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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

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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

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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

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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.

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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

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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!"

Jeanne Scott looks at Single payer, MSAs and what employees want: I editorialize back

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I’m a little late in getting to this because I didn’t get my email over labor day weekend while my site was down.  Enough excuses.  If you haven’t been getting theJeanneScottletter, which I’ve told you to sign up for before, then you are missing out on the best analysis of health care politics in America at a very, very reasonable price (i.e. free). In her pre-labor day issue (PDF is here) Jeanne has three fascinating articles that are revealing a little more editorial comment than usual (and it makes her newsletter all the better for it).

She argues against single-payer Canadian style, which has reared its head as the Democratic primary process approaches, and then convincingly explains why Medical Savings Accounts (MSAs) would destroy conventional health insurance if they were allowed to flourish. And she ends with an amazing piece of analysis about employees’ attitudes to health insurance, from a survey from Stony Brook University’s Health Pulse of America .

I’m gong to editorialize myself a little here. Before I do that let me tell you what I think the likelihood is of single payer passing in the next decade in the USA.

Zero. 

My work for clients is about what’s likely to happen (read: if you’re a health plan who wants help you’ll be getting a rational analyst telling you what’s likely to happen not a foaming-at-the-mouth socialist if you hire me!). However, there are some times when something approaching the truth needs to be told about American health care and this is one of them.

Jeanne opposes single-payer Canadian style because the Canadian system is relatively expensive compared to most other of what she calls multi-payer universal health-care systems, and because Canadians wait relatively long times for access to specialty care and hi-tech machines.  She argues that more competition amongst insurers and hospitals would produce higher administrative costs for Canada but a better outcome for Canadians, in terms of improving that access. But, there are lots of problems with this cursory argument.  For example the British system is very like the Canadian system and spends much much less money (6% of GDP versus 11%). So you can do single payer very cheaply (albeit with even less access).  More importantly in the US context, those multi-payer systems (e.g. Germany and Japan) do not have competing insurers as we’d understand them here–you join the one from your employer or city–and more importantly the providers only deal with one insurance system, which (surprise, surprise) has a fee schedule set by the government.  That looks essentially the same as "single-payer" to me,  Yet those two countries (Germany and Japan) manage to have much greater access to specialist care and hi-technology even than the US.  And of course in none of these countries are there any "uninsured".

Jeanne’s argument about MSA’s underscores why "universal insurance" by definition means "universal compulsory insurance" means "essentially single payer".  If you allow people to withdraw money from an insurance pool it eventually only insures the sick and therefore collapses under its own weight.  That’s more or less what’s happened to the individual insurance system in this country over the last 20 years and is what the Democrats are afraid will happen to Medicare if the "healthy" seniors are allowed to leave. (I’m not sure they are right to be that concerned about that happening given the record of Medicare Risk HMOs, but that’s another discussion.) So lets connect that back to health insurance as we know it in America. As Jeanne says 10% of patients account for 50% of the costs, and 50% account for 10%. So if you allow insurers to choose risks via medical underwriting based on what they know about their potential insurees, they are bound by the laws of economics to try to figure out a way to insure the healthy (the 50%) and reject the sick (the 10%). 

So if you sincerely want sustainable universal coverage you must make insurance coverage mandatory, and put everyone in the same pool (community or nationally rated) or else you will end up with an insurance market that cannot function for the sick.  Oh, and this risk-selection all gets turbo-charged by genetic testing, of course!  Japan Germany, Canada and the UK all do this in their slightly different ways. But the key difference between their systems (and where most of the guff that’s talked about single-payers misses the point) is not about single payer but about single provider.  In Canada and the UK the providers (more or less) all work for one provider organization–the government.  In the Japan and Germany they are  (more or less) independent and private.  The Ladas and Skodas that Jeanne is worried are the result of single payer actually come from nationalized single providers (and anyway those are the worst examples–want to compare and contrast, say, the BBC and Fox News on quality of journalism?). 

No one is seriously suggesting that we make all health care providers in the US work as employees of the government; the true analogy is how the defense industry works.  We have one payer (the DOD) and several private contractors, all of whom bid to build the best tank/bomb/plane. So (suspend disbelief here for a second if you know anything about Defense procurement) the Defense Department gets a better cheaper tank/bomb/plane because of the competition between the contractors than if it made the tank/bomb/plane itself. Well if that’s a good enough system for the US military why wouldn’t it work for the US health care system? No real reason that I can see (and it will get there anyway as Medicare bears the weight of the baby boomers over the next 25 years, but I digress).

And there’s one other point.  If you already had a single payer system, you could use that payer and regulatory leverage to encourage competition amongst providers and even insurers by setting the rules of the game the way you wanted.  This is the theory behind Alain Enthoven’s Managed Competition.  It is no coincidence that the only country where it has come anywhere close to being implemented is in the UK. Although the Brits clearly didn’t get it right (but yet may with their "primary care groups") it’s easier to introduce competition once you’ve set the universal single-payer ground rules, than to get "there" from the American "here" of a mess of insurers and providers competing over the wrong things — like avoiding risk and looking for the best insured patient.

End of editorial . Back to why we won’t get there from here and all of our private sector jobs are safe, or safe from nationalization at any rate. Jeanne points out that when offered the choice in the Stony Brook survey 71% of employees wanted a combination of "health coverage & lower salary" compared to only 24% wanting a "higher salary & no health coverage". On the employer side Kucinich, Gephart, Kerry and others are talking about a payroll tax on employers to fund health care.  Now rationally all employees know that some of their salary is being diverted to pay for health insurance, and employers (or at least the ones who do offer insurance) know that they might end up paying less in tax than they are currently paying for insurance, and at least it might not go up 15% a year. 

So why the objections? 50% of those asked thought that they couldn’t afford private insurance if they lost their benefits.  In other words they either understand how bad the deals are in the individual health insurance market, or they don’t trust their employers to actually fork over the money that the employer is currently using to buy them insurance (in wonk terms, they prefer defined benefit to defined contribution).  Presumably the average employer is concerned that they’ll end up having to pay more in tax and still top up the health insurance benefits for their employees, and they would rather retain full control of that process.  In any event, Americans are scared of moving away from what they’ve got in health insurance, and as more have got something and less than 20% have got nothing, we’re not going anywhere far from the present system soon.

Premiums keep on going up

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And in news just in….health care premiums will be going up by 13% in 2004, according to a Corporate Research Group survey.  The "good news" is that the increase will be slightly lower than the last two years.  The real news is that as premiums go up, business will force more costs onto employees, or simply drop coverage, and no new model is in sight to deal with this. Even the big purchasing "thugs" of the mid-1990’s seem unable to halt these increases. And some are losing their clout, like CalPERS. Of course the worse this continues to get, the greater the political and market reaction will be down the road. When it will happen I don’t know, but personally I’m looking forward to a replay of 1991-5.  But not everyone reading this might share that opinion.

The perils of being mid-market big Pharma

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When I first got into health care a little over a decade ago, the first lesson I learned about big drug companies was that they were very profitable. The second lesson was that a huge company might have only one or two profitable drugs. When I first looked at the Fortune 500 I found that Merck, then the big Kahuna of big pharma, had a market cap the same size as companies with ten times its sales, reflecting that profitability. Pfizer, which is now the big Kahuna, has a market cap of over $250 billion (here’s a list of the top pharmas) with net income of $9 billion on sales of $32 billion.  For comparison GE has net income of $14 billion on revenues of $131 billion.  (GE’s market cap is around $315 billion).

However, behind the numbers, the pharma industry, despite all its dalliances with PBMs, care management, and genomics, over the years still operated by simple rules.  So what a big pharma company did was to somehow develop a profitable drug and market it to doctors (and more recently patients). But there wasn’t a concentration in the industry like there is in automobiles, or steel, because the products were company-specific and of course patent-protected.

So the rules of the game are, if you’re a pharma company and you can’t develop a profitable drug, then license one in.  If you can’t license one in then buy the company that makes it — even if it’s  a huge company.  Pfizer’s purchase of Pharmacia was $60 billion spent largely to get hold of one drug — Celebrex. Since the early 1990’s Pfizer had successfully played a strategy of marketing drugs when others (especially Merck) were distracted by managed care, buying PBMs and generally cutting back on their sales forces. That gave Pfizer the marketing clout to license in other drugs, even from big companies.  For instance, they were already co-marketing Celebrex before they bought Pharmacia. And eventually it gave them the scope to have a full portfolio of drugs by acquiring other companies. Other big pharmas, notably GlaxoSmithKline — the combination of Glaxo, Burroughs-Wellcome, Smithkline-Beckman, Beecham (and a few I’ve probably missed), which were all largely "one-drug" companies at the start of the 1990s — followed suit by getting bigger to get both marketing clout and more comprehensive portfolios.

The other side of this coin is what happens when you don’t have the first part of the equation; the blockbuster drug. Schering-Plough’s new CEO Fred Hassan (ex-Pharmacia by the way) gave a talk this morning about the problems of his company.  Schering has been hit by the loss — more like the evaporation — of its main allergy products Claritin and Nasonex, as well as in the Hepatitis C market.  Schering has been unable to replace these losses with new brands, and also has had manufacturing and regulatory problems. It has been therefore unable to jump from being a one (or two)-drug company to being a serious heavyweight. Astra-Zeneca, a mid-size player that became big on one drug, Prilosec, looks like it is making that jump with Crestor — its new statin.

Usually the companies in that situation sell out/merge with others around the same size, rationalize their sales forces, and wait for new blockbusters to emerge.  However, its been more than a year since we saw the end of the last round of pharmaceutical mergers — last one was Pfizer-Pharmacia — and it may be that the really big guys don’t need the medium size guys any more. In that case we might see the slow withering of the medium-sized pharmas, especially those without strong pipelines.  And as I mentioned in last week’s post about biotech, there’ll be more continued interest from the big guys in cutting deals with interesting small research companies to keep that pipeline stocked.