With a hat-tip to Lisa Williams, this month’s Atlantic Monthly Journal has the first article I’ve ever seen in a mainstream magazine on EBM. The author calls for a national clinical institute to supplant the NIH and AHCQ, and actually make pronouncements on what works, and try to get the medical profession and health care industry to follow it. I’m so knocked out by an article on this topic getting into a major non-health care journal, that it would churlish to point out that our British cousins have already got one.
Over at Medpundit, Sydney Smith quotes the WSJ on health care cost breakdowns and argues that HSAs will allow market intervention in the share of spending that goes to doctors and pharmaceuticals, and will bring both that spending under control and enforce market discipline on the providers to give us stuff we want. The WSJ thinks that what the consumer wants is flash computer-based customer service and they may well be right. There are though a couple of problems with this, and it takes a nerdy wonk like me to point them out. First, it’s unclear exactly what the HSA can be used to pay for (OTC drugs? I doubt it; off formulary drugs? Maybe not in Medicare) so there’ll be less of a market in which it can enforce its discipline than might be suspected. Second, about half of physician costs are connected to other costs that involve hospital stays and surgery–in other words they happen after the deductible has already been blown and the HSA spent, and we’re not talking about 33% of spending but more like 20-odd % of the "market" being "managed" by these new HSA bearing consumers–and that’s assuming that everyone gets one. The real issue as George Halvorson points out and Milton Friedman despite his many intelligent view points gets wrong is that almost 70% of the money goes on 10% of the people. That’s where the costs need to be controlled, and there’s nothing in the HSA that can possibly do anything about that.
Now from the other side of my mouth, here’s why I’m getting one. I pay my own insurance and I have medical expenses that don’t reach my deductible and I’d love to pay those in pre-tax versus post-tax dollars. So for people like me, they’ll grow as a niche insurance product. But I’m only 8% of the market. 64% are in employer-based insurance and they’re beginning to flirt with consumer-directed health plans. Some of these consumer-directed health plans give money to the employees to put in their HSA. Once employers figure out that giving real money to employees for their HSA’s means taking it away from their self-insurance pool, they’ll either find the next trendy product OR reduce markedly the amount they give so that it is way less than the deductible. At that point all but the healthiest employees will move back to a more comprehensive plan.
Meanwhile Sydney will have to figure out why she’s creating a understandable consumer price list–and that’s not simply printing out the CPT codes– just for the 10% of patients walking into her office who are now paying with pre-tax but real dollars. My advice is to her is to mark those prices up!
In the course of some other research I ran across this fascinating site the Virtual Realty Pain Control at University of Washington’s Human Interface Technology Lab. Extreme pain, such as that experienced by burn victims while having their wounds cleaned, is so painful that strong opiates cannot make it bearable. Apparently distracting patients by using virtual reality, can make significant improvements in how they perceive their pain. I don’t know what this says about the mind-body relationship but I found it fascinating.
In an article yesterday Modern Physician reports that several medical groups are having technical problems submitting claims via WebMD. Given that WebMD took over several claims clearing houses and transaction systems in its roll-up phase in 1999-2001, the complaint from several medical associations may signal bad news for the company. WebMD’s stock has recovered from its tumble in September-October over accounting problems at one of its taken-over subsidiaries. But, given the extent of it’s roll-up shopping spree in 1999-2001, (which as Steve Hoffman points out is ongoing!) when it engulfed many of the big claims transaction companies and clearing houses, WebMD plays a central role in much of the HIPAA mandated electronic administrative transactions in the country. (For more on WebMD’s history see my post here)
Don’t forget that it was late payments that caused the final unraveling of Cigna, Aetna and the other national "managed care" plans and effectively ended the 1990s style of cost-constraints as we knew them. This problem may be just a technical hitch, but on the other hand it could indicate deeper problems within the bowels of WebMD, which will of necessity reverberate around the system. So this is one to keep an eye on.
Just in case you haven’t seen it before take a look at the e-Newsletter from Better Health Technologies. It’s written by a smart veteran of the DSM wars, Vince Kuraitis, and this month’s has a particularly fine analysis of recent studies on the cost-effectiveness of DSM. The answers are, by the way, "Yes it works", "No it doesn’t", "Be careful out there", and "Just Do it Anyway", depending on who you believe. The most recent newsletter has Vince’s 7 Key Trends on DSM in 2004. You can sign up here and the price is very good indeed.
Regular contributor Matt Quinn who used to work in this obscure part of the health care business, reminded me of the Medicare Bill’s provisions to reduce the ability of oncologists to make money off the drugs they dispense:
- The proverbial other ball is about to drop in the injectible drug game…
The game is actually decreasing AWP (average wholesale prices, which drug manufacturers report artifically high so that docs make money on the “spread” between what they actually pay and what they’re reimbursed), then reimbursing based on ASP (average sales price, i.e. the actual price that docs pay) and/or just getting the drugs shipped to them. It’s good to see that CMS has looked to boost service payments to offset the lost income from drug game, but you can expect LOTS of grumbling and ads about cancer patients dying in the streets for lack of an available oncology practice. My take is that it’s removing an oft-denied but all-to-available opportunity for docs to succumb to perverse incentives (i.e. designing cancer regimens around drug profitability; continuing treatments until expiration, etc.).
CMS has also slipped in a provision to reimburse “functionally equivalent” drugs at the same rate as their predecessors. So, for example, Aranesp, which I assure you has a completely different name and package than Procrit, will be reimbursed at the same rate as the older version of the drug that
does the same thing and costs less. Again, expect LOTS of resistance, as drug companies will have to make their money from actual innovation/novel
drugs vs. “extended release” or new packaging of old ones. I wonder if this will address combination drugs (i.e. taking to drugs and putting them together and calling it a new drug) – another tactic to drive profits without innovation? 1/2 ASP of both?
I think the bigger question is: if the government can exercise such cost restraint on drug costs on injectible market, why wouldn’t it make sense to do so for the rest?
Of course some other intended consequences could be more chemotherapy heading back into the inpatient setting (i.e. the oncologists pushing the less profitable patients into the arms of the hospitals) and more shenanigans from the pharma cos on raising AWP and ASP. This one will be an interesting niche to watch to see if overall cost control is possible or if the providers and pharmas will collectively find a way around it.
The latest Harris Interactive/WSJ poll compares various ratings of the trust of the public in institutions and professions "to do the right thing" versus their trust in specific people, products and companies "to do the right thing for you". They then lay out the difference between the trust in the profession/the individual etc. The results make rough reading for many groups (including health plans) but the worse is for the pharmaceutical industry which has been losing the public over the re-importation issue for a couple of years. There’s a 34% difference between those who don’t trust the Rx they take versus those who don’t trust the pharmaceutical companies (and yes more people trust the drug rather than the companies). So in general we’re OK with the product but hate the producer, or perhaps we love the sin but hate the sinner!
An interesting report was issued yesterday with loads of fanfare by The Value Group. The actual study was done by Medtap, a technology assessment shop for the pharma industry, which was spun out of the Battelle Institute (a kind of mini-SRI or RAND) a few years back. The report says that increases in health care spending are a good thing. And as Mandy Rice-Davies said, "they would say that wouldn’t they!" The consortium that paid for the report is made up of the usual suspects, including PhRMA, the AHA and their for-profit friends at the FAH,, the Advanced Medical Technology Association (AdvaMed), the ACC, and the Healthcare Leadership Council (HLC). I assume HIMA and BIO were too cheap to chuck into the pot for this one.
You can amuse yourself by going to look at this news brief, the exec summary charts or the full report. Essentially it says that although we’ve doubled real per capita health care spending in the US in the last 20 years, we’ve had so many health gains from it that we have made out like bandits from all that extra spending. To wit:
o Annual death rates declined 16%
o Life expectancy from birth increased by more than three years
o Disability rates for seniors fell 25%
o Number of days Americans spent in the hospital fell 56%
Naturally enough there’s even a ready made video that you can run straight onto your cable news show without the bother of having to do any of that journalism stuff. I particularly love the "news-type" voice-over ending "in Washington, I’m Karen Ryan reporting" Reporting for whom? I didn’t realize PR was now called reporting! (Medtap is too embarrassed to put the video on its web site but its clients aren’t!) The video uses the example of a young guy who had a heart attack and got a stent implanted in his heart. Unfortunately a rather detailed analysis from a Stanford team published last year pointed out that stents actually are a worse deal for the patient over time than having a by-pass. So by that logic we’ve wasted all the money we spent developing stents; but what kind of sour-puss worries about a little thing like that?
And in individual disease states, even more good news. Death rates per 100,00 have dropped for heart attacks from 345 to 186, for strokes from 96 to 60, for breast cancer from 32 to 25 (although for diabetes they’ve gone UP from 18 to 25). And the best news of all is that when you work out the cost benefit of all this good medical care, we get back $2.40 to $3.00 for every $1 spent!
And funnily enough that’s why the report was created. While I was there a report was done at IFTF (not by me I hasten to add) showing how wonderful the contribution of research-based industries was to the US economy. Although the premise was probably true, the fact that it was paid for only by drug companies made me feel more than a little uncomfortable, and no one from the health team would work on it! In fact by the time it was released the event it was designed to protect against (price controls for drugs in the Clinton health plan) was history anyway. But that’s the reason these reports are commissioned, and consequently it’s worth looking at how they came up with that statement about getting $3 back for every dollar spent. Here’s the logic–it’s a little dry but bear with me:
To compute the value of investment in health care, we converted the mortality or life expectancy gains into dollars. Published estimates of the value of a statistical life (VSL) method of calculating the value of small reductions in mortality risks derived using data on risk-compensating wage differences, consumption activity which affects risk, or hypothetical markets yield values of life that range from $1 million to $9 million (Blomquist 2001). The VOI analysis in this study uses $4 million for VSL, an estimate towards the mid-point of this range. Based on this VSL, a value of $100,000 was used as the net present value of an undiscounted life-year gained and $2,455 as the annual consumption value of an increase of 1 year in life expectancy (Mauskopf et al. 1991, Nordhaus 2002). Using these standard economic values for avoided deaths or increased life expectancy, the value of investment for every $1 spent on health care ranged between $2.40 and $3.00, depending on the outcome chosen (Table 3). The value of investment in health care is positive under a wide range of alternative assumptions. As an example, for every additional dollar spent on health care, the value of the investment remains greater than $1 for all scenarios where one life is valued at >$1.4 million and for all scenarios here a life-year is valued at >$40,000. Alternatively, assuming our base case values of $4 million for the value of one life and $100,000 for the value of a life-year, for every additional dollar spent on health care, the value of the investment remains greater than $1 for all scenarios where at least 40% of the life expectancy gains are directly attributable to the additional health care expenditures. Using a similar methodology, several researchers have computed a value of investment in overall health care expenditures for the U.S. for different time periods:
Nordhaus (2002) between $1.90 and $2.60 for every additional $1 invested between 1980 and 1990
Murphy and Topel (2003) $1.60 for every additional $1 invested since 1970
Cutler and McClellan (2001) $3.71 for every additional $1 invested between 1950 and 1990
These figures are likely to underestimate the value of investment in health since they do not include the value of the morbidity gains from the reduction in disability over age 65 and gains in worker productivity and quality of life attributable to new treatments for specific health conditions. Over the past 20 years, significant gains in productivity and quality of life associated with health care interventions in those under 65 years have been shown for several diseases including influenza, migraine, diabetes, and depression but comprehensive national estimates of changes in U.S. productivity or quality of life attributable to health conditions are not available.
So basically by teasing out the impact of better medical care on life expectancy, then attributing an value to an extra life-year, they claim that every dollar spent returns around $3. The problem is that this is entirely dependent on what a life is worth, and those calculations are entirely arbitrary, and are pulled from all kinds of sources. The sum of $4m a life or $100,000 a year they use is more or less meaningless. Let me take a different crack at it.
According to the Federal government, GDP per head in the US is about $35,000 a year. Median income per household is around $45,000 meaning way less per individual than $35,000, but that’s because not all GDP is income. But let’s assume that average person lives 75 years and is worth $35,000 per year, then their life is worth only $2.3 million rather than $4m. So immediately almost all the gains that the report finds in terms of improved life expectancy have been wiped out. But wait, it gets worse if you consider that the expectancy gains have been added to the end of people’s lives rather than the middle–and at the end of your life you tend to be retired and earning a considerable amount less each year. Median household income for those over-65 is only $23,000, so you could argue that, instead of being worth $100,000 a year, that year of life saved is worth less than $20,000. Therefore instead of returning a positive ratio of $3 saved for every $1 spent, we are in fact getting only 70 cents for each $1 spent–a record even worse than my stock trading!
OK, my numbers are abritrary and capricious (as are those in the report) because mine are based only on what people earn instead of what a life is "worth" but how about thinking of it in another way. All that extra spending on medical care has shown improvements in results from as high as a 100% improvement in survival after heart attacks to little more than zero (or less) in the case of diabetes. Comparatively the computer you could buy in 1980 cost 10 times what the computer you can buy today does and the new one is probably 2000% better. Why hasn’t all this medical technology shown that level of improvement or that reduction in price?
Or how about it another way, we’ve spent all that more money on health care, but couldn’t we have got a better return from educating young children? The answer, by the way is, "yes" both for the societal benefits of early childhood education and for its future population health benefits, as better educated people are substantially healthier than the less well educated.
The overall answer is that this type of analysis is more or less junk analysis and necessarily cannot get at the underlying value of what we are doing in health care. What we spend on health care is a societal choice (of sorts) and the folks behind this report have a large say in that "choice". The only real contribution that can be made from this type of analysis is to consider how we should best spend the dollars within the health care system to improve outcomes. In many cases this ends up being bad news for the folks represented by The Value Group consortium, as using older and often cheaper technology often has more beneficial results (as with the stent vs bypass example but also in this aspirin vs statin case). The good news for the industry consortium is that technology and services often do have a beneficial effect and their role should be figuring out which technologies have the most beneficial effects and then to produce more of them. And to be fair that’s what most of the medical technology industry on the R&D side is trying to do–the marketing folks of course have a different agenda.
The better news for the health care industry is that increasingly people view that these improvements are necessary luxury goods and are happy to help push society’s health paymasters in the direction of paying for them. Understanding the use of health care as a luxury good/service that we "have to have" and trying to steer it in the most beneficial direction is where the real analysis in American health economics needs to be done. The junk economics in this report doesn’t get us anywhere. It might help the industry deflect a question or two about what we’re getting for all the money, but on the other hand it just might provoke a sour-puss or two to cry "bullshit".
Information Week (via iHealthbeat) reports on the World Health Congress in which lots of important political people agreed that IT is the way forward to fix the health care mess. Those saying this included not just the usual suspects from the industry but Bill Frist, Tommy Thompson and even briefly in the State of the Union address, Bush himself.
On the one hand, while it’s good that we’re agreeing on the solution, we’re not seeing even the modest kind of Federal leadership that Molly Coye suggested a while back in terms of dollars. On the other hand I suppose that this is an improvement on Clinton holding up a sheet of paper in his 1994 speech and saying that we were going to solve the administrative crisis by having one standard paper form. But it’s 10 years and counting and we haven’t got that far . . . and I don’t honestly think that Wellpoint handing out a few freebies is going to make up the difference even though it’s a noble effort.
You might note that today in the UK the Hutton report on the Blair government, Iraq and "sexing up" was released. More on that later (although it exonerates the UK government from the "sexing up" allegation).
Over at The Businessword Don, Ross and I have been having an interesting back and forth in these comments regarding the uninsurance issue. In a nutshell, if you want a universal insurance system, in some way those who are working and have decent insurance will have to subsidize those who are working and don’t, as they make up 75% of the uninsured. Don, Ross and I agree on that, but disagree about whether we should do it and also how we should do it. But that is the rational place to start. We also agree that it’s not a situation that will change any time soon, and that it’s an important part of health care that deserves regular comment. As Limbaugh might say, that, my friends, is an honest platform for debate. But remember that not everything you read in the health care world is quite as honest.
In my in-box today I got a very curious missive from the Foundation for Health Coverage Education a new organization that I’d never heard of (and I tend to follow Foundations in California out of egregious self-interest!). But OK, these folks say they want to promote education about the many federal and state health care coverage programs in California, which all sounds very worthy, and they have a press release about their new online tool that does that. Wa-hoozlle!
However, on slightly closer reading I noticed that this Foundation is run by an insurance broker:
Philip Lebherz has been working to help Californians obtain health coverage since 1977. Although Lebherz is president and CEO of LISI health care insurance brokers, he is strongly opposed to not only tax penalties on individuals or employers who choose not to purchase insurance but also any government mandates to buy insurance.
So I’m already a little suspicious, and then it continues
Although many journalists have reported between 6-7 million uninsured in California, the real number appears to be less than one million according to the Foundation’s interpretation of a Blue Cross Blue Shield Association analysis of the 2002 Census Bureau (news – web sites). Of the 6.17 million classified as "uninsured," 2.97 million are eligible for public insurance benefits but are not yet enrolled, an additional 2.16 million have annual household incomes of more than $50,000 per year, and 652,000 are temporarily uninsured, primarily due to changes in employment. That leaves approximately 938,000 who would be characterized as truly uninsured.
The Foundation claims that 90% of bills incurred by the uninsured are eventually paid off, and therefore forcing them to buy insurance would deprive them of the ability to buy housing, cars, food etc. This is indeed beautiful voodoo economics.
So half the uninsured are voluntarily uninsured? Lebherz may not have noticed but the public programs that he thinks are just waiting to take in 3 million Californians have no money–all over the country they are cutting rolls rather than adding to them. Has he heard of our little budget problem and the consequent Medi-Cal cuts?
As for the rest, well the numbers are pretty dubious. According to Kaiser Family Foundation 64% of the nation’s uninsured come from households with incomes less that 200% of poverty (~$26,000) (go to page 8 in the link for more), and only 19% make 300% or more, which equates to about $39,000. Somehow in the Lebherz analysis this equates to 35% of uninsured Californians are in households making more than $50,000. But even if that’s right a good chunk of these folks would love to have health insurance but cannot find affordable insurance in the individual market. As I’ve posted before, I know because I’ve tried as have my friends–and I think that paying $4,000 to $12,000 a year for health insurance coverage with a $2,000 deductible and many exclusions is not realistic for many households even those with incomes more than $50,000 a year.
The problem is of course twofold. 1) We end up with very little contribution into the insurance pool from the uninsured, and it’s clear that they could probably come up with at least half of the balance required for the nation to get to universal coverage. And 2) more importantly from the point of view of the safety net system, dealing with the uninsured is a hugely inefficient financial train wreck.
However, the real point of this new "Foundation" is that no rational system would need a huge amount of waste motion otherwise know as the health insurance brokerage market–so any attempt to sell the current system as being "not in any real trouble" is all Lebherz and his ilk care about. So you can just lie and keep repeating the lies and maybe someone will believe you, or as in the UK focus on the irrelevance of whether a single claim was "sexed-up" or not. Oh yes and there really were
WMDs, WMD programs, Al-Quaeda terrorists, a bad guy called Saddam in Iraq, and health care’s getting more and more like foreign policy everyday