taking all their meds, etc, etc.

So assuming this is true, what does this mean to a self-insured employer. I did a few back of the envelope calculations. Lets assume that a 1,000-employee company spends $6,000 per employee on health care. 80% of that $6,000,000 goes on 20% of the people. So that’s $24,000 each on those people and $1,500 each on the rest. If the company gives $1,500 each to the employees’ HSA it should more or less balance out. If they give $2,000, then potentially the employer is risking putting $400,000 at risk of "leaving" their pool and being rolled over by the individuals into next years HSA. But, and this appears to be the kicker, if the CDHP can reduce spending inflation by a big amount–i.e. it would have been 14% up but was only 4% instead, then $600,000 is "saved" which effectively pays this back.

Does this mean that the math behind CDHP only works if it really cuts health care costs. It appears so to me. But maybe it will work.

If it doesn’t contain costs, then there are some obvious next steps

1) Employers will reduce the amount put into the HSAs, potentially down to close to zero and put the onus on employees to put their rather than "their company’s" money into it2) Increasing the "bridge" amount that has to be paid after the HSA amount expires before the catastrophic coverage kicks in.

So if the CDHP really takes off, it had better work, or else it will REALLY turbo-charge cost shifting and maybe even get employers out of the business of insurance totally.

Or maybe I still just don’t understand it!