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POLICY: The Medicare bill latest, or What does the failure of Medicare+Choice mean?

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It’s impossible in a brief post to capture the full essence of the current Medicare bill. (Although Jeanne Scott’s latest newsletter tries very hard)! In a few days we’ll know whether it has the votes to make it in the House, and whether it’ll survive a potential Kennedy-led filibuster in the Senate.  And of course this doesn’t happen in a vacuum–there’s the small matter of the $25bn barrel of pork known as the Energy Bill that also has to go through the vagaries of the Senate.  However, leading aside the lack of price controls or caps in the pharma section of the bill, it’s worth looking briefly at the two of the most contentious issues. 

Competition: The Republicans want to put Medicare into competition with private plans. This has though been tried before, and after a promising start, it began to die a death. A report from the Commonwealth Fund, suggests that there were many problems with the 1997 attempt to introduce private plans into Medicare, known as Medicare+Choice.  The two most important are that the private sector’s participation is not stable, and that the private plans don’t cost any less than traditional Medicare.  Due to plans pulling out, participation has gone down from 15% of enrollees to only 11%. Realistically it’s impossible to say what the environment will be for the competition slated to be introduced in 2010 in 6 cities.  But there’s no guarantee that it will kill off Medicare as we know it or even that it’ll work.

Cost Containment: Also  buried in the bill is an overall cost containment strategy.  The Bill provides $400 bn over 10 years in increased spending. Via a complex formula, if this limit is broken and if more than 45% of Medicare  funding comes out of the general fund (because Part A via the payroll tax and Part B via premiums are not bringing in enough revenue), then Congress has to either cut Medicare spending or increase taxes. (I hope I got that right, but you can be sure it’ll be changed by the time it happens). The only certainty is that estimates like this will be wrong–original estimates for Medicare spending back in 1965 were something like $4bn a year and very soon they were off by a factor of 10, I believe! However, I’ve seen estimates that the spending cap will hit in 2008-20016, so again this is putting off the real issue into some future never-never land.  But I did notice this report from Health Affairs which suggested that hospital spending will rise 75% by 2012.  I’m unsure as to whether that will get included in the overall spending that triggers the cut, but as hospital spending is what Medicare Part A is for, I assume so. In any event there’ll be a big issue with hospital spending somewhere out past 2010.

Of course the politicos who are voting on this bill will mostly be out of the picture by then, and the bill doesn’t take effect at all until 2006. Its most important political implication–the impact on the senior vote in Florida and Pennsylvania in 2004–will not actually have anything to do with what actually happens, but will hinge on what the perception of the bill’s effect will be. And of course the votes in the next few days will be based on guesstimates of what that perception will be whether the bill passes or not.

For much more go see Don Johnson’s almost minute by minute blogging at The Business Word

POLICY: Fuchs’ proposal re-emerges

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I’ve been engaging in some comments over at DB’s Medrants on some articles by the Hoover Institution’s Thomas Sowell in which he has been essentially defending the status quo (albeit in what I think is an intellectually weak manner that ignores economic reality and lies about other countries’ systems). So it’s good to have an innovative solution to our health care crisis proposed by America’s greatest health economist–and it’s a bonus that he used to practice right around the corner from Sowell at Stanford’s economics department. In an article called The Universal Cure, Vic Fuchs and Harvard medical ethicist Ezekiel Emanuel propose a way to get to universal health insurance while maintaining the pluralism and innovation in the current system.

On a personal note, I had my first health economics class with Victor Fuchs (a bit like having Tiger Woods give you your first golf lesson) and I was actually at a presentation of the first version of this proposal, which he gave some ten years ago. He has been advocating common sense in health economics for ever, but had been loathe to develop a systemic solution–after all he saw his friend Alain Enthoven having to defend his managed competition theory for his whole career. Finally around the time of the Clinton plan, Fuchs did come up with a policy solution. The way he talked about it was that America held two values:

1) Everyone deserved a basic health insurance plan.
2) You should be free to buy what you want.

His solution was what he called the Ford Taurus plan.  He asked the crowd if anyone had bought a Ford Taurus recently. Someone had.  "How much was the basic model?" $15,000 was the answer. "How much did you pay?" $19,000. "What was the most you could have paid with all the extras, the new stereo and the biggest engine?" Perhaps $24,000. Fuch’s conclusion then? Have a dedicated (sales)-tax that gave everyone a voucher for the health insurance equivalent of a Ford Taurus, and let those who wanted more services pay up with after-tax dollars. (Here’s a brief interview he gave about it at the time)

That’s essentially the same as the plan proposed in this article. Employer-based insurance would end. Instead all under-65 year olds would get a voucher and then choose a health plan.  If you want more services you pay up out of pocket. In a nod to the political process, Fuchs & Emanuel argue for phasing out Medicare very slowly by keeping those who "age-in" with the voucher system. They would also force all plans to offer the same basic insurance package for the price of the voucher, and would have a national board certifying that no games were played over risk-selection.

As an (amateur) economist, I like the dedicated tax idea, because it puts a visible real cost on health care for everyone, and allows us to have a rational debate about how much that tax should be. I also like the concept of keeping innovation and dynamism in the system by keeping health plans and providers competing. It’s also worth mentioning that a private system with multiple actors would be very hard to defraud as opposed to having a straight single payer like Medicare.

Most importantly Fuchs and Ezekeil believe it might actually work politically, as with some touching faith they point out:

    Vouchers hold the promise of securing wide support. Democrats have long favored the notion of universality, while Republicans instinctively favor voucher plans and have longed for the demise of Medicare and Medicaid. Businesses want to stop providing health insurance, and Americans want guaranteed health coverage with choice.

Unfortunately I can’t share their confidence.  The same arguments that the Democrats are using about turning Medicare into welfare might be true under this system, as over time the value of the voucher might fall to the extent that only the very poor got the "basic" plan. Meanwhile the inside health-care business Republican lobby would dislike the notion of having so much of their income based on a tax that was visible and, in the end, controlled by the public–even though in other countries the electorate has often voted to increase the level of government spending on health care. And of course, the getting "to" vouchers "from" employment-based insurance would be a huge bun-fight.

But what Fuchs does present is a rational solution for overcoming the objections to universal health care, without extending Medicare to everyone. As such it deserves to become part of the debate–much more so than Sowell’s ramblings.  But such a solution will be bogged down in details if it’s proposed by a politician. So sadly, I think we’ll see this great idea sink without trace.

QUALITY: Rise reported in medication errors

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There’s a new report from The US Pharmacopeia about medication errors in 2002. It’s not clear from the press release but this article in iHealthbeat points out that  there’s been a 31% increase in hospitals (to over 480) reporting and a whopping 82% increase in errors being reported since 2001.  The total errors reported was over 192,000. But of course just because they are now being reported (anonymously) doesn’t mean that they weren’t happening before!

Of course almost all of these errors are corrected quickly or prove of no lasting harm to patients, but 1.7% of them did or even required intervention to save patient lives.  Interestingly more than 10% of the errors came from mistakes in computer input!  This suggests that CPOE is not necessarily the cure-all suggested by its vendors, or at least requires some further safeguards!  For more information look at this powerpoint.

TECHNOLOGY: Physician email and IT use

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This is one of those, "I’m glad they wrote it so I didn’t have to," posts. iHealthbeat has two articles updating physician use of email and physician IT use. You may have seen smatterings of some of the studies used there before in in this blog, but these are two excellent summary articles. Caroline Broder has an expanded summary about the state of play in her column about online consultations , and the ever-wonderful Jane Sarasohn Kahn puts some recent surveys of IT in the doctor’s office into perspective.  Both wonderful reads, so go read them.

Meanwhile, my long promised piece on PDA and physician EMR use is still in the production queue….

UPDATE: CHCF also has a new report out from First Consulting Group on how providers should select and introduce patient-physician email communication systems.

PHARMA: New free-market ideas on counter-detailing

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Arnold Relman, former editor of the NEJM and long term opponent of for-profit health care, has an op-ed piece in the NY Times complaining about the  impact of pharma companies sponsoring CME. Relman suggests getting pharma companies out of CME.  This is an old chestnut from Relman and I wouldn’t usually link to this other than to note that while the pharmas throw alot of mud at the CME wall, they’re not too sure whether it’ll stick–and it’s done as much as part of a competitive arms race than based on  too much pure marketing science.

But Donald Johnson, who’s really getting into his stride after a few quiet weeks at The Business Word has a more interesting, free-market suggestion: Have the payers pay doctors to attend counter-detailing CME sessions!

POLICY: Just in case you thought the AARP endorsement sealed it…

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The AARP’s endorsement is supposed to have sealed the Medicare Bill–but just take a look at this message board which spews vitriol towards AARP from its own members! Hundreds of messages here are all opposed to the Bill. I picked this one at random:

    Who can we turn to for help when AARP stabs us in the back?  How can you support a proposal that enriches only private insurance and pharmaceutical companies, leaving seniors with a broken Medicare program?  Shame on you.

Meanwhile, despite a down day on the stock market the drug stocks and the PBM stocks held steady, consolidating their gains of last week.  So Wall Street is convinced that the bill will get by.  To be fair, the "non-controversial" part of the bill–the new drug benefit–is fabulously loaded towards pharma companies and PBMs, for now.  And as a separate package that would pass on its own.

PHARMA/PBMs: Are Cox-2 inhibitors over-used?

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Cox-2 Inhibitors have been a major therapeutic class since their introduction in the late 1990s. Led by Pfizer’s Celebrex and Merck’s Vioxx, the pain-relievers are roughly a $6bn market–not as large as the statin market but nothing to sneeze at.  These drugs have been aimed primarily at arthritis’ sufferers, in particular at the substantial minority who have had stomach problems from regimes using traditional painkillers like ibuprofen or NSAIDs. But in recent years the growth of the market has slowed due to several setbacks, including a 2001 JAMA report of cardiovascular side-effects, and suggestions that COX-2 inhibitors might impede blood vessel creation  (for wound repair), and also suggestions that Celebrex wasn’t as good for gastro-irritation as was promised. Additionally two new Cox-2 inhibitors have had their approval delayed. These are Prexige from Novartis that won’t appear in the US until 2005 although it is already approved in the UK, and Arcoxia, Merck’s new COX-2 inhibitor.

But looked at another way, COX-2 inhibitors have been an example of big pharma’s ability to change patient and physician behavior. Don’t forget that this class of drugs doesn’t offer any superior pain relief than ibuprofen or NSAIDs, and costs seven to ten times as much.  The reason for their success is that they reduce associated stomach irritation. Of course that means that people who don’t have that kind of irritation from long-term ibuprofen use shouldn’t need to go on COX-2 inhibitors, at least until they have some other symptom or reach a certain age (often 60 is used).  So the PBMs, health plans and other formulary enforcers have a tricky job.  They have to battle the weight of the pharma DTC advertising and physician promotion in order to get patients to stay with the OTC or generics.

Well it appears that they are not succeeding. A new report in The American Journal of Managed Care from PBM, Express Scripts, looked at new users of COX-2 in 2000 at a PPO. 65% had no indication of being at risk for gastrointestinal events. Furthermore 68% had not tried an NSAID first.  In the study only 18% of the population were over 60–one of the minimum required indicators for going straight to COX-2.  In other words,  in order to be somewhat conservative about costs in a sub-Medicare populations almost everyone should be first trying NSAIDs or ibuprofen. In fact over 60% are going straight to COX-2 inhibitors.

You can look at this two ways. Perhaps there should be a 60% reduction in COX-2 use.  Or perhaps PBMs and formularies are ineffective in the face of the pharmas.  Either way what’s happening now is presumably not the right answer. Given that there’ll be new COX-2 drugs on the market soon and PBMs are going to be used by Medicare (Maybe!) to restrict Medicare drug costs, the question of how this gets resolved is key for the future of PBMs’ credibility.

HEALTH PLANS: Kaiser CEO interview

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The Sunday San Francisco Chronicle had a somewhat rambling interview with Kaiser CEO George Halvorson. The main isues he raised were:
a) the conversion from an acute to a chronic health system raises costs
b) Kaiser is committed to evidence-based practice improvement–and will spend $3bn on the EMR that is supposed to get it there–and that IT might reduce costs enventually.
c) Halvorson wants universal coverage but not single payer (but has no real idea how to get there unless Brazil is the model!).
d) Hospital consolidation has meant that Kaiser has had to continue building its own facilities. (My comment: because they can’t buy cheaply on the margin like they could in the mid-1990s).
e) As an HMO-only model they are in trouble from competition from high deductible plans, and institutionally a closed system like Kaiser cannot create these products.

His last comments are certainly true. For an example I plugged myself into the PacAdvantage system. (PacAdvantage is a small business buying coalition formerly known as CalHIPC).  The Healthnet PPO saver with a $500 deductible and $2,500 max out of pocket is $72 a month.  The Kaiser plan is the cheapest of the HMOs but it costs $137 for the same yearly maximum out of pocket–although it has no deductible. So the premium difference is $800 a year!  Consequently Kaiser has been losing members to the high deductible lower premium plans, as employers push their employees towards them.  Internally Kaiser had planned for growth in 2003, but instead it’s losing members overall.

POLICY: Medicare agreement-is it a charade?

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So while the news says that the bill is out of conference on Friday and has enough backing to get through, Ted Kennedy basically said  on Sunday that the Medicare bill wasn’t going to make it past him in the Senate. Frist and Hastert meanwhile are trying to broker a bill, without upsetting their conservative wing who (correctly) believe that this bill is a recipe for more cost-unconscious spending in Medicare.  On the other hand as explained at length already here and here, the liberal Democrats and some liberal Republicans like Olympia Snowe are opposed to (or at the least very wary of) the introduction of cost controls or competition/premium support. Jeanne Scott has written a full newsletter this weekend about Medicare (and if you haven’t subscribed yet….). What does she make of all this?

    Just Between You Me. Never ever step on Bill Thomas’ toes!  The sometimes curmudgeonly, but always very powerful, Ways and Means Chair, is reported to believe that the proposal does not do enough to make Medicare fiscally sustainable. And he definitely was not happy that a deal had been cut over his head. Walking with his feet, Thomas left the conference room, threatening to fly home to California rather than accept the imposed deal. Later he was reported meeting with House Energy and Commerce Committee Chaircritter W.J. "Billy" Tauzin (R-La.), hoping to draw up an alternative to the Frist and Hastert’s proposal. The Republican criticism raises the possibility that, if Mr. Frist can’t hold his own party together for the deal, that it won’t survive a yes-or-no vote in the Senate, let alone a filibuster situation demanding 60 votes to cut off debate. Don’t hold your breath on passage by this coming Friday.

    So Where are We After All of This? Conservatives say the cost containment and market components of the bill do not go far enough to hold down spending as baby boomers strain the program’s spending. Liberals say the reforms threaten the very existence of Medicare and constitute the first step toward privatizing one of the most popular government social programs. Don’t hold your breath, but there may be life in the old gal yet.

My sense is that Medicare remains unreformable given the parity in the Congress and the huge political gulf between the Conservative House Republicans and the old style Liberals in the Senate.  But given that the election next year is going to be about Iraq and the economy, I’m not sure that Bush is willing to over-ride his fiscal conservative allies on the fiscal issue in order to get a bill through at any cost. Meanwhile, the bill’s lack of popularity with many seniors is probably enough to sustain a filibuster, so that Ted Kennedy can claim that he saved Medicare.

My guess is that nothing gets by this week. And thus I’m now officially short one of the PBM stocks (in a tiny and cautious way!).

Update The Business Word has another take on this, and I’m glad to say that Donald Johnson over there has been blogging much more regularly of late.  But he too believes that the bill may not happen.  I’m sure we both agree that it’s disapointing that what is a necessary reform for Medicare (adding drug coverage) has been so politicized.  However, AARP’s endorsement may not be such a great thing, especially given the questionable popularity of the bill amongst middle income seniors.  Here’s Jeanne Scott on AARP’s last intervention in Medicare drug coverage:

    And AARP May Screw Seniors Yet Again: AARP (formerly the American Association of Retired Persons, now just plain old “AARP”) may put the screws to seniors again, just like it did in 1988 when it killed the first Medicare Rx proposal. In 1988, AARP orchestrated a highly misleading campaign to convince seniors that they were being unfairly taxed to support the new Rx program  — that law called for a 10% “surtax” to be paid on the federal taxes owed by seniors. Every grandmother in the country was told she would have to pay a “tax” when in fact fewer than 12% of all seniors would have paid any tax (10% of “0” is still “0”), and only a handful would have paid more than they might have received back. AARP did this then because it wanted to save its highly profitable “Medi-Gap” insurance business and could care less about its senior members. AARP now may give the “new and improved” Medicare its seal of approval and in return get guarantees that its for-profit subsidiary operations will have an opportunity to participate.  The AARP orchestrated phony “senior sticker shock” of 1988 may be conspicuously absent when seniors face a real sticker shock in 2006.

PHARMA: Stock update and Medicare

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While the PBM stocks have been going up, the same thing is happening to the big pharma stocks, as you can see in this chart of a pharma stock index , and in the performance of Merck’s near 10% surge in the last 3 days. There’s more in this Forbes article.

However, the legislation may have been sent out from the conference committee, but it has three major pieces undecided. These include the issues of competition, long-term cost control and Health Savings Accounts.  If they couldn’t get a solution out of the two moderate Democrats on the committee, is there really a chance that this will get past Ted Kennedy? Lefty economist Paul Krugman explains why not.

So I’m still pondering shorting the PBMs…..