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Category: Economics

The Narrowing of the Network

The concept of restrictive (oh let’s call them euphemistically “narrowed”) networks has for decades been the third rail of healthcare. Ask Hillary Clinton, who put her foot on that third rail in the 1990’s while attempting to reform healthcare. In the same vein, HMOs in the 90’s also tried to restrict networks, resulting in vicious backlashes.

One of those backlashes was the enactment in many states of so-called “any willing provider” or “freedom of choice” legislation. At last look, some 27 states still have a form of such legislation on their books. Most credible studies show that such laws increase the cost of healthcare.

Moreover, the ability of insurers to remove physicians from their network in many states is severely restricted by so called “fair hearing” legislation that makes the pain of achieving physician expulsion worse than the pain of leaving under performing physicians in network.

We understand that when a physician cries “foul” against an insurer, public sentiment will favor the physician, and over the years, it certainly has been  reflected in this and other legislative attempts to tie insurers’ hands.  After all, no one wants to go to the prom with a health insurer.

As a result of this and other phenomina, there has been the highly chronicled swoop toward mediocrity in the delivery of healthcare in the United States. And insurers have certainly contributed here. Up to now, insurers have paid physicians using the fee for service payment method. This method merely requires physicians to demonstrate that they performed a function, at which point they are paid at an amount that does not vary regardless of quality or outcome. This is a completely volume driven environment with predictable results.

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Retail Clinics Raise Medical Spending: So What?

flying cadeuciiNew research published in Health Affairs finds that retail clinics don’t save money. Many health policy analysts had hoped that retail clinics would reduce medical spending by replacing more costly physician office visits. The article did confirm that retail clinics are less expensive than traditional physician visits for the same service. Yet retail clinic use was associated with an increase in medical spending of $14 per year by those who used them. The $14 per person-year increase was not a complete picture, however, because the study did not compare inpatient spending or prescription drug use.

The researchers looked at Aetna insurance claims for 11 low-acuity conditions to see if people were substituting cheaper retail clinic visits for more costly doctor visits. What they found was that patients tend to visit a retail clinic when they might otherwise forgo care. In other words, patients were adding visits for conditions that would have cleared up on their own rather than necessarily substituting cheaper visits for higher cost visits. Traffic at retail clinics tends to peak during off hours (evening and weekends) when physician offices are closed.

The research was reported by Kaiser Health News and also ran in MedCity News, where I found some of the comments especially interesting. One commenter asked if changing the term “utilization” to “engagement” might make a difference, as in:“clinics increase health ‘engagement’ to the tune of about $14/person.” Increasing patient engagement sounds like a positive benefit rather than the negative connotation of utilization.

As an economist, my knee jerk reaction is patients may want to visit a retail clinic when their traditional source of care is not available. They may be willing to spend a little extra in cost-sharing to take care of a medical need rather than suffer through it.

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Cancer and Moonshot Economics

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The Obama Administration’s cancer “moonshot” initiative, announced in January and now being debated in Congress, comes at a time of significant advances in cancer treatment and a spurt of cultural attention to the disease.

A batch of new immunotherapy drugs approved in the last few years, such as Bristol-Myers Squibb’s Opdivo and Merck’s Keytruda, are being widely touted as breakthrough medicines—and aggressively advertised to both doctors and the public.  Jimmy Carter’s unexpected remission from melanoma that had spread to his liver and brain is attributed to Keytruda.

At the same time, a cancer memoir (When Breath Becomes Air by Dr. Paul Kalanithi) tops The New York Times nonfiction best-seller list.  The Death of Cancer by Dr. Vincent DeVita, a former director of the National Cancer Institute, has also garnered positive reviews and wide attention for its critical assessment of today’s cancer research establishment.

Before these two books, John Green’s 2012 novel The Fault in Our Stars—the touching story of two teens with cancer—was widely acclaimed and read, especially after it was made into a blockbuster movie in 2014.

The administration’s initiative comes at a significant time for me personally, too.  My brother, 70, was diagnosed with stage IV lung cancer 10 months ago.  Unlike Jimmy Carter, one of the new immunotherapy drugs (Opdivo) did not defeat his cancer.  He continues to fight for his life.  As with so many families, cancer has stalked ours.  My sister died of colon cancer in 2006, age 54.  My mother died of lung cancer in 1985, at 65.  Like anyone over age 60, I’ve seen friends suffer and succumb, their lives cut short.  And I’ve battled two cancers myself, melanoma (localized) and a salivary gland tumor.

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What Trump’s Plan to Negotiate With Pharma Should Tell Us

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Donald Trump’s proposal to allow the federal Medicare program to negotiate prices with drug companies should be a wake-up call for the pharmaceutical industry.

Trump is leading in the polls for the Republican nomination and is even drawing the support of Tea Party conservatives who, just a year or two ago, never would have supported a candidate endorsing such strong government intervention into a private-sector industry.

Characteristically, Trump didn’t give a lot of detail about his plans. He claimed $300 billion in savings per year (about 10 times more than is realistic). But that doesn’t matter. If the leading GOP presidential candidate—a man who has proved masterful at reading the public mood and playing to it—has signed on to this idea, it proves that change has come.

I know that many veterans of the pharmaceutical industry think they have seen this horror movie before and know how it ends. There have been several past public furors over the price of prescription drugs, and each one gradually faded without major disruption for drugmakers. But this time feels different.

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Can the Exchanges Be Saved?

Michael Turpin 1“The pessimist complains about the wind; the optimist expects it to change; the realist adjusts the sails.” —William Arthur Ward

Looking confidently past the skeletons of drowned state and federal healthcare experiments, America’s health insurance exchanges set sail in January 2014. Disregarding the rough seas ahead, healthcare reform pundits and legislators applauded the Affordable Care Act’s signature public expansion vehicle as an impenetrable solution for achieving affordable coverage and competition.

Less than two years later, the exchanges are taking on water.

In November, United Healthcare lowered earnings projections, a move driven primarily by its hesitancy to commit to enrolling new exchange members until risks are better understood. While other insurers were quick to reassure investors that the public exchange market remains a viable means for organic growth, a low-pressure system of doubt is already building over the nascent public exchanges.

Initial enrollment projections for 2016 are fewer than 10 million members—about half of the 20 million target estimated by the Congressional Budget Office. In their rush to expand coverage to the uninsured and under insured, many public officials and industry neophytes failed to consult with those who have firsthand experience with the difficulties of underwriting those who are obtaining insurance for the first time.

FAST FOCUS 

Enrollment projections for 2016 are fewer than 10 million members—about half the Congressional Budget Office target of 20 million.
The rush to participate in public exchanges has attracted inexperienced players seeking a piece of a $300 billion premium opportunity.
Investors want desperately to believe healthcare is ripe for transformational disruption.

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There Is Nothing Free About the Health Care Free Market

Nortin Hadler“Universal Health Care”, “Single Payer”, “National Health Insurance”, “Socialized Medicine” are all semiotics symbolizing the subjugation of physician and of patient autonomy to government control for the sake of the common good. This is not sophistry. Max Weber was a Prussian political philosopher who laid the foundation for modern sociology with such books as The Theory of Social and Economic Organization (1920, English translation 1947) in which he proclaimed, “Bureaucratic administration means fundamentally the exercise of control on the basis of knowledge. This is the feature of it which makes it specifically rational.” (p. 339).

However, Weber knew that the goal of a rational bureaucracy was more often elusive than realized, if it is ever realized for long. As Karl Marx observed in a mid-19th C critique of Hegelian political philosophy, “The bureaucracy takes itself to be the ultimate purpose of the state.” That observation is mirrored in a televised speech delivered by Ronald Reagan on October 27, 1964, “No government ever voluntarily reduces itself in size. Government programs, once launched, never disappear. Actually, a government bureau is the nearest thing to eternal life we’ll ever see on this earth!”

The upshot is that society has an inherent love-hate relationship with bureaucracy. As I discuss in Citizen Patient, till the end of the 20th Century American medicine contained and controlled its own bureaucracy and was willing to downplay such short-comings as inequities in the delivery and quality of care. Even the legislating of a Medicare bureaucracy had little impact on the medical hegemony; the legislation delegated clinical indications and fees to medicine’s own bureaucracy and much else that is costly to the marketplace. American medicine remained secure in its autonomy. Meanwhile, elsewhere, in nearly all similarly “advanced” countries, the will to tackle inequities in the distribution and quality of care and in cost-effectiveness had come to predominate by early in the 20th C. These countries sought a solution in the evolution of governmental bureaucracies. Several of these bureaucracies, these national health insurance schemes, remain examples of Weber’s rationality. Several of the national health insurance schemes, such as in the United Kingdom and France, are fraying.

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Will the Pharmaceutical Industry Learn From Past Mistakes?

Soeren MattkeAwash in negative headlines, public condemnation and government scrutiny, the pharmaceutical industry faces a public relations problem that, left untreated, could bring new regulations or sanctions either from governments or the courts. At the same time, though, the recent scandals over price gouging could offer an opportunity for responsible, research-based companies to distance themselves from the profiteers.

The industry has come under fire at a time of unprecedented innovation. As a physician who trained in the 1990s, I am in awe of the recent breakthroughs. Immuno-oncology drugs like Keytruda (pembrolizumab) and Opdivo (nivolumab) offer hope for patients with previously untreatable cancers. Entresto (sacubitril/valsartan) – the first novel treatment in over a decade for congestive heart failure, a condition deadlier than most cancers – was approved this year. There is a cure for many forms of Hepatitis C with Sovaldi (sofosbuvir) and vaccines for dengue fever and maybe even malaria may become available soon. More patients in developing countries than expected have access to antiretroviral drugs for HIV/AIDS and companies are devoting resources to achieving the same for the new scourge of noncommunicable diseases.

At the same time, some in the industry have been seeking to tackle the image problems. Overeager sales representatives are being reined in. Financial ties to physicians and clinical trial data are being disclosed. The main industry bodies in the United States, PhRMA and BIO, disowned Turing Pharmaceuticals, the company behind the notorious 5,000 percent price increase for Daraprim, a critical drug for certain infections in immunocompromised patients.

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Should Companies Invest In a Chief Health Officer?

flying cadeuciiWhile employer-sponsored wellness, health promotion and disease prevention programs have been linked to “human capital,” talent recruitment and retention, improvements in employee morale, reductions in absenteeism, reductions in presenteeism and bending the curve of claims expense, should shareholders care?

After all, according to President Obama’s latest State of the Union Address, corporate America’s pursuit of profits have resulted in greater automation, less competition, loss of worker leverage and “less loyalty to their communities.” According to that narrative, employees are just another commodity on the road to total shareholder return.

Well, according to an expanding body of peer-reviewed scientific literature, shareholders should care.

The latest example of why is this publication by Ray Fabius and colleagues that appeared in the January issue of the Journal of Occupational and Environmental Medicine.

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Toyota-ism vs Taylor-ism

flying cadeuciiIf you’re new to the idea of “Lean,” I invite you to download and read chapter 1 of my book Lean Hospitals.

Hat tip to Suresh for pointing me toward this article that was just published January 14th in the New England Journal of Medicine: “Medical Taylorism

NEJM is the same journal that published Dr. Don Berwick’s article about Kaizen and Dr. Deming in 1989, how those concepts would be helpful in healthcare. Dr. Berwick realizes, as he talks about in that article, that not all factories are the same. Some are managed better than others. Employees are treated better in the “Lean” factories. Berwick was right to point out that medicine can learn from other industries… but that doesn’t turn the hospital into an assembly line.

In the article posted this week, Pamela Hartzband, M.D., and Jerome Groopman, M.D. (the later the author of the popular book How Doctors Think), rant about all sorts of things… some of which have nothing to do with Lean.

“Advocates lecture clinicians about Toyota’s “Lean” practices, arguing that patient care should follow standardized systems like those deployed in manufacturing automobiles. Colleagues have told us, for example, that managers with stopwatches have been placed in their clinics and emergency departments to measure the duration of patient visits. Their aim is to determine the optimal time for patient-doctor interactions so that they can be standardized.”

This is wrong headed and insulting toward Toyota. I’m pretty sure Toyota would not alienate physicians or other healthcare professionals this way.

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The Dismal Science Behind Financial Incentives For Docs

flying cadeucii“It is written: Man shall not live by bread alone.”
Luke 4:4

No matter what you think of the source of that quote, the idea that there may be limits to “aligning incentives” has some merit. In healthcare settings, physicians seem to be  supportive of being fairly compensated for their work, but also seem to be quite skeptical about the use of “carrot and stick” style economic rewards to influence clinical practice.

Case in point is this interesting paper describing the results of a randomized clinical trial that used blood cholesterol-level control to assess the relative merits of a) rewarding just the patients vs. b) rewarding just the doctors vs. c) rewarding both patients and doctors vs. d) usual practice, or a control group.

The study took place in three marquee institutions, involving 340 primary care physicians who were already taking care of 1503 adult patients with 1) elevated cholesterol levels who 2) either had coronary artery disease or were at high risk for coronary artery disease.

About half of the patients were already on cholesterol-lowering pills.

The purpose of the study was to determine if real money could be used to increase the rate and level of prescribing a statin drug aimed at achieving levels of cholesterol control that were consistent with national guidelines.

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