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The Fairy Tale of a Non-Profit Hospital

Nonprofit hospitals have higher profit margins than most for-profit hospitals after accounting for their tax obligations.  3900 (62%) of U.S. Hospitals are non-profit and therefore tax-exempt: they pay no property tax, no federal or state income tax, and no sales tax.  An article published in Health Affairs found seven of the nation’s 10 most profitable hospitals were of the non-profit variety, each earning more than $163 million from patient care services. Revoking their property tax-exempt status for not functioning as a charitable entity could return billions in healthcare dollars to local government, communities, and citizens, struggling to afford quality health care.

The idea of exempting nonprofits from paying taxes in the first place is based on the belief these entities provide charity for the underserved and underinsured who would otherwise require the government to lend a helping hand.  As the percentage of uninsured declines as a result of the ACA, the justification for tax exempt status is being called into question.

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A Modest Health Care Economics Experiment to Fight Rising Costs

Healthcare providers, medical institutions, local pharmacies and pharmaceutical companies generally set the price of their products/services well above the payment they expect to receive from all insurers. These healthcare vendors set their fee schedule at 150%, 200% or 1,000% of the maximum payment they expect to receive from their most generous payor.

Here in Massachusetts, when a healthcare product or service is consumed and the patient has health insurance, the vendor submits a bill to the insurance company who specifies the “allowed fee,” which is considerably less than the “billed fee,” and the vendor “writes off” the balance of the  “billed fee” from their books.

For example, I recently had some blood tests done at Quest Diagnostics. Quest Diagnostics sent a bill to my insurance company for $660. The “allowed payment” was $110, so Quest wrote-off $550 and the “allowed payment” of $110 was divided between me and my insurance company.

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MACRA Is Broken. It Needs to Go Away Now.

At its January 12, 2017 meeting, the Medicare Payment Advisory Commission (MedPAC) made it clear they had reached the conclusion that the Merit-based Incentive Payment System (MIPS) cannot work (see my last post ). MIPS is the larger of the two programs within MACRA; the Alternative Payment Model (APM) program is the other. The commission’s primary rationale for its conclusion about MIPS is that it’s not possible to measure physician “merit” (cost and quality) at the individual physician level.

But rather than recommend that Congress repeal MACRA (the Medicare Access and CHIP Reauthorization Act), MedPAC decided to try to fix it. At the January and March 2 meetings, the commissioners discussed a staff proposal to amend MIPS substantially and to tweak the APM program. Those discussions went nowhere.

I give MedPAC credit for finally stating unequivocally that MIPS cannot work. But MedPAC should never have volunteered to fix MACRA. It can’t be done. By proposing modest amendments to MACRA and thereby implying it’s fixable, they stepped into an intellectual tar pit. I will illuminate this tar pit by describing the commission’s unproductive discussion about the staff’s proposed amendments to MACRA. To give you a sneak preview of what that discussion was like, I give you two excerpts from the transcript of the January meeting:

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“Value-Pricing” of Drugs and Pharmaceutical Innovation

In a fascinating paper on drug pricing, Ana D. Vega and her five co-authors trace increases in the price of brand-name and generic drugs in the U.S. during the period 2012-15, using the national average drug acquisition costs (NADAC) data made public by the Centers for Medicare and Medicaid Services (CMS). These acquisition costs are the prices that retail community pharmacies pay to acquire medicines, usually from a wholesaler.

The tables in the paper show that the top 50 increases in the price of generic drugs over the three-year period ranged from a “low” of 448% to a high of 18,808%. For branded drugs the increases over the period ranged from a “low” of 63% to a high of 391%.

The paper also presents data on the wholesale acquisition costs (WAC) differences between first-in-class drugs and subsequent me-too-drugs, the latter usually costing much more than the first-in-class drugs, although they typically involve only small molecular changes. Here the price differentials varied from a low of -2.3% (the sole case me-too-drug actually being cheaper than the first-in-class drug) to a high of 61,259%.

It is rare to find such transparency on drug prices in this country, presumably because the data are in possession of a public agency, the CMS. By contrast, the private sector usually confronts both patients and researchers with contemptuous opacity. The pharmaceutical benefit management industry (PBMs) is particularly opaque on drug pricing, and private insurers and employers have gone along with it.

Price increases of the sort reported by Vera et al. usually are defended on two distinct grounds.

The first is what has come to be called “value pricing’ the idea that the price of a drug should be pegged on the value that drug has to patients or to society at large, in their eyes. For life-saving drugs or pain-killing drugs, that value can be very high.
Another defense of the ever rising prices of drugs is that they are needed to provide the incentives for new drug development.

Value Pricing

In my presentations on drug pricing, I often use the following metaphor to convey the central point of this concept.
Picture, then, a man somewhere in the Sahara desert close to dying of thirst.

Along comes a camel caravan for tourists, loaded with bottles of water. Assume the chap on the first camel is a private equity manager who knows a thing or two about “value creation” through “value pricing.” Assume the lady on the camel behind the first is a corporate lawyer.

Jumping off the camel, the private-equity chap approaches the dying man and, water bottle in hand, queries the dying man thus:

“How much would you pay me for this fresh bottle of water?”

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When the Patient is a Racist

Something has changed.

In my first 16 years in practice, I received exactly one insensitive comment from a young child who had never seen an Asian in person. But in the last year, I have received a hateful, bigoted comment approximately every other month. (That includes the remarks by a person who tried to reassure me that the comments were not directed to me personally, but to the “other illegals.”)

My colleagues are experiencing an increase in bigoted comments too. A fellow physician, a southeast Asian man, says he has been called “Dr. Bin Laden” on several occasions recently.

Last September, one of my students was on the receiving end. A patient’s father requested another doctor when he saw the medical student assigned to his son’s case was black. My student and I went to see the patient’s family together. I acknowledged the father’s anxiety and reassured him that we could treat his son. I asked the surgeon-on-call to see the patient.

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Is Healthcare a Right? A Privilege? Something Entirely Different?

Election Day 2016 should have been Christmas morning for Republicans. Long awaited control of the White House and both houses of Congress. A chance to deliver on an every two-year election cycle promise to repeal and replace Obamacare. In 2010 Republicans needed the House. They got it. In 2014, it was the Senate. Delivered. But we still need the White House they said. Asked and answered with President Donald Trump.

So, what happened a few weeks ago when the House bill fizzled like a North Korean missile launch? Disparate factions within the House couldn’t unify behind Speaker Paul Ryan’s plan, despite pressure from the White House. For some it wasn’t a repeal, only a rearranging of the deck chairs on the sinking Obamacare ship. Others in the GOP were happy with the status quo, preferring to rail against Obamacare in campaign speeches rather delivering on empty campaign promises. Still others, #NeverTrumpers, knowing that President Trump was behind the House bill, preferred to see the bill, and Trump, fail.

Kudos to the Democrats. When they ran the show in 2008, they herded their cats and passed Obamacare. No Statist Caucus on one side or a Tuesday (or Thursday or Friday) group on the other side, each wanting their own version of healthcare reform.

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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.

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Key Mechanisms That Define Health City Cayman Islands’ Value Innovation

Health City Cayman Islands (HCCI), less than three years old and located in the Caribbean just an hour’s flight south from Miami, is a 104-bed hospital outpost of Bangalore, India-headquartered Narayana Health (NH). HCCI has caught the attention of US health care professionals not just as a nearshore health care destination, but for having extremely high quality despite pricing that is a fraction of that in the US, as well as careful attention to the patient’s experience. HCCI is not only a competitor to traditional US health systems, it is potentially a radical disruptor. It’s model is so different that it could significantly change the standards by which health systems are judged.

HCCI’s performance is the culmination of a deep commitment to access, efficiency and excellence. NH’s Founder, Dr. Devi Shetty, began with a mission-driven awareness that health care is an essential need and must be affordable to be accessible. He then spearheaded an enterprise-wide focus on process optimization to deliver the best care possible at the lowest possible price. The results have been remarkable. Fifteen years ago, NH’s bundled costs for open heart surgery in India averaged about $2,000. Now they are about $1,400, or about 1% of average US cost. Interestingly, Dr. Shetty believes that better results are within reach and has set a five year target of $800 for those services.

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National Coordinator 6.0: A Blueprint For Success

Now that it’s public, I’ll offer my thoughts on the next steps for Don and ONC.  Don Rucker is a good pick for the nation, and will be a great National Coordinator.  I’ve gone on record as saying that some others are not qualified, and as many of you know – I don’t mince words.  Don is smart, focused, thoughtful, intentional, and will make good decisions for ONC and HHS.  I have known Don for 20 years.  He’s got a long track record of integrity, he’s a nice person, he deeply understands the challenges, limitations, and opportunities of Health IT.  I have no doubt that he’ll do a good job.  He’s got a lot on his plate.

Where should he focus?

  1. Stay the course with health IT certification.  I disagree with the growing meme that ONC has broadened its certification scope too far.  Certification has one purpose:  to provide consumers with a way to be confident that the product they are purchasing will do what the seller says it does.  Some people seem to have forgotten (or don’t know) that some of the companies that sell health IT solutions have claimed that the products do things they do not do.  There needs to be a process by which these claims are tested, verified and, yes, certified.  If this program is scaled back, health IT systems will be less safe, less interoperable, less usable, and less reliable.  #KeepCertification. 

    2.Keep the Enhanced Oversight Rule in place.  My former colleagues (and Don’s former colleagues) in the vendor community will disagree, as do some of the house Republicans.  As Don will learn first hand in his initial few weeks as NC, some of the companies that have been selling certified health IT products have been misbehaving.  In some cases, products have been de-certified.  In other cases, there have been investigations and resolution of problems without de-certification.  ONC is protecting the public by doing what Congress asked it to do initially.  The certification program is more than testing of products in a petri dish, it’s about what happens with the products in the real world.  Surveillance is therefore a necessary part of making sure that the products do what they were certified to do.  #KeepOversight.Continue reading…

Who Won When the AHCA Failed?

You may have heard that repealing and replacing Obamacare recently failed.  The analysis of what went wrong comes from many corners.  Andy Slavitt, former insurance executive and most recent director of CMS, writes that the ‘failure of Trumpcare can be seen as a rejection of policies that Americans judged would move the country backward.’  Apparently, the theory goes, moderate republicans, especially in states that expanded heavily and rely on Obamacare Medicaid expansion, were skittish of a repeal and replace plan that endangered the healthcare of millions of constituents.  The conservative David Frum writes in the Atlantic that most Democrats and Republicans have accepted the concept of universal health care coverage – and that the idea of a repeal of the right to healthcare is sheer anathema.  And if the Republicans were wavering, town halls filled with angry constituents were sure to provide an extra dollop of pressure.

The effort to get the messaging right is clearly important to many, but I find most of it functions as a smoke screen seeking to obscure the real battles being fought over your healthcare.

It is certainly true that Obamacare insures millions of Americans.  But it is also true that having health insurance and having health care are two very different things.  To be clear, the folks attempting to preserve the status quo want to preserve the ability to force all Americans to buy health insurance that costs hundreds of dollars per month.  Put another way, the folks attempting to preserve the status quo want to force Americans to give a monthly fee to health insurance companies.  Remember, these plans have deductibles so high that most of the cost of care delivered during the year in the form of labs, copays, and imaging studies falls on the hapless patient.  The insurer, for the average healthy person, doesn’t pay a dime.

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