Hobson’s Wrong Answer

Thomas Hobson was his name, a licensed carrier of passengers, letters, and parcels between Cambridge and London in the years surrounding 1600. He kept horses for such purpose, and rented them when he wasn’t using them. Naturally, the students all wanted the best horses, and as a result, Mr. Hobson’s better mounts became badly overworked. To remedy this situation, he began a strict rotation system, giving each customer the choice of taking the horse nearest the stable door or none at all. This rule became known as Hobson’s Choice, and soon people were using that term to mean “no choice at all” in all kinds of situations.

Not to be confused with Sophie’s Choice, the title of a 1979 novel by William Styron, about a Polish woman in a Nazi concentration camp who was forced to decide which of her two children would live and which would die. That phrase has become shorthand for a terrible choice between two difficult options.

Both Choices come to mind when reading this week’s Boston Globe article titled Hope for Devastating Child Disease Comes at a Cost: $750,000 a Year. The headline, as is too often the case, is inaccurate. It’s $750,000 for the first year, and $375,000 annually after that. But let us not quibble. That equals a lot of resource.

The article has a photo of two adorable children, both of whom have spinal muscular atrophy (SMA) which all too often kills children before their second birthday.

The article recounts their parents’ fight to get their insurer to pay for the medicine, Spinraza, which is produced by Biogen. Let us for the moment skip over why that drug is so ghastly expensive. That is an article for another day. Nonetheless, according to the article, the FDA approved Spinraza for US sales on December 23, specifying that it was approved for all children with SMA.

The particulars of the dispute between the children’s parents and the insurer revolved around whether Biogen had proved the drug’s effectiveness only for Type 1 SMA patients—those most severely affected, or for all children with SMA. Resolution of this issue should (on strictly legal terms) be determined by the language in the subscriber agreement and any pertinent Massachusetts law—usually revolving around the definition of “experimental,” and “medically necessary.” The insurer’s spokesperson in a statement said that it considers only evidence of “safety and efficacy.” Unsurprisingly, there was no mention of cost being a factor.

Predictably, the insurer lost, and everyone is relieved, and happy, and the insurer is vilified.

Let us assume for the moment that it is indisputable that the drug is effective and safe, but costs what Spinraza costs. The first issue is whether an insurer can make cost an element of coverage determination under any circumstances.

We know that the ACA outlawed lifetime maximums, a very popular position for everyone other than actuaries and financial people with insurers who still have to price this stuff out and live with the consequences. Just how do you price out a completely unknowable variable such as this?

We live in a society where it is simply unacceptable for insurers to draw coverage lines based on cost. That battle had been fought out in courts for autologous bone marrow transplants and the like several decades ago, and the insurers (again predictably) lost.

We all know what the true issue is, but we as a society refuse to face up to it, throwing it back onto insurers as the payor of last resort, all the while reserving the right to carp about the cost of coverage. As I’ve repeatedly stated, 90% of coverage costs, more or less, is for claims expense. The point of the cost conundrum has always been about claims expense, which, as we in Boston say, is wicket haahd to control.

With these miracle drugs, it’s becoming wicked harder. So what are our options here, assuming someone actually wants to step up to the plate and confront this issue in a responsible fashion?

We must start the discussion by mentioning the dreaded “R” word. You know…rationing. Despite the fact that no one likes to admit it, countries outside of the US who have nationalized healthcare and single payor coverage use rationing every day to hold down costs. This takes the form of both delay and deny. We in the US admire such foreign systems that apparently cover their citizens for half of our cost and (if we believe the data) with better quality of care. But, if you live outside the US, the Rolling Stones said it best: “You can’t always get what you want…”

So what are our options here?

We continue to force insurers to cover drugs with proven efficacy regardless of cost, and continue our hands-off policy with regard to the redoubtable drug industry.

Same as above, but regulate drug prices so that no drug, however expensive to produce, can exceed a chargeable price of [$_______] per year, with or without governmental subsidies to the drug companies [heaven forbid that we might dampen their enthusiasm for innovation].

We create, either at the state or federal level, a high-risk pool designed to cover people exceeding certain lifetime or annual amounts or who need drug therapies of such epic cost, subsidized in whole or in part (being unsure who would pay the non governmental part) by tax dollars.

We allow insurers to have annual and lifetime maximums and look to charitable or donor means to cover the rest. That would work a lot better for children than for elderly I’d suspect.

Telling parents of children that they have no access to drugs that can save their children is truly a hard thing. It goes counter to our culture, and many of our best stories and movies. But our logical side nags us: life sometimes must be about resource allocation and making hard choices. Sounds bloodless, no? Heartless? But we cannot continue to fail to face up to this extraordinary challenge of resource allocation, where literally hundreds of other children do not receive needed care because there’s not enough money to go around. What do you say to them, despite the fact that their need is not so obvious. Is that no less heartless?

Or is this what tax dollars are for? The easy answer might be “yes,” because that removes the immediacy of the consequences of our decision. You can bury $3 Million a child in a federal budget of Trillions easily. Up to a point. That is how we got to where we got with Medicaid. And that is precisely what got us into trouble with state legislatures doing the same thing to insurers with mandates and the like. It’s the easier road, but not necessarily the most responsible road.

The reality is that we elect people to make hard choices. That reality has been long lost in our evolving culture, where perhaps the last truly hard choice made by a US elected official was made by Harry Truman in 1945 when he ordered the Enola Gay to take off.

We get distracted by many other issues in healthcare, but the truly big issue is its cost. It impacts everything else, and we must start making some hard choices about how we deal with it.

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15 replies »

  1. Kip, and I know this is late. I got distracted. The AHIP numbers look really wrong, but I’m a little removed from it all. I’m going to look into this. I know for a fact that for my Blue Cross RI overall (small plan, lacks scale) we were at about 12% operating expense and 2% net to reserve, there abouts. Bigger plans have lower OE ratios but perhaps larger profit ratios. I’m going to see what more I can find out on this.

  2. Huge costs for any single drug do have an impact on insurance rates. In Iowa today there is one poor young person on some genetic drugs that “cost” $1 million a month. In the relatively small pool of Blue Cross in Iowa, this one ongoing claim has raised premiums by 10%. This in turn causes many more than one person to be uninsured!

    The key to reform is to question the price of these drugs. Certainly the cost of production is nowhere near the price being charged. A price cap might be the least harmful solution.
    Our FDA is pathetically slow at anything, so we do not want them setting the price,
    But we could say that no drug should cost over $1,000 a month, unless the actual cost of production plus a profit margin is higher than that.

    For drugs with a huge market like Sovaldi for hepatitis, there will still be profits at $1,000 a month. For drugs with a tiny market, the rate of innovation will plunge.

    That might be a choice that if we were financial grown ups, our society could make.

  3. Jim, your claim that 90 percent of the cost of a health care policy is attributable to medical costs is far too high. According to America’s Health Insurance Plans (the trade group representing the insurance industry), 21 percent of the premium dollar is eaten up by overhead https://ahip.org/health-care-dollar/. That’s double the 10 percent figure you’ve been using. (Other research supports AHIP’s estimate.) Most of that 21 percent overhead is a waste of money or, at best, of less value than the health of children.

    You have a biased view of other countries that spend half per person what the US spends, so let me discuss some well known American companies. In the early 1990s, 25 Minnesota-based Fortune 500 companies, including 3M, General Mills, and Honeywell, formed a coalition of self-insured firms. According to a January 13, 1997 article in Business Week, self-insuring (which the article characterized as “bypassing insurers”) cut the amount of money the coalition spent on insurance industry overhead from 20 percent of premiums to 9 percent because they no longer paid for activities such as marketing. The title of this article was “HMO-ectomy.”

    Other payers have gotten their overhead costs even lower than 9 percent by performing HMO-ectomies or by refusing to insert insurance companies between them and providers in the first place. States that administer their own Medicaid programs (that is states that pay doctors and hospitals directly rather than funnel “capitation” payments through insurance companies) do so with overheads in the range of 4 to 5 percent of total spending. Taiwan’s single-payer system operates at 1 percent overhead (Tsung-Mei Cheng, “Reflections on the 20th anniversary of Taiwan’s single-payer national health insurance system,” Health Affairs, March 2015, 34:3, 502-510).

    But even the 21-percent overhead figure that AHIP uses understates the administrative expenditures the insurance industry forces us all to underwrite. As every doctor knows, the insurance industry, with enthusiastic support from the managed care movement, has forced clinics to spend ever-rising sums of money on administrative chores. As Congress becomes ever more intoxicated by managed-care think, Medicare is also becoming a major cause of higher administrative spending by clinics and hospitals, much of it worthless.

    I totally agree with your statement that “life sometimes must be about resource allocation and making hard choices.” (I also agree with your criticism of drug industry gouging.) But I disagree with your characterization of the “hard choice” we face. You argued we must learn to be “heartless” and deny Child A so Child B can get medical care. But there is another choice we should be debating: An HMO-ectomy. We could choose to bypass the insurance industry, require government (state or federal) to pay doctors and hospitals directly, and repeal laws like MACRA that authorize government to drive up administrative costs with managed care tactics.

    Large American firms and other countries have made that choice – they bypassed the insurance industry. Obamacare has failed miserably to cut costs. Trumpcare would have been just a meaner version of Obamacare. The nation is ready for a debate about a choice very different from the one Jim presented to us — whether to enact a national self-insurance system, aka a single-payer system, or to continue denying necessary medical care to some children.

  4. Jason, thank you.

    1) Sometime back I scoured the literature and found that the wait times for all too many was too long. I understand the waiting times are even longer now. I don’t know what you consider a normal benchmark, but I know that wait times for different provinces are published on the net and did not appear to be within the benchmark I as a physician would consider appropriate. I am not going to say Canadian medicine is bad, because it isn’t. Canadians have made their choice and if it is good for Canadians then it is good for Canadians.

    I do wish to mention again Chaoulli v Quebec. The specific point in question was the waiting time which the justices felt was inhumane.

    2)I don’t think any of us are experts on defense. There is generally waste in all government programs and I doubt defense is any difference. I hold the view that overwhelming strength is a preventative and that signs of weakness can promote war.

    It is a necessity for every nation to maintain control of their fiscal expenditures. Look at the hyperinflation that occurs when that control is lost. So yes, this country needs to pay attention to its deficits and as a very large consumer nation a failure to do so will have an effect world wide.

    If you look at what is spent on healthcare and what we get out of it you will note that money is not the problem. We spend plenty of that. We just haven’t learned how to spend appropriately. Therefore, to add more money does little and with time Gammon’s Theory of Bureaucratic Displacement will eat up that money as well.

    Bureaucracies seem to spend more and more. What sectors of the US bureaucracy have asked for less money than the year before? If businesses function like government agencies they would go bankrupt. US debt has been troubling for years and what has happened over the past 16 years? Increasing debt the first half of the 16 year and incredible debt the second half. I don’t think the US focus has been to “stop funding things “.

    One last thing, we know Canadian wait times are a problem because the government is constantly trying to reduce those wait times. When one looks at how long a person waits one has to be careful and understand what they are looking at. Is the time from diagnosis to treatment or is it from the time of the complaint to treatment. Too often the better numbers appear to be coming from the former.

    The steps involved might be:
    Waiting for a visit to the primary care physician
    Waiting for a test to be performed
    Waiting for follow up tests to be performed.
    Waiting for a specialist.
    Waiting for a surgical procedure.

    The last amount of time might be tolerable, but in too many cases the entire wait is too long.

  5. Thanks for your response, Allan. My reply to your comment:

    (1) I am in no way suggesting that my results are typical. I’m merely presenting my anecdotal experience to counter other anecdotal experience being bandied about by certain groups in U.S. media.

    As for the Fraser Institute study you mention, I’d have to review the methodology myself but the study was roundly criticized for participation bias as well as biased measurement.

    Other studies based on more tangible data have said that Canadian wait times are generally within benchmarks.

    This isn’t to say the experience is pleasant – but in a public system you have to tier resources by criteria, even among those classified as medically necessary (hip fractures being treated quicker than hip replacements for the elderly, for example). Of course, this leads to dissatisfied patients with subjective war stories (I have a bunch myself, MRI notwithstanding).

    (2) Every sovereign country has an obligation of self-defense, even Canada, and all spend far less than the U.S. as a percentage of GDP. And even with its international obligations, the U.S. military has far more than enough resources dedicated to defending America and her allies, particularly in a multipolar world without a clear cut conventional opposing force.

    But this isn’t a foreign policy blog so I’ll address your argument about servicing debt ahead of servicing people’s health. I’m not sure it’s a clear cut choice as you present it. Spending more on health and preventative measures in the near term, not in terms of boondoggles like increased screening but healthy food subsidies, may promote fitness in the medium and long-term and ultimately begin the arduous process of bringing down costs. In my view, it’s about resizing the pie rather than divvying it up.

    As for the theory of bureaucratic incompetence, I agree – to a point. Large organizations, in both the public AND private sectors, can suffer from inertia brought about by increased mandates, budgets and staff. I’ve had multiple meetings about meetings. This doesn’t mean that you stop funding things – it means that you task specific organizations or groups with discrete mandates and focused deliverables.

  6. Very nice and thought provoking post Jim! This is what we really need to be talking about. Ultimately, as a nation we will not be able to spend whatever it takes to save the life of child or anyone else for that matter. As a pediatrician, this is difficult to accept but it is the truth. In the future as we move to fewer payers, more universal type coverage, “special” treatment will require payment out-of-pocket by those on the receiving end. The needs of children to be immunized or receive specific annual well care will need to be balanced with the cost of treatment for one human being, especially when that treatment is not a cure but maintenance medication.

  7. That is why when policy is being created it is supposed to be divorced from our personal concerns.

  8. Jason, 2 points.

    1) You might have gotten an MRI quickly, but that is not what I heard from my patient’s that were Canadians. That was not what I heard from the Quebec Supreme Court in Chaoulli v Quebec. That is not what I hear elsewhere.

    “a median wait of 20 weeks for “medically necessary” treatments and procedures in 2016 – the longest-recorded wait time since the think tank began tracking wait times.”

    2) You wish to take defense spending and put it into healthcare. Maybe defense spending can be curtailed. Maybe not, but the US has a debt crisis that is growing so our first agenda should be to control our debt.

    Secondly take note of the following:

    Healthcare 28%
    Defense 21%
    Welfare 9%
    Interest 7%

    Also take note of Gammon’s Theory of Bureaucratic Displacement

    Finally take note of the fact that the Contitution is very clear and that one of our primary roles of government is for mutual defense (of the states).

  9. Jim, thanks for sparking a very necessary, if uncomfortable, discussion. My response below is colored by my identity as a Canadian, lawyer and former civil servant.

    Speaking as a former public servant, the fact that treatment options for critical, life-saving care and maintenance are taken out of parental hands is anathema to me. It’s true that resource allocation is a necessity for governments and that costs must be contained but any government that allows a system that does not account for hard cases (such as the one described) is a failed system.

    This is especially true when the country has adequate funds to take care of its citizens – which the U.S. does. America doesn’t have a resources problem, it has a priorities problem. This manifests in multiple ways.

    (1) The U.S. spends nearly 5% of GDP on defense spending.

    If a reasonable percentage was shifted to expanding publicly subsidized treatment and pharmaceuticals, no American would be left behind.

    (2) According to the World Bank, the U.S. government already spends as much per capita in health care costs as even the most advanced social democratic systems ($9403). In fact, at $5292 the much derided (in some circles) Canadian system comes in at more than $4000 less per person.

    This shows that U.S. healthcare isn’t at a point where we need to make hard moral choices about life and death circumstances. We’re simply at a step where we need to recognize that the current system as a whole is not working to minimize cost and waste.

    (3) U.S. pharmaceutical companies, health care systems and insurers have fallen victim to the same problem as all businesses – out of touch corporate spending.

    Sales and marketing are huge cost centers for these organizations and do nothing to help the downstream consumer.

    In my view, the issue with the U.S. healthcare system is that it’s asking the wrong people to make the hard choices. With premiums and spending where they are, consumers already have a right to expect that maladies won’t bankrupt – or even kill – their family.

    Instead, it’s those supplying healthcare which must reform. While a competitive marketplace is touted as the answer to bring down costs, the problem is that demand for health care services is inelastic – no need to reform when your consumers are already held hostage. In such an environment, governments need to step in to regulate – or even run the show.

    Many countries already do this through single-payer.
    I’m not necessarily advocating that for the U.S. But if we do consider single-payer, we shouldn’t fear rationing. Yes, rationing exists in Canada but it’s rarely the nightmare that Americans imagine. The reality is that life-saving procedures and treatments are prioritized and offered in a timely manner.
    I once got an MRI diagnosed, scheduled and performed within 24 hours and didn’t pay a cent. It’s when you get to elective or arguable quality of life things that you get long wait times. But then again, you should. There’s nothing wrong with that – that’s what triage is for, after all. In the end, I’d rather ration with time than ration with cost and I suspect most middle-class Americans would as well.

  10. To All: This is a hard discussion. I really didn’t want to get into the specifics of that particular drug. It’s the mindset that we MUST spend whatever it takes to save a child. I wanted to make people face up to the hard reality that we may not have the luxury of doing just that. As hard as it is to say it. If I were the Dad of such a child, would I accept that? I’m not sure. I’m fortunate not to have had to face that. But when it’s other people’s money, why not go for it?

  11. I’ve difficulty with Mr. Purcell’s discussion because I, at lease, question his assumption that some drugs necessarily cost multiple millions over a course of treatment, e.g., what are the ROI assumptions being made & to what extent is market exclusivity a factor. Re: insurer liability that’s why CMS truncates at the 99% for APM participants and why plans buy stop-loss. Regarding the high risk pool option, how pathetic is that track record? Re: rationing and/or denying parents access to these drugs, or being heartless, I was waiting for him to introduce the idea of futile care. About using tax dollars, or moreover “we elected people to make [these] hard choices,” as he recognizes, at this stage that’s a sick joke. Finally, Mr. Purcell’s concluding comment that “the truly big issue” is healthcare costs, eh, maybe. If you took out the 30% in administrative waste, massive spending on low or no value care (and, oh, pharma DTC), this problem gets substantially resolved.

  12. Before we reach a discussion of life or death dimensions, it is good to take an over-view of the over-all use with this medication. The drug requires an injection into the spinal fluid of the back. The injections begin once a month for four doses then every 4 months, permanently. The studies indicate only 40% had a measurable response. There are blood and kidney problems. There are NO studies on long-term child development. Thus, we have no reason to believe that the treatment would achieve meaningful child development.
    Using standard therapeutic standards, it should still be considered experimental and only used as part of a long-term controlled outcome research study. I suspect that the absence of this long-term decision reflected the legal options open to the FDA as determined by Congress. The research on children involved 120 children and lasted for a relatively short interval. No long-term studies are available in the usual fashion. It is possible that the makers of the drug have other data that they chose not to release. You would think that would never happen. But, it is does.
    A similarly priced type of drug is now in use for cystic Fibrosis. Of the nearly 300 genetic causes of cystic fibrosis, the new medication would only help 1% of the people with that disease. Also, it is curative for preventing the multiple hospitalizations that are the current standard of care for all forms of Cystic Fibrosis Disease. In spite of its cost, this drug is cost effective.

    The dimensions of this discussion are very complex. We will soon need a nationally sanctioned process to manage this decision processes for other possibilities, as the human genetic research continues to identify treatment alternatives. The standards of rationing applicable to this research are lurking just over the horizon.

    The very marginal benefit defined by the published research raises indirect ethical issues. By somehow approving this product as an “orphan drug,” we have somehow implied to these children and their parents that the ultimate cure will soon be available. So, for an incurable disease, we will subject the SMA effected child with the risks of adverse effects from the medication and its administration to ultimately prolong their short life with a profound worsening in their dignity and comfort, our nation’s healthcare paradigm as the cause. It subjects the family of these children to the conflicting moral priorities of heroic dimensions.

  13. Elhauge:

    “Moral absolutism has powerful emotive appeal. Easy as it may be to reject in the abstract, moral absolutism remains difficult to reject in practice. Indeed, the persistent power of absolutist beliefs in the face of unending escalation of health care costs is the most striking moral phenomenon of health law policy in the past quarter-century.

    Nonetheless, moral absolutism is wholly untenable as a societal system of resource allocation. Most knowledgeable observers believe we could today easily spend 100% of our GNP on health care without running out of services that would provide some positive health benefit to some patient.

    Surely, the most committed moralist must concede that, if these observers are empirically correct, some health care must be denied even though it has a beneficial effect. Otherwise, the extreme moral position would require that we fund health care even if that means starving ourselves to death. And once the moralist makes this concession, she acknowledges that at some point tradeoffs must be made and that thus the moral principle is not in fact absolute. The moral question then becomes where, rather than whether, tradeoffs are appropriate…” [pg 1459]

  14. Jim, it sounds like you are calling for rationing. That is something we do every day almost always. We ration our time and everything else. Why shouldn’t we ration healthcare? As a resident I did it all the time. We didn’t have enough monitored beds, blood, money etc. In a way we played God which was not pleasant, but the rationing didn’t go into a bank account. It went directly to the next patient without personal or corporate benefit. How we rationed wasn’t set by government other than government creating a level playing field mostly by preventing monopolies. Rationing was based on the best we could do as human beings.

    Government should stay out of the rationing process though government could lessen the blow with minimal interference staying on the fringe of the healthcare marketplace. Insurers should be free to insure and competition should prevail because competition to date is the best way to assure fairness and a reasonble price for what reasonable people want.

  15. Nicely put.

    None of this is exactly news. See Elhauge, 1994, “Allocating Health Care Morally.”

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