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Matthew Holt

Health plans spend more on IT

According to consulting firm Cap Gemini E & Y, health plans really are spending twice what they spent in 1999 on information technology. This report claims that plans are spending much more on IT in the areas of sales and marketing support, customer service, medical management underwriting and traditional back office stuff such as claims and enrollment. 

I’m not sure what to make of this.  Health plans are now at the top of the underwriting cycle (and hence are making beaucoup bucks, as this Interstudy report confirms) and so should have more money to spend on IT.  Plus they have historically under-invested in IT.  Meanwhile the rest of corporate America has stopped spending on IT after its binge of the 1996-2001 period, so it’s impressive that health plans are increasing their spending. Whether this "catch up spending" is enough to make up for their generally poor use of IT systems remains to be seen. And it further remains to be seen if they can handle the systems complexity involved in the move towards "consumer-directed health plan" products that several have announced, including the Oregon Blues.

Medicare Rx & ePrescribing

Even though everyone’s back from the summer break, and even though both the Senate and the House have passed a version of the bill, it’s looking less and less likely to me that we’ll get a final Medicare prescription drug bill at all. The Democrats who agreed with Republicans in early July now see a President weakened by dropping public approval numbers, primarily about the economy, but also about the Iraq situation. So they’ve little incentive to allow Republicans to take credit for a domestic issue when most polls show that they are the party the people have most faith in on the home front.  Added to that the middle to upper income retirees who forced the repeal of the last major reform, Medicare Catastrophic in 1989, are agitating again. Retirees with decent employer provided coverage are likely to see their employers drop it when Medicare provides it (and why wouldn’t they?).  And the bill as currently written is OK if you use few drugs, OK if you have catastrophic Rx needs, but not much good if you are in the middle of the "donut".  The NY Times has noticed that this is making many seniors very upset. As 2/3 of seniors have some drug coverage already, suggestions that it be replaced with something not as good will not make them happy–especially if it’s run by the government. (You may remember the famous quote from the senior in 1994 who told Senator John Breaux to "keep the government out of my Medicare"). Never forget that seniors vote in greater proportions than any other age group, and health care is their number one concern–oh and quite a few of them live in a place called Florida that seems to have had quite an impact in recent elections.

Meanwhile, if we don’t get Medicare Rx we will miss out on something in the House bill that would be a "good thing".  Pushed heavily by ex-speaker Newt Gingrich, who told a Congressional committee in June that "the evidence that written prescriptions kill people is overwhelming", the House version makes electronic prescribing mandatory for the Medicare Rx program.  The Senate version doesn’t. The AMA of course supports "the concept but not the mandate" (Yes, that’s the actual headline in the AMA news article!)

So if ePrescribing is on the verge of becoming a significant activity, albeit for a small minority of docs (as I described in a post last week), inclusion of a mandate for it in the Medicare bill would certainly push it over the top.  But that of course depends on forces more powerful than those brought to bear by the e-Rx lobby, Newt or no Newt.

Jeanne Scott (of course!) has far more about the difference between the House and Senate Bills here, and informed comment on her odds of what’s going to come in her newsletter (sign up by asking Jeanne nicely here)

Pay or Play passes

Much to my amazement SB2, the California "play or pay" bill passed the legislature on Friday and will probably be signed by Gray Davis before the recall. However it doesn’t come into effect fully until 2007, giving plenty of time for repeals, other bill creating loopholes, or alternative proposals.  However, it’s remarkable how a bill with such big implications sneaked by with such little fuss.  I guess we can blame Arnold!

Nano-medicine, socialized medicine and innovation.

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Robert Mittman’s technology series in iHealthbeat covers Nano-technology in health care.  Meanwhile, Tim Oren responded to my saying that I find it strange that "sensible business people vigorously defend their right to be gouged by the current health care system and call anything else socialized medicine"  by writing:

"You might find me more sympathetic than you suspect on the problems, if not on the solutions. We’ve got an incentive system for medical R&D that encourages the development of diagnostics over therapeutics, and palliatives for chronic diseases of the well-off over actual cures for anything. We balance the majority of the global costs of that R&D on the backs of American employers and employees. We’re headed pell-mell to a future in which genomic/proteomic diagnostics will be able to tell us risk factors and disease onsets down to the individual level, destroying the traditional notion of insurance as a pool of unknown risks, long before there are genetic or other therapies to do anything about the problems. We’ve got a growing medical infrastructure capable of extending lives at enormous expense and often with dubious benefit to the patients; and growing expectations that all will have access to those capabilities, even as the less skilled and educated are unable to contribute enough to the society to fund that ‘social minimum.’

I’m just firmly convinced that single-anything is the wrong way out. Putting a government bureaucracy in sole control of either side is a problem – a way to stifle the innovation that might get us out of this mess eventually. Some of the hybrid public/private proposals kicked around over the last decade are at least worth the discussion – maybe some social minimum level publicly funded, privately administered, with a layer of private insurance and medical capabilities on top of it, that everyone would understand is ‘on your own dime’. Yup, a two tier system, but we’re there de facto anyway"

Now I agree with virtually everything in Tim’s analysis of the system’s problems but thus far "innovation" in medical care have just given us more costs down the road–as everyone gets sick and dies eventually.  (Notwithstanding the fact that many of these innovations obviously improve quality of life and save individual lives, even if many of them don’t stand up to rational cost-benefit analysis). Which is why I believe that we should put all the costs under one central line item and have a real debate about what we should spend and how. (I also know that we won’t have that debate, despite the urging of Humphrey Taylor at Harris, because it necessitates use of the term rationing!).

But what if there is a huge change going on?  What if medical care became a real productivity enhancer and added to rather than subtracted from social capital–the way education does now?   A pipe dream?  Well probably, but if you read the nanotechnology article, this paragraph jumps out:

"Robert Freitas, the author of Nanomedicine, has designed (but not yet built) red and white blood cells and platelets–nanorobotic devices called Respirocytes–that will work 100-1,000 times better than natural cells. So for instance, you could sprint at full speed for 15 minutes. While this might make us all run like Carl Lewis, it would also enable extremely efficient removal of bacteria from the bloodstream. Imagine having one injection cure your flu within an hour. Freitas thinks that respirocytes are about 20 years away. Not much beyond that, perhaps another 20 years, is chromosome replacement therapy. Imagine taking several strands of DNA pairs from your body, matching the good ones, eliminating defects, and then manufacturing 4 trillion copies of that genome (you have about 4 trillion cells in your body). Put each into a nanorobot that would travel to each one of your cells and change the chromosome. With some other twists, the nanorobot would permanently rejuvenate you; no more aging."

That may just be science fiction, but if medicine really could cure disease and aging, then it would add tremendously to our social capital–because we wouldn’t have the long expensive periods of sickness that are associated with disease and old age.  (How we’d die under this scenario is another question).  Worth a thought, even if it’s far, far off.

Three strikes and you’re covered

CBS 60 minutes has an amazing story about a patient given a $1 million heart transplant at Stanford–who was a prisoner.  The decision to pay for the transplant was made by the state prison system because it feared being sued by the patient’s estate. Too many lawyers? Apparently it’s part of the 8th Amendment. Has the prisoner got the same rights as anyone else or more?  Would an uninsured patient get the same care? Unlikely, according to Dr. Lawrence Schneiderman, a medical ethicist at the University of California at San Diego, interviewed in the show, you may need to show that you have $150,000 in cash if you don’t have insurance. And the prisoner in question? He wasn’t a model patients and died shortly after the transplant. You can make up your own mind about this one, but it brings up all kinds of issues, and goes to show that health care is incredibly complex.

ePrescribing, PDAs and all that

I’m slowly getting back into the story around the "ePrescribing/PDA/last mile to the doctors office" issue.  I’ll be writing more about this later, but I’ve been talking around with some people in the know. From my conversations I smell a slow take off in something that wasn’t a big deal when I was a hard core researcher into physician computing-use in 1999 & 2000. 

The last real numbers that I’ve seen are about a year and a half old.  Manhattan Research, in some non-public data from 2002 suggests that 40% of doctors had a PDA, and some 75% of those used them for reference, while some 20% of those with a PDA used them for other work activities beyond reference–which presumably includes a lot of ePrescribing.  I’ve back of the envelope triangulated those numbers with ePocrates’ claim that 250,000 doctors have downloaded their drug reference manual for PDAs and that 25% of US doctors use it as their prime drug information source (over the Physicians Desk Reference, etc).  (The full ePocrates study is here although the group was selected form current ePocrates users by the look of it!).  Assuming that ePocrates is doing a little double-counting in who’s downloaded their app, from combining the numbers you end with roughly 200,000 docs out of roughly 500,000 in practice with PDAs. Of those roughly 150,000 are using them for reference and of those about 30-40,000 are doing something more than that.

Now remember that was early 2002 data, and we are dealing with a growing market. The 2000 data from the Harris study I designed was that ~3% of docs (or 15,000) were using handhelds for ePrescribing, while ~9% (or 45-50,000) were using a computer for ePrescribing (presumably mostly in hospitals).  Harris’ early 2002 data collected in their Vital Signs study for BCG  asking slightly different questions said that about 16% of physicians were using ePrescribing and 21% were likely to in the next 18 months. So if three-quarters of those ePrescribers are using computers (probably mostly in a hospital) it still leaves 25-30,000 using PDAs for ePrescribing in early 2002. So a total guess-timate is that by now we are probably close to 75% above  that number–perhaps 45-50,000 using a PDA for ePrescribing?  (Anyone with more recent numbers, please let me know–I’ll be discreet!!)

Now there are lots of "yeahbuts" here, including that the computer use of ePrescribing in the practice may be mostly for refills and mostly handled by the nurse or clerk, and we don’t have much information about share of script volume written electronically. In other words are docs using it only when they visit the hospital? For that matter in the average doc’s mind, does "writing an electronic Rx" really mean just telling a nurse to type the order in the CPOE system.  Plus it’s very likely that the group using PDAs is skewed heavily towards younger and hospital-based doctors (i.e. residents and maybe attendings at teaching hospitals), who not coincidentally have been in the engine of the CPOE train, and are probably of less interest for pharma companies and health plans. But it does appear that the carriages behind the PDA engine are filling up, and that some technophobic docs are at least thinking about leaving the caboose.

For more about PDA use by clinicians, take a look at this article in Healthcare Data Management, which is long on issues but short on numbers.

Quality Quickie- Blue Cross pays out

I remember mentioning in my post on pay for performance that some HMOs were paying out to medical groups based on their making certain quality indicators.  Well, I may have understated that phenomenon.  Blue Cross of California paid out over $28 million to their "favorite" medical groups last year — Hill Physicians in the SF East Bay topping the list –in a physician quality bonus scheme that looks much like pay- for-performance.

How did they score it?  Well, "the quality measures included such items as patient satisfaction surveys, waiting times for appointments, number of complaints and grievances, peer and staff reviews and patient turnover. Under the revised Quality Scorecard, more than half of a medical group’s score is now based on clinical outcomes and patient satisfaction surveys.".  So the IFTF line in 1997 which said that performance based pay would be aimed at improving "quality, customer satisfaction, patient tenure in the plan, and outcomes, as well as productivity and cost-effectiveness" wasn’t a bad forecast. 

$28 million isn’t absolutely chicken feed, but it is split between 80 medical groups.  Still, if Hill Physicians got say $1 million extra for doing well, that might encourage the others. And if that really changes the culture perhaps Blue Cross will go further towards  pay-for-performance, and advertise that fact to its members? (Something that no one ever did with capitation!)

California SB 2: Socialized medicine? Hardly.

In the course of some other work, I’ve been catching up on Pacifica Fund VC and IFTF affiliate Tim Oren’s Due Diligence column.  It’s a fascinating grab-bag of information about new technologies and the process of innovation, and also occassionally into the mind of how a deep water business technologist thinks about the wider world. And if you care about technology it should be required reading.  However, at the start of a fascinating post about how outsourcing and other phenonema are slowly killing the intellectual learning process of Silicon valley, Tim lets his politics out of the bag about SB 2, the pay or play mandate being pushed by Senate President Pro Tem John Burton (D-San Francisco) (reg reqd). Tim says he’s not prepared to"compromise my investors’ interests" so that "Senator John Bloody Burton can retire having socialized medicine in California".

Well let’s hang on a minute here. The bill demands that companies with more than 20 workers provide (80% of the cost of) health insurance for them or pay into a state fund that will provide insurance for the workers. It also says that companies with 20-49 employees will get tax credits to compensate for the cost of the insurance. VCs like Pacifica tend to invest in high-tech companies that offer their high-paid workers health insurance. The only "employees" not offered these benefits tend to be the office temps or the janitors who actually work for someone else. And these companies tend to have less than 50 employees, especially while they are getting going.  So the companies Tim wants to protect are either not affected by this legislation because they are too small, or more likely going to get a tax credit for providing a employee benefit that they already give!

In fact the play or pay issue is designed to lower the uninsurance rate among the working poor, who constitute 75% of the uninsured.  These are the people who clean your house or serve your fries at McDonalds, and not surprisingly the fast foods chains are in the vanguard of opposition to these types of bills. So unless VCs start investing in cleaning companies, lanscapers or fast food I don’t see how this affects Tim’s investors directly.

It did, however, get my hackles up when he glibly trots out the phrase socialized medicine. It’s incredible to me when sensible business people vigorously defend their right to be gouged by the current health care system and call anything else socialized medicine–although I do like Tim’s phrase "simple payer".  The reason American companies get to pay double what European and Japanese competitors do in health care taxes (whether public taxes or private ones called insurance premiums) is to do with the lack of social insurance and the consequent lack of anyone with responsibility to keep the costs of that insurance down. Very few places in the world outside the UK, Canada and Scandanavia have genuine socialized medicine where all the doctors and hospitals work for the government. SB 2 doesn’t suggest that and doesn’t even put in place a single-payer fee schedule (as discussed in my recent post on single payer).  In fact if it were to become law, which isn’t exactly likely, it would be a bonanza for private health insurance companies, and eventually a (much less) modest bonaza for those companies that are paying taxes and higher health insurance premiums already to make up what the health care system loses when it provides uncompensated care for those uninsured employees of companies that don’t provide benefits.

I’m not actually a fan of "pay or play", or of employment-based insurance at all for that matter. That also goes for workers comp too, (which is also in a hell of a mess) where again there is no real reason for hte medical care part ot be connected to employment..  But given the social costs of uninsurance, not to mention that added burden on those employers who "do the right thing" and provide health benefits, it’s not illogical to look at those employers who don’t as a place to start changing the system. It has nothing to do with socializing medicine. And its implementation would have zero impact on an entrepreneur’s ability to start the high-tech business of tommorow.

Is medical practice as clinical trial the tonic for the FDA and drug recalls?

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Libertarians argue that the FDA prevents helpful drugs getting to market.  Pro-regulation types tend to argue that the FDA rushes drugs through too quickly allowing too many dangerous drugs on the market.  In the past few years, Phen-Fen, Rezulin and Baycol are just three drugs that have been pulled from the market because of adverse effects discovered well after Phase III trials were completed and the drugs approved for sale.

Besides the hidden human costs of restricting potentially helpful drugs from the market and the very visible human costs of not stopping potentially dangerous drugs getting to the market, there are real financial costs for the industry in not getting this right.  Bayer has already paid out over $450 million for damages caused by Baycol and is looking at something between $1bn and $5bn more to come–not to mention the loss of more than $1 billion in annual sales.  Just yesterday news started to surface that Avandia and Actos, both drugs for type-II diabetics may cause heart failure in some patients. There have also been serious suggestions that the other statins, Lipitor, Provachol and Zocor, don’t work and also have nasty side effects like Baycol. You can be sure that the attack-dog lawyers are just hoping that they can get their teeth into Pfizer, Merck, GSK and the rest over those issues. Yet we will see many, many more drugs coming to market over the next few years even before the flood of products from the genome revolution heads our way.

So what can we do to get out of this bind in which everyone loses but the lawyers?  One of the keys to this issue is that drugs work differently for different people. Clinical trials, even the big ones required for phase III, often exclude too many types of people who end up taking the drugs in the real world, or are not long enough to discover some of the long-term effects (the Baycol example). Phase IV clinical trials (those that happen after the drug is on the market) are expensive and really only used when the FDA demands them.

Some of the brighter people in the industry have been talking about a combination of silicon and genomics eventually solving this problem.  For one view, that of Kim Slocum at AstraZeneca, look at slides 75-95 of this long talk. I summarize Kim’s concept here (hopefully accurately!):

in the future we will understand the impacts of drugs on patients by recording their information electronically, matching it with their genetics, their treatment and their outcomes, and doing consistent long term monitoring and reporting of all of this information. Aggregated information from real care will then be collected, analyzed and delivered back to clinicians. This will eventually create a massive feedback loop that should show which drugs work best for which people over the long term. Inevitably this information will be incorporated into the drug development process, and the medical care process.

In other words drugs and their uses on different types of patients in the real world will become another facet of clinical trial research and of course another venue for FDA attention. In a meeting last year in direct response to my question Kim told me that he believed most of the pharma industry was on board with this new view of how pharmaceuticals should be used and monitored, despite its potential for showing up warts. Much like the related controversy over mistake-reporting, it would surely be better if we could see these types of systems in place, and find out the effects of pharmaceuticals before more drugs have to be pulled off the market in the face of human tragedies with only lawyers benefiting from the 20-20 hindsight.

Quickie on Premiums

Kaiser Family Foundation and AHA’s HRET have just released their annual employer benefits survey.  Premiums paid by employers are up nearly 14% and employers are shifting costs onto workers. Employers are also more and more interested in providing employees with high deductible plans — the kind the employees in the survey in my previous post say that they don’t want! 9% of employees have them now and a further 11% are "very likely" to end up with them soon. You can get to the full report index here (if you’re a real wonk!).  But the message is, as Bob Leitman at Harris has been saying for years; "pay more, get less!"