I’m up at TMPCafe, with the topic being the oh-so-scientific Part D survey from my favorite trade group. Fellow Ignagni fans should rush over there.
POLICY: , Yet again caught up in the bluster of the drug war
Last week I wrote a piece at Spot-on criticizing the Calvinists in the medicine cabinet — the theocratic fascists social conservatives who use the DEA to dictate prohibition and are increasingly bringing this irrational posturing into mainstream Republican (and thus government) policy. One thing I touched on is the suggestion that buying up the Afghan opium crop and using it for medicinal opiates might be one way of mitigating the problems of opium being the only viable cash crop there, with the consequence that the Taliban et al benefit from controlling it. Harvey Frey, an occasional contributor to THCB, trotted out some very tired and just plain wrong comments about the drug war and prohibition:
The idea that legalizing and licensing opium in Afghanistan will decrease the illegal opium trade is fantasy. Medical morphine sulphate is cheap – far cheaper than the far less effective modern concoctions of Big Pharma. Why would any opium farmer sell his crop cheaply to legitimate buyers, when he can get orders of magnitude higher prices from the black market?
So, if we go with a social libertarian policy, and decriminalize recreational opium use, how will we deal with the medical and social problems of the vastly increased numbers of users? We seem to have trouble paying for medical care now. How will we pay for care for millions of unemployed, uninsured addicts? Will we end up like China after the Opium Wars?
I wouldn’t usually go after this type of comment here, but Harvey’s arguments are flat out wrong. And someone needs to try to convert those people who are reachable. Harvey’s a scientist, so presumably he believes in data. So here goes:
a) the concept that the farmers get more for illegal poppies than legal ones is bullshit. I have met illegal opium farmers in Laos living in huts with mud floors, and legal ones in Tasmania living in fabulous farm houses. No question who’s getting more for their crop. The difference in cost is due to the middle men’s cut which is huge, again due to the illegality of the end product…which boosts its cost to the end user. And of course that boosts the amount available for criminals (including some very nasty ones in the Middle East). This is one occasion when I’m much rather J&J and GSK had the money. If we bought out the crop then the opium farmers would have the same amount of money and the criminals/terrorists would have much less. (Hey we do it with all kinds of other agricultural crops….)
b) there is no evidence that regulating and controlling the distribution of any illegal substance increases its use compared to attempting (and failing) to maintain its prohibition. Countries that have a harm reduction policy (Switzerland, Germany) for heroin/opiate/methadone have lower addiction and use rates than those with prohibitionist policies (the US). Kids in Amsterdam use marijuana at lower levels than those in the US, while it’s freely and legally available there, and theoretically illegal here.
More importantly the costs of addiction are not predominantly those of caring for the unemployed addicts. Several programs (again see Switzerland, Germany, and even the UK in the 1990s) show that legitimized maintenance programs allow addicts to maintain a normal life, including working and holding down jobs. BTW one of the forefathers of American surgery, William Halsted, was a morphine addict, which never prevented him from practically inventing much modern medicine. It’s driving addicts into the black market and into the hands of criminal pushers that causes them to descend into the state Harvey suggests causes so much social malaise. Furthermore, in the only ever successful case of a steep decline in the use of a highly addictive drug (tobacco in the US in the last 30 years), its use rate fell because of education about its health effects. It was and is a legal product. And should stay that way. And we should treat other drug use the same way.
Finally, the societal costs of drug addiction absolutely pale in comparison to the societal costs of prohibition. We spend some $90 bn a year trying and failing to prohibit drugs in this country. There are fewer than 3 million drug addicts. So we’re already spending around $30,000 per addict on attempting to prohibit drugs–way more than the cost of supporting addicits even if they were not contributing at all to society and the economy. And that doesn’t count the cost to society such as the crime they commit to fund their drug habits, which is eliminated in Switzerland, Holland, etc.
The whole way we approach this — justified by the type of wrong information that Harvey puts out — is completely irrational, unless of course you are one of those in the prison-industrial complex benefiting from that spending. But of course the other supporters of the drug war, the theocratic fascists, glory in being post-enlightenment and completely irrational anyway.
POLICY/POLITICS: The swiftboating of single-payer?
Here’s my FierceHealthcare editorial today
Last year the most viewed article in Health Affairs was an article suggesting that 50% of bankruptcies in America were in some part related to medical costs. The article was written by a group led by two of the intellectual leaders of the single payer movement, Harvard professors David Himmelstein and Steffi Woolhandler. This week their findings were challenged by two Northwestern-affiliated researchers, David Dranove and Michael Millenson, who reviewed their data and claimed that the number was closer to 17%. They also suggested that the not as many of people declaring bankruptcy were as solidly middle class prior to their medical catastrophe as the Harvard group had suggested. Himmelstein et al shot back saying that the Dranove and Millenson had got their math wrong, and that they were lackeys for AHIP the health insurance industry group that sponsored their study — even though it was a peer reviewed article which AHIP funded but didn’t control. Some of their supporters accused Dranove and Millenson of "swift-boating".
Why is this obtuse academic dispute so important? Whatever the facts, and facts are very malleable in our political debates, the role of the middle class in health reform is vital. There is incontrovertible evidence that lower-income Americans have disproportionately higher health costs out of pocket than poorer people in other countries. But 100 years of history shows that politically this doesn’t matter too much. If it becomes accepted that middle-class, middle income Americans are equally vulnerable to financial catastrophe due simply to bad luck with their health, then the political discussion might shift. So this is one of those occasions where, as Keynes said, the scribblings of some (not-yet) defunct economist might actually matter in terms of politics and policy.
UPDATE: If you haven’t had a chance yet, you can listen to this week’s podcast of my converstation with Millenson on this very topic.
PHARMA/POLICY/POLITICS: Calvinists in the Medicine Cabinet
It wasn’t going to be too long before I took the issue of the DEA’s assault on physicians and patients over to the political masses in one of my Spot-on columns. Calvinists in the Medicine Cabinet is the result. Go there and enjoy, and feel free to come back here to add comments.
POLICY/HEALTH PLANS: The sensible way out for the non-profit plans
Ken Melani, who was the medical director at Blue Cross of Pennsylvania when I presented to them back last century but is now the CEO of HighMark (since BC and BA merged), points out the rational logic for private (non-profit) health plans. And that of course is to try to stay alive as a regional power that will be used by the government as a utility after the eventual inevitable government take-over:
Government expenditures for health care have taken a bigger piece of total spending every year since the creation of Medicare and Medicaid in 1965. While Republicans in Congress viewed the new Medicare prescription drug program as a way to expand the role of private companies in the massive health insurance program, Dr. Melani said the end result is a further expansion of government spending. "History has been made," he said. "If you look year after year, decade after decade, the government has been growing in its role as the financier of medical services, both through Medicare and Medicaid. We’re not growing from the private sector standpoint; we’re shrinking as a proportionate share." The key for Highmark, the region’s dominant health insurer, is to maintain and enhance its position as a regional player so that it can work as a key government contractor, Dr. Melani said.
Of course, a government-regulated utility — which Melani sees as being Highmarks’ future — will have to be managed in a slightly more sensible way than the Republicans rolled over Part D.
If the government expansion continues, the ongoing experiment with the new Medicare Part D prescription drug program provides lessons in how it should — and shouldn’t — develop, Dr. Melani said. One is that consumers like choice, but too much choice is confusing. Consumers in Pittsburgh, for example, can buy Part D benefits in more than 60 shapes and sizes, but they can’t make apples-to-apples comparisons between plans, Dr. Melani said. Another lesson is that the transition of beneficiaries from one government program to another can be difficult. For example, many low-income patients whose pharmacy benefits shifted from state Medicaid programs to Medicare on Jan. 1 were unable to access benefits at the pharmacy because of glitches.
But then again, even if the government can’t manage its own programs, insurance companies have no hope of controlling costs:
But the other key driver is technological advances in medical care, whether in the form of advanced imaging equipment, improved medical devices or new pharmaceutical products. Noting the emergence of cancer treatments that cost tens of thousands of dollars per month, Dr. Melani said insurers were nearly powerless to stem the tide."How can we afford that new technology?" he asked. "First of all, is it worth it? We won’t even ask that question, because we don’t do that in the United States. But how many of these $100,000-per-year treatments can we continue to support and survive as a country, as an economy? "You take the unit price of professional services, the unit price of technology, and we’re out of control — totally out of control."
PHARMA/POLICY: One estimate of what Part D is wasting, with UPDATE
Dean Baker working under the auspices of the liberal Campaign for America’s Future has written a study of what is being wasted on Part D. His number is $80 billion a year!. Given that the whole program was originally supposed to cost less than $50 billion a year that’s quite some number! The number he’s calculated is (I think) the difference between what the government will pay now and what it would have paid if it was negotiating for the drugs at the VA rate, plus the amount the CBO says CMS is spending on private administration of the project above what it would have cost to simply add one sole plan to Medicare.
Whether or not this analysis is fair, the Dems are nuts if they don’t get a great sound bite out of this.
UPDATE: Of course one Dem, Henry Waxman, is watching.
POLICY/POLITICS/INDUSTRY: Confessions of a Health Care Hitman?
Over at Spot-on, I’m musing about whether or not I’m a Health Care Hitman. Peter Rost, late of Pfizer, is more or less singing the same tune.
PHARMA/POLICY: Anyone know about best price?
This is pretty interesting, and it relates to real wonkery AND to more stretching of the truth by my favorite health plan lobbyist, Karen Ignagni. In the article Drug firms to get profits windfall, a Univ of Minnesota Professor estimates that because the dual eligibles are no longer in Medicaid — they’re the ones that have been automatically moved to Medicare — and therefore they don’t have to offer "best price", they can charge higher prices to the taxpayer for their drugs.
The boost in profits comes from a shift in the drug coverage of 6.4 million poor and elderly people from Medicaid to the new Medicare drug benefit. Unlike Medicaid, which requires drug companies to charge their lowest or "best price" for medications, the Medicare program relies on competition among private drug plans to keep prices low.By eliminating the need to discount drugs for the government, the industry can now pocket the savings. "The net effect over 10 years is probably closer to $40 billion in extra profit," said Stephen Schondelmeyer, a pharmaceutical economics professor at the University of Minnesota. A little-known study by the Prudential Equity Group from June 2005 estimated that the makers of three anti-psychotic medications stand to benefit most from the change, taking in roughly $1.1 billion in new profits on products used by the 6.4 million who are Medicare’s most poor and frail patients.Experts say drug prices in the Medicare program will be higher this year than prices under Medicaid because the private Medicare drug plans won’t likely match the price discounts achieved by Medicaid, the joint state and federal health program for the poor.
Now hang on a second. This raises two key points. Not one week ago, Karen Ignagni said that the exact opposite was true. State medicaid directors were apparently telling her that they were getting worse deals than the private plans she represents. So which is true? Well guess who I’m more likely to believe. After all, did PhRMA pay all those political contributions to end up losing money
And then one thing that I just don’t know. Suspend your disbelief and pretend that at least in some cases for some drugs, Ignagni is telling the truth. Presumably best price still applies to the rest of the Medicaid program. Are deals between Pharma and Medicare Part D PDPs exempt from Medicaid best price? Anyone know?
HEALTH PLANS/POLICY: Too much fawning over Len Schaeffer?
No one is arguing that Len Schaeffer isn’t a very bright guy, nor that he hasn’t done very well in America’s health care system. He’s also done very well out of America’s health care system. So when McKinsey publishes a fawning interview with the man who saved Blue Cross of California, and turned it into one of the most profitable for-profit health insurance companies, and then merged it with the other for-profit Blues, it’s perhaps appropriate to ask a few more questions.
Full disclosure here; in the distant past I’ve worked for several companies that are now part of the Anthem/Wellpoint collosus; and I currently do work for the California Health Care Foundation, which wouldn’t exist were it not for the fact that, when Wellpoint converted to for-profit status, it (and the California Endowment) were endowed with a huge chunk of stock. So you can take my comments in what ever light you like. In addition I’ve only done limited research here and a couple of things are retelling of tales I’ve heard, so if anyone knows more gossip, please email me.
Schaeffer is coming towards the end of his business career, but he started young and fast. He was head of HCFA (the artist now known as CMS) at age 33 in the Carter Administration. Now I call Mark McClellan the boy wonder, but he was 41 when he got the job! After leaving HCFA (before it got really exciting in the early years of the Reagan administration when DRGs were introduced, but being the first to introduce a type of DRG for kidney dialysis), and going via Group Health for a couple of years, he ended up at Blue Cross of California. He got there in the middle of an incredible screw-up.
Blue Cross had set up an HMO to compete with Kaiser called HealthNet. Incredibly enough somehow or other Blue Cross didn’t manage to enforce their formal corporate control over its board members on the board of HealthNet. So the board of HealthNet looked around the room one day, noticed that they might do alright if they were running a for-profit company, and declared independence. More on that story in this court documents. And apparently despite several years in court there was nothing Blue Cross could do. Retroactively Healthnet had to agree to endow a foundation with the state (the California Wellness Foundation) but the amount put into that foundation was a tiny, tiny proportion of HealthNet’s market value.
Schaeffer turned up to steady the ship at Blue Cross in the wake of the Healthnet screwup. In part he did this by turning Blue Cross from a warm and fuzzy non-profit into a pretty avaricious underwriter and a health plan that played very hardball with its providers (and members). More on that in the first section of this document, but it’s a reminder of a tack taken years later by Jack Rowe at Aetna.
But he clearly learned something from the experience. The first thing he did was to set up a for-profit subsidiary called Wellpoint which started buying health plans and offering services (primarily outside California). Then he tried to put all of Blue Cross’ assets into Wellpoint. It looked like he’d away with this for a while, but then started negotiations to take the whole thing for-profit. Apparently when the state first asked him the amount with which he would fund the foundation, his first offer was “nothing”. This eventually got anted-up to $100m. Eventually the state (pressured by consumers’ groups) pointed out that it had quite a bit of control over the Blue Cross plans, and in the end the two Foundations were set up with lots of money and the majority of the stock, which gets spent doing good works in California (and funding some great research!) — not that everyone’s happy with it!
However, what amuses and dismays me is that Schaeffer is lauded for a couple of things, specifically the creation of new insurance plans and the shift to consumer care, and a commitment to IT. I really don’t understand what is so amazing about the new consumer plans, other than the Tonik brand has a lame web sites which look exactly like what a 50 year old thinks a 23yr old thinks is cool. THCB readers already know that, while selling high deductible plans to youngsters may help a 23 yr old who needs catastrophic insurance, you’re not going to fix the problem of uninsurance by replacing it with under-insurance. But underwritten properly, these plans are very profitable for Wellpoint. And Wellpoint is damn good at underwriting.
So much so that you’d be surprised at what Schaeffer says is the main problem with American health care. Practice variation and lack of information:
The level of variation in our health care system is unbelievable. You could be hospitalized for nine days in New York and for three days in California with the same diagnosis—and those differences would have no impact on outcomes. There is no other industry in the world that uses so many different approaches to the same thing and in which these differences don’t relate to better results
So can’t health plans fix that? Apparently not:
As a health insurer, if you start by telling doctors, "We know what’s best; we’ll pay you for it," you violate the fundamental principle that doctors want to exercise their own discretion. That’s what killed HMOs—telling the doctors what to do. Doctors don’t like to follow cookbooks, but, clearly, evidence-based medicine would work better for patients.
So because health plans failed at getting doctors to practice better medicine, instead they’re going to give them the information systems that show the doctors all about this variation, and it’ll magically self-correct. Except there’s the odd problem there too, including more cluelessness by health plans.
The Quarterly: WellPoint invested $40 million to encourage its in-network physicians to start using IT and to begin "e-prescribing." What results have you seen?
Leonard Schaeffer: If you believe in an IT-enabled, evidence-based health care system—which I do—you’ve got to get IT into doctors’ offices. So we offered our in-network doctors, for free, either a desktop or a state-of-the-art "e-prescribing" unit for connecting to the Internet. Our theory was that if we could get a certain number of docs online, we could revisit them later and get rid of paper, which would benefit the physicians and us. That was the theory. But to get doctors to trust us, we had to say "no strings attached." We had to contact 26,000 doctors to get 19,500 to accept the free gift. Of these 19,500 doctors, 2,700 accepted the e-prescribing package. Unfortunately, only about 150 physicians are using this technology consistently. I was very disappointed that we only moved the needle that much.
Harvey Fineberg, the president of the Institute of Medicine, explained why the doctors were so recalcitrant: "When you’re in private practice, ‘free’ is not cheap enough." In other words, the doctor thinks,"You’re giving me what looks like a free gift, but you’re really requiring a change in how I work, which costs more and gives me little benefit. So I’m not changing my work process."
It was a real lesson in life. We were trying to change fundamental behavior, and the doctors don’t want to change unless they see a significant benefit for their patients or themselves.
While Schaeffer is dismayed that the $40m giveaway intended to promote ePrescribing was such a failure, you’d think that the program could have had a little but of brains put behind it first. Basically docs were given the choice of a) either take this subsidized ePrescribing system that we’re going to drop on your practice with little support, or b) have this free Dell computer which you can use to trade stocks and surf porn at home, and later sell on Craigslist. Doctors, not being dumb, took the choice with some value. This was for Wellpoint the equivalent of throwing mud at a wall to see if it sticks, except the technique used involved blasting the wall with a water cannon at the same time. The dummy was whomever at Wellpoint gave the docs the choice. And these are the geniuses who failed at HMO network medical management, as earlier noted
So why were the dummies in charge of this one? Well because the smart guys are stuck over in a different part of the company.
But today the most important thing for us is our actuarial data, which helps us price our premiums. As you might guess, pricing is critical. Our analysis showed that the so-called cycle in health insurance—three good years, three bad years—is simply a function of pricing discipline and pricing mistakes. There isn’t any doubt that the companies with the best pricing are less cyclical. In our case, we have no cycles at all.
We found that the most critical information for good pricing wasn’t how many contracts we had but how many people we had—who they were, their age, their gender, and where they lived. Together with regional and local differences in illness types and doctors’ behavior, these characteristics determined what the costs would be. So we gathered more information than anybody else about those things, and this was a huge competitive advantage. Now almost everybody does things that way.
We also make a point of processing claims quickly because we found that faster processing gives you a better idea of your costs and early knowledge about how trends are changing. By monitoring the landscape, we were able to raise or lower our prices before anyone else, which is really important in this business. You never want to sell an underpriced policy.
So there you have it. Being really smart about pricing and risk is how you run a successful insurance company. If you look at Wellpoint’s stock in the last 4 years, it’s evident that in the mission critical part of their business, they’re very very good about this. Stock is up four-fold and profits nearly double in the last 3 years.
Of course that’s not the only thing that’s gone up in the last five years. So have premiums and health care costs. And the two things may per chance be related!
But this just goes to show that what Schaeffer is good at — running a lean mean ultra-competitive pricing business — has little if anything to do with solving the wider problems of the health care system that he’s so eloquent about. He of course is walking off from the whole deal with some $300m smackers under his belt. All in stock from “converted” non-profit companies, and all such high stock because Wellpoint has (like the rest of the business) been able to stick price increases to its clients, year after year after year.
So why is McKinsey, which is after all supposed to be in the business of helping the Fortune 500 reduce their overall costs, so fawning to Schaeffer? Perhaps it’s just a mutual recognition that when it comes to corporate America, perhaps you can fool all the people all the time — so long as they hang out in the executive suite.
PHARMA/HEALTH PLANS/PBMs/POLICY: Meanwhile Ignangi on drug pricing, best price and fraud
I’m listening to the webcast of the KFF Forum on Medicare, and in the middle Karen Ignagni comes out with this gem.
But Karen Ignagni, president and CEO of America’s Health Insurance Plans, countered that so far, health insurers are beating Uncle Sam at the negotiating table. "I’m hearing shock from (state) Medicaid directors that we’re getting better prices than they are," she told UPI. "I don’t know of any other government program where the real costs are less than the estimates," she said, arguing that the plans are offering "affordable products" with low premiums and low deductibles.
Ignagni is either lying here (or massively overstating the truth from a few anecdotes), or going to find a few men in sharp suits from the rich part of K street funded by big Pharma coming down to see her carrying baseball bats.
You see, Medicaid plans get from pharma manufacturers what’s known as “best price”. In other words if they give a better price to another customer, they also have to give that price to Medicaid. Medicaid is still of course buying its drugs for its non-Medicare dual eligible population. The drug companies know this, so I doubt that what she’s saying is true. But if it is true that Ignagni’s health plan members are getting a better price than the states are, then the states can go back to the pharma manufacturers to get a better rebate — oh, and also prosecute Pharma companies for fraud over not giving them best price, as has happened many times.
