It didn’t take a rocket scientist to figure it out (although The Bloviator pointed the way yesterday and he’s as smart as a rocket scientist). An increase in unemployment plus fewer people getting health insurance at work has led to an increase in over 2.4 million people being uninsured. The New York Times article has the Census Bureau reporting that in 2002 43.6 million or 15.2% of the population were uninsured. (That’s actually down from 16.8% in 1998 before the full impact of the SCHIP program took millions of kids out of uninsurance into Medicaid, or something like it). 61.3% of Americans are covered by their or their family’s employer, and that’s down from 63.6% two years ago.
It’s worth remembering that there are three types of uninsured. Those who’ve been uninsured for a year or more (about 6%), those uninsured at any one time (about 15%) and those uninsured at some point during a year (about 25%). (NOTE ADDED LATER The Bloviator points out that in fact the Census Bureau reports that the 15.2%/43.6 million were uninsured for the whole year. I may have missed a trick here, and I’ll report back what the 6% refers to). The 43.6 million is the middle group, which means that some 80-odd million were uninsured at some time in the past year. The political ramifications of uninsurance — and they are the only ones that matter — depend on how likely people think they are to lose their health insurance, and therefore face the risk of a financial crisis brought on by lacking health insurance.
We got to the Clinton reform process because in the 1990-2 recession enough people felt worried that losing health insurance was something that might happen to them, and not just to other people. At that stage surveys suggested that over 30% of Americans wanted a complete rebuilding of the health system. But by the time the legislation was brought to Congress in 1994 unemployment had fallen and fewer than 20% said they wanted complete system rebuilding. I don’t have the current numbers to that question, (although I shall go begging for them from my friends at Harris). However, health care is moving its way up the list of issues for voters, and EBRI reports that only 60% of those with employer sponsored insurance are confident that it’ll be there for them in the future (full report here), and most importantly that, "among all Americans, support for a government plan jumped from 25 to 36 percent in the past year".
I paraphrase HHS secretary Tommy Thompson’s response as "we should do better but we won’t". Meanwhile the Democratic candidates are getting serious enough about the issue to be sniping at each other about who said what when about Medicare. This means that we are well ahead of where we were at this stage in 1991 when we still were trying to figure out who Bill Clinton was, although we didn’t then have the other minor distractions of occupying Iraq and fighting terrorism. So expect these numbers to increase the level of grandstanding on the Democratic side, and maybe even get the White House a little concerned. Although in my biased view it looks like they’ve written off any domestic issues as a platform for 2004.
The Feds have backed two whistleblower suits against Medco. The allegations claim that Medco used a variety of techniques to favor Merck (which owned Medco at the time) and was paid $430m in 2001 to switch scripts from Merck’s competitors. Back in March 2003, Milt Freudenheim in the New York Times highlighted Medco’s income from rebates (some $1 billion a year) and its ability to move share towards Merck’s drugs.
PBMs have for a long time made money from rebates, and have also been very economical with the truth to their health plan customers about how much they got from pharma companies for those rebates and how much was passed through to their customers. However, during the late 1990s their performance seemed very ineffective in keeping down the cost of drugs for their plan and employer clients, either in reducing their usage or by holding down their unit price. For more of my take on PBMs see this post.
Interestingly enough, Medco’s stock price went up over a dollar in the latter part of the afternoon after 2pm when the confirmation (of somewhat old news) came out that the US Attorney’s office was joining the suit.
In this post a while back I wrote about the problems that mid-market pharma companies are having dealing with patent expirations. The Jenks Health Care Report has an article on the future of Schering Plough available here , which goes into much more detail about what’s wrong at Schering and whether it can be made right. Their view is that Schering will be dressed up for sale. The question is, would an acquisition of a wounded company help any of the usual big Pharma suspects? Most of them have already gotten big enough in terms of sales force and market clout, so would they want Schering’s somewhat lackluster portfolio and pipeline? Probably not at its current PE ratio of 20, which is the same as that of Bristol-Myers Squibb. Pfizer’s PE ratio is around 50.
A terrible title, but if you’re enjoying reading this blog the other one I’ve found with the closest flavor is the excellent The Bloviator, written by Ross Silverman, a lawyer/public health professor at Southern Illinois University (and a Red Sox fan by my inference). He focuses more on the public health aspects of medical care and less on the business side but he is very well informed and ahead of the game in spotting news and obscure statistics. Go take a look at his piece on the uninsurance numbers, which is a good companion to my post on Medicaid.
Modern Healthcare reports that Tenet’s embattled Chief Counsel Christi Sulzbach has quit. She cited external pressures as her reasons for stepping down, including criticism from Iowa Senator Chuck Grassley . Seems like after articles like this she wasn’t going to play Scrushy’s game of notgoing quietly into the night. However, for bad things to be done it takes not only naughty people at the top, it also takes a system that’s leaving itself open to relatively easy abuse. My first ever post on this blog (which centered on Tenet) suggests that FFS Medicare is that system.
In a news article titled HealthSouth Scandal Doesn’t Slow Former Chief the New York Times’ Milt Freudenheim profiles former Healthsouth CEO Richard Scrushy. Healthsouth was in may ways a corollary of Columbia/HCA and Medpartners. Whereas Columbia was hospitals and MedPartners was physician clinics, Healthsouth owns home health services and out-patient surgicenters. Like the other two it over-expanded and over-promised to Wall Street. The problem with for-profit health care in Wall Street terms is that these are all low-margin businesses, which are dependent on labor, and can produce little "same-store" growth without poaching business from competitors down the street. High growth businesses that Wall Street loves have high margins and produce high productivity gains to maintain them.
None of these companies fundamentally changed the way medical care was delivered by introducing huge productivity gains. Even in the early days of Medpartners when they bought multi-specialty groups like Mullikin Medical Centers in Los Angeles, the promise of new ways of delivering care more cost-effectively under capitation ended up passing the improved margins onto payers and health plans. Then when "medical trend" went back up in the mid-1990s the capitated groups were left holding the bag. Medpartners (of which Scrushy was also briefly Chairman) ended up going into bankruptcy, although the company reemerged as the now successful PBM CaremarkRx.
Given that Wall Street likes high margins and perpetual growth, yet creating high margins in medical care delivery is difficult, these for-profit companies are left with three options.
1) Buy competitors rapidly and mask flat "same-store" growth with overall revenue growth until the music stops and there’s no-one left to buy. (Medpartners, Columbia/HCA).
2) Increase margins and revenue by sticking it to payers (especially Medicare) and hope they don’t notice. Problem is they will eventually. (Columbia/HCA, Tenet)
3) Lie about it. Claim to be making massive profits, even if it’s not true, until the FBI wakes up. (Healthsouth, Enron — OK, OK I know they weren’t a healthcare company but it’s the same principle)
There is of course the fourth option, that of admitting you are a low margin player like a utility company, and accepting the low valuation Wall Street gives you. But that’s not really much fun, is it?
As for Scrushy at Healthsouth, he’s clearly still having lots of fun going powerboating and jetting around in his new plane. He’s also claiming that he knew nothing about what the 12 of his lackeys who’ve already plead guilty to fraud were doing. That sounds similar to Ken Lay’s claims about his innocence to what was going on at Enron. Who knows? They may end up sharing the same cell at Club Fed.
Massachusetts is suing drug makers for ripping off the state’s Medicaid program. But note carefully, they’re suing generic drugmakers. I thought generics were supposed to be cheap! The suit accuses the generic-makers of a familiar tactic. Selling the drugs to pharmacies at one price, charging Medicaid a higher price and kicking back (some of) the difference to the pharmacies to move around market share. It’s a little odd that virtually every generic maker was allegedly doing this–how can they all be buying market share at the pharmacy?
However, this does start to get at some of the underbelly issues of marketing drugs. It’s well known that doctors are marketed to extensively by pharma companies, and the definition of what’s a legitimate promotion and what’s a kick-back has been changing over time. It’s also well know that PBMs are paid extensive spiffs by pharma companies (called "rebates") to favor one brand over another. What’s not so well known is that pharma companies are also paying pharmacies to try to move share around within the formulary–a kind of counter-formulary trying to move scripts from the first-tier drug to the second tier . These programs are run (somewhat quietly) as part of the Rx point of dispensing messaging by the big transaction companies, like NDC, WebMD and Proxymed. It looks like a similar activity by the generic makers in Massachusetts may have stepped over the legal line.
Just when I was wondering what to write today, Matt Quinn comes to the rescue again……Linda Aitken, who’s study on nursing education I wrote about yesterday, also wrote an article last year about the impact of staff ratios. This is something Matt has looked at in depth, he writes:
Linda Aitken and (others) had an article in JAMA in Oct of last year ("Hospital Nurse Staffing and Patient Mortality, Nurse Burnout, and Job Dissatisfaction" in Oct 23/30, 2002) regarding the link between nurse to patient ratios and (suprise!) patient outcomes and whether nurses like their jobs. The long and short of it is that for every additional (surgery) patient that a nurse is in charge of, that patient’s chance of dying within 30 days of admission increases 7%. Each patient also added 23% to the level of nurse burnout… With the average age of US nurses north of 45 years and with the Philippines and other countries already experiencing shortages of experienced nurses (from flight to the US), the government must step in to provide strong incentives for both men and women to become nurses. And nurses must gain (ongoing) leadership and management training.
A conversation that I had with a nurse yesterday helped me understand the difference between BS nurses and those with 2 and 3 year (vocational degrees). (Editor’s note: As you’ll notice, Matt was in the army but don’t hold it against him!) The BS nurse is like a new army 2LT: brimming with enthusiasm, long on theory/book knowledge and short on hands-on experience or credibility. The vocational nurse is like a PFC: knows how to do tasks, but needs to be directed (a "worker bee"). The hospitals of this nation are short on the link between the two – the "sergeants" of the Army: nurses who have both years of hands-on experience and formal training in leadership / management skills. Just as the Army is able to conduct complex operations with a few educated officers, a bunch of (perhaps) high-school-educated 18-24 year olds and a strong "backbone" of experienced sergeants to ensure the hands-on execution of things and the training of the new folks, hospitals need to develop this cadre of "nurse sergeants" and the professional "nurse officers" to lead them. While I agree that a group of higher educated folks can probably outperform a group of less educated folks in a task like managing a group of patients, developing tightly knit teams ("squads"?) composed of nurse officers, sergeants, and PFCs could outperform both – at a lower cost and in less time than all BS nurses.
Matt has written two articles about staffing effectiveness based on his work at GE & Quantros. They are, The True Cost of Overtime and Balancing Staffing and Effectiveness . You can reach Matt at firstname.lastname@example.org.
FDA Approves Sale Of Prescription Placebo as reported by The Onion. You know it’s only 90% a joke.
A mid-level executive from a Tenet hospital in San Diego was indicted yesterday, joining her boss who’s already in hot water for setting up a $10 million kickback scheme to generate patient referrals. This reminds me a little of when the dark stuff hit the fan over at Columbia/HCA. A bunch of local execs and hospital administrators went to jail. CEO Rick Scott never even got charged, although at the very least his management style created an atmosphere in which upcoding and Medicare fraud could flourish. Whether Tenet can stem the bleeding from the recent scandals remains to be seen. However, ex-CEO Barbakow must be somewhat concerned that, as opposed to the good old days of 1997 when Scott was kicked out of Columbia, the American public and its DAs now know the words Enron, Adelphia and Global Crossing.