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PHARMA: Formularies–penny-wise, pound foolish.

You may notice some slightly funky publishing schedules this week as I’m on the east coast confirming that Boston is cold in May, that the Big Dig is never-ending, and that Amtrak can make the trains run on time. Meanwhile in the better late than never category I wanted to make sure that THCB readers didn’t miss (and of course you saw it elsewhere) the RAND report about pharmaceutical formularies and their impact on Rx consumption. In yet more proof that in my earlier life I hung around with intellectuals way above my station, this study was led by Dana Goldman, who was a mere Econ grad student when I was at Stanford, but has certainly moved on since then! (He’s now head of Health Economics at RAND).

Goldman’s team linked a huge dataset of Rx claims with pharmacy benefit design for over half a million lives from a wide variety of plans and employers. (Incidentally the brain and data crunching required for this study–given that these things are not usually correlated in that way–must have been immense and makes me glad that I didn’t try to emulate his success!). The results mirror a study in the NEJM last year, which looked at 3-tier formularies. The bottom line in both studies is that if you increase the co-payment at point of dispensing, people take fewer drugs. RAND found that a doubling of the co-pay caused up to a 45% decrease in use of NSAIDs and antihistamines–presumably because cheaper OTC products were substituted. That’s a win for the payer and probably not too much of a loss for the consumer. But at that point things get a little less clear. “Reductions in overall days supplied of antihyperlipidemics (34%), antiulcerants (33%), antiasthmatics (32%), antihypertensives (26%), antidepressants (26%), and antidiabetics (25%) were also observed.” And even more disturbingly “patients with diabetes reduced their use of anti-diabetes drugs by 23%.”.

Presumably having one in four diabetics reducing their maintenance drug use isn’t the type of health promotion that all the PBMs’ marketing materials claim they are aiming for. And of course as Harvard’s Steve Soumerai showed years ago in looking at restrictions on schizophrenia drugs in Medicaid, a modest saving in one place often causes a much bigger loss in another. Although it’s not in the abstract, the Modern Physician story about the report quotes author Geoffrey Joyce:

    While the drop in usage is not nearly so high with drugs for chronic conditions, “we find significant price sensitivity in this population,” Joyce said. “We think there are adverse health consequences.” For patients with diabetes, asthma and gastric acid diseases, emergency room visits climbed 17% and hospital stays rose 10% as the use of prescription drugs dropped, according to the research.

    What to do is a question of balance when creating a formulary, according to Joyce, who warned against using increase in copays as a “blunt tool.” “I think there is this herd mentality to control drug costs without fully considering their overall healthcare costs,” Joyce said. “You can design it to make people price-sensitive without creating adverse consequences.”

Now bear in mind that not only are the health consequences of these serious, but the DCCT study over a decade ago proved that a combination of testing and drug use could maintain diabetics in a stable state, whereas poor compliance increased both the incidence of hospital visits and overall costs for the diabetic population. It seems that those lessons haven’t been learnt. Of course having a drug budget separated out from the overall health budget doesn’t easily allow a payer to make that connection. Consequently you have to be concerned about the way that Medicare is administratively separating off its drug coverage from its overall care system.

POLICY & HEALTH PLANS: Managed care costs Medicare more

This isn’t new news, and has been disputed in a roundabout way in various other pieces, particularly one by Jeff Lemieux that I commented on last year. However, the Commonwealth Fund has a latest report showing that in terms of pure increase in payments, the enrollees in Medicare HMOs will exceed the cost of their equivalents in the FFS program by 8%. In some urban counties (such as Phoenix, AZ) the difference will be as much as $1,000 per year per member.

So the recent legislation designed to "level" the playing field between the public FFS program and the privately-run HMOs in Medicare+Choice has at the very least thrown the advantage back to the HMOs. Logically, if it believed that HMOs actually were cheaper you’d expect the government to get seniors into HMOs and then keep them there as they cut reimbursement rates later. That presumably would save money in the long run. However, we’ve seen this movie before, we know how it ends, and there are problems with the "bait and switch" scenario in which the senior is trapped in an ever-cheaper HMO. The problems are that neither the members nor the plans can at this stage be forced to stay in the market. In the late 1990s the private plans moved out as reimbursement fell, and their members were forced to move back to FFS.

That means that the short-term costs of pushing people into HMOs cannot be "made-up" later by ratcheting down rates so (as Commonwealth says), the increased Federal spending is merely a short-term subsidy to private HMOs and their members. Not exactly logical government policy. But then again, who said PDIMA was logical. Expect Senator Kerry to point this out in the run-up to November!

POLICY: Overview of HC system spending

The California Healthcare Foundation is out with more great reference work. This one is an overview of the whole health care system. They call it Health Care Costs 101 and it’s a nice summary of some voluminous work done at CMS by Katherine Levit’s team.

There’s an easy to digest one page system overview PDF as well as a much larger version here.

Perhaps one of the most interesting views of what we already know is what share of which payers’ expenditure goes on what.

For consumers, “Out of Pocket” expenditure on prescription drugs is 23% of all spending, dental/other professional 21% and other (such as nursing homes) is 18%. For Private Insurance the numbers are hospitals 30%, physician/clinical 30% and Rx 14%. For Medicare hospital care is 56%, physician/clinical Services 26% and nursing Home/Home Health 9%

So as you’d expect the relatively low amount overall paid out of pocket by consumers is concentrated on drugs (and is concentrated in a relatively few number of consumers by the way) with the political consequences we’ve been seeing in the past few years. Whereas private insurers are concerned mostly with hospitals and doctors, and Medicare of course is still fixated on hospitals 20 years after the introduction of DRGs.

All food for thought when you’re considering who cares about what.

PHARMA: Bristol-Myers to Stop U.S. Sale of Serzone

BMS is pulling its poorly selling anti-depressant Serzone off the market. BMS blames poor sales for the move, but the drug has been blamed for liver problems and the folks at Public Citizen have been suing to force a full recall (rather than just stopping sales) and the cessation of sales of generics.

Overall this will have modest effect on BMS attempts at revival–the way the company deals with the patent expiry of Pravachol will be much more important. As mentioned last week in THCB, Forbes believes they’ll do OK.

LIGHT RELIEF

If you are needing a break to get you to the weekend, the photos from the first half of my trip to the UK and Turkey are now up at my personal blog. But don’t blame me if your boss gets grumpy with how you’re spending your day!

HOSPITALS: CalPERS drops 36 hospitals

Here’s the Sacramento Bee’s report on CalPERS paring down the list of hospitals it will contract with in the Blue Shield HMO product. Although some big names like Cedars Sinai are on this list, the real deal is the fight between CalPERS and Sutter. Sutter operates 13 hospitals in the Sacramento-San Francisco region. However, it’s not CalPERS denying access to hospitals that is the big deal. It’s the issue with physicians affiliated with those hospitals.

While in the SF Bay Area many primary care physicians contract with either an umbrella group like Hill or Brown and Toland and as such CalPERS employees can get to their physicians another way, in Sacramento somewhere in the region of 50,000 CalPERS employees are likely to have to change primary care physicians to a non-Sutter affiliated doc. I suspect that the squealing from that will be fairly loud. The employees can opt for the PPO to keep their docs, but that will cost them more in premiums and co-pays. As a contrast SBC unionized phone employees (including those in the Sacramento are) about to strike because they face co-pays for the first time. The issue was the same in grocery workers strike that lasted most of the past 9 months.

So this one needs to be watched. CalPERs believes that there is still overcapacity of hospitals in the Sacramento region, or else it wouldn’t have tried this. It’s also staying away from the “all or nothing” tactics that Blue Cross tried on with Sutter in its losing contract dispute a few years back. But if Sutter has managed to keep prices 80% higher than everyone else (as CalPERS claims) their market power may be enough to see them through this. Whether CalPERS employees will go along is another matter.

HOSPITALS: Straight Outa’ Compton, by MATT QUINN

St. John’s Regional Medical Center , Oxnard’s only hospital has filed a civil lawsuit seeking to impose an injunction against members of the Colonia Chiques gang. According to the injunction, gang members – who “frequently arrive at the hospital as victims of beatings, stabbings and shootings” could receive care at St. John’s, but fellow gang members would not be able to congregate there.

The hospital claims that the “typical gang member emergency usually results in 20 to 30 people showing up at the emergency room,” where gang members “are very loud, bang on doors, are rude to staff and disruptive, and have no regard for other patients or hospital property.” In addition, the affidavit stated that the gang members “block off the entrance to the emergency room, obstructing the passage of those who need to use it”; “intimidate anyone who wants” to enter the emergency department; and “continually try to obtain information from the emergency room personnel in a way that obstructs staff’s ability to do their job.” Gang members also are responsible for “thousands of dollars worth of vandalism” at the hospital.

While this injunction might seem like a good idea, putting it into practice might be somewhat challenging: does it apply to only Colonia Chiques gang members or does it apply to other (more or less well-behaved) gangs; short of declaring that they’re a Colonia Chiques, how does one know if someone in the E.R. waiting room is a member of that gang or not; what rights does a non-disruptive gang-member have to visit an injured family-member?….etc.

Like it or not, gang members represent part of the “community” that this hospital has a mandate to serve. Other than the vandalism (which should be addressed with better security), it sounds like, perhaps, more spacious waiting facilities and better communications – on both sides – would go a long way toward reducing problems. Too bad St. John’s isn’t seeking a constructive approach.

GENERAL: Round-up of few stories

So I’ve made it back from vacation. The last story (for a while) from Matt Quinn runs after this one, but I thought I’d give you a quick preview of what I’ve been seeing in news since I came back.

Forbes has an interesting article suggesting that Bristol-Myers Squibb may be emerging from its troubled last 3 years. The ‘Buy’ Case For Bristol-Myers

Via the BCBS Association site, the Wall Street Journal has an article suggesting that if physicians just say sorry, it will lower their risk of being sued for malpractice: More Doctors Apologizing to Patients To Avoid Lawsuits

A mere 4 years after we tried hard to sell Cigna the same thing for way less money (not that I’m bitter of course!), they have struck a deal with WebMD for a new consumer front-end to their web-site. CIGNA Teams with WebMD Health: Agreement to Offer New Online Help So Consumers May Get the Most From Their Health Care Plan

Manhattan Research has a new study out showing that more seniors are getting on line and as the younger seniors and “pre-seniors” are even more “wired”, their use of online services for health care will be even more influential in the future. Why drive when you can surf?

USA Today has an article remarking about how far the gay rights movement has come in 30 years while the “uninsured rights” movement hasn’t got far since 1948! USA Today: Advances in gay rights overtake health policy

There’s also interesting stuff from Health Affairs about medical management, more about Sutter and CalPers, and some interesting stuff about formularies and drug utilization from RAND. All grist for my mill over the coming days.

BLOG NOTES:

• 9

I’m back from a great trip to the UK and Turkey, and of course have jetlag and so am up at 4 am writing this. Pics will be up at my other blog soon…

Meanwhile many, many thanks to Matt Quinn who produced a great set of postings while I was away. The latest one (today) on physician directed malpractice plans is indeed a gem!

I have a couple of stories from the UK waiting in the wings, and more or less normal service will be resumed tomorrow!

INSURANCE: Premiums Rising, by MATT QUINN

The Boston Globe reports that the largest malpractice insurer in Massachusetts will raise doctors’ premiums 11 percent on July 1. The responses from “outraged” physicians (and insurance company executives) in Massachusetts echo the sentiments of those in Pennsylvania, New Jersey, and other states:

    “Doctors and insurance company executives say premiums are rising because juries are awarding these and other patients more money, which also drives up settlement amounts. They are pushing legislation to limit the amount juries can award patients for pain and suffering. Massachusetts doctors want additional changes, including limiting the interest paid on awards. Doctors also want to establish standards for expert witnesses, such as requiring physicians to be actively practicing in the specialty on which they are testifying.”

There is a push for federal and state legislation to limit jury awards because rising premiums are “becoming unaffordable” to some physicians and are driving some specialists to leave the state in search of greater compensation for their services. Combating rising malpractice premiums would be a top priority of the Bush administration if re-elected, according to Mark Breakstone, a Boston malpractice attorney:

    “If George Bush is reelected and Republicans…control of the Senate, there will be a full-scale assault on many fronts…Bush has made it clear that medical malpractice is a top priority for him.”

Meanwhile, premiums of another kind continue to rise at a double digit pace, but the response – and those impacted – by this crisis are quite different:

    “Health spending is expected to rise well above inflation for years to come. Employers are increasingly passing on the additional costs to their insured workers, causing some workers to opt out, saying they can’t afford it. And, at some workplaces, employers are dropping coverage altogether…If insurance premiums continue to rise about 10% a year, today’s average premium could double in just over seven years. Wages, however, are only expected to grow at about 3% a year.”

While cost shifting and employers who drop coverage because of rising premiums impact the working poor the greatest, more middle class citizens are also feeling pressure:

    “19% of those whose household income is $25,000 to $50,000 are among the nation’s 43 million uninsured. The percentage is even higher among those making less than that: 23%. Even those with household incomes exceeding $75,000 saw a rise in the percent uninsured in the last Census Bureau survey.”

However, the Bush administration supports such cost-shifting because it makes consumers more responsible for the care that they receive:

    “Such high-deductible policies also are supported by the Bush administration, which sees them as a way to help make consumers more judicious users of health care. Congress, too, gave a nod of approval in the Medicare bill, allowing consumers with certain high-deductible health insurance policies to open tax-free health savings accounts to be used for medical care.”

While I certainly believe that elements of the malpractice system need reform to make it more reliable, any legislation that addresses malpractice should concurrently focus on holding physicians more responsible for the care that they provide. Recent studies have concluded that patients receive appropriate care only about half of the time. Some debatably merit less cases receive large jury awards. A far greater number of patients who receive inappropriate care – and are harmed by that care – never see a dime.

To be consistent, perhaps insurers should begin to develop (and the Bush administration should support) the development of high-deductible “physician-directed” malpractice products that allow physicians to choose “cafeteria-style” their coverage in exchange for lower premiums… or to even go without (as 43 million of their patients do) and pay full price for any charges that they incur.