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HEALTH PLANS: Jones the Policy Wonk on the Supremes decision in favor of HMOs

On Monday the Supreme Court handed down a decision that may at first glance appear more relevant to the bad old days of managed care. In a decision authored by Clarence Thomas, who’s never seen an old irrelevant law he didn’t like, the Supreme Court sided with health plans and limited the ability of two Texans to sue their health plans in cases when the medical decision to change a course of care was, at the very least, highly suggested by the plans’ representatives rather than the patients’ physicians. Now it is ridiculous that a 1974 law passed about pension benefits with no thought given to health care at all has become a huge part of the current debate on health care. However, given that most plans have backed off from the kind of intensive care management that this decision was about, you might think that bar the political shouting this decision is mostly irrelevant for the future of how health plans behave. Jones the Policy Wonk would disagree, suggesting that we’re going to see a much meaner version of health insurance in the future. (I have shades of John Grisham’s The Rainmaker in my head). The Wonk writes:

    If I remember my Health Law class correctly, this is a ruling with enormous policy implications–it means that insurance companies will adopt a policy of: “Deny first, ask questions later.”

    This ruling says that whenever an HMO denies care, the denial falls under federal jurisdiction of the ERISA statute and not state jurisdiction, regardless of whatever laws the state has passed regulating HMOs. This is very boring. But under ERISA, judges can’t award damages; the courts can only award litigants the value of the benefit denied. This is a huge deal.

    For the consumer, it means an insurer can deny your medical treatment without any fear of the consequences. For example, my family’s got a history of breast cancer and my doc says I need a mammogram. My insurer refuses to cover mammograms because they’ve got a strict policy of not covering mammograms for women under 50. I don’t get the mammogram, I get breast cancer, it’s discovered very late and they have to lop off my breasts. And I’m the world’s pre-eminent lingerie model, and I lose my job and I’m impoverished and eating dirt in the street.

    My company’s liability? Under state law, they have to worry about the effects of their actions–if I can prove their breach of contract in not providing me the mammogram, they have to compensate me for the loss of my career, the pain and suffering I endured from chemotherapy and surgery, the family weddings and holidays I missed, the medical costs they didn’t cover, the dirt I had to eat, etc. But under ERISA, if they’re found guilty of breach of contract, they are liable only for the $100 value of the mammogram that they denied me.

    Clearly, that’s a ludicrous example. I mean, I’m a lingerie model, I’d pay for the mammogram, right? But what if I were a janitor denied chemotherapy? Or a secretary with a rare, highly curable but very expensive disease. If you’re an insurer, wouldn’t it make sense to just let me die and take your chances with a jury? After all, worst case scenario is that you would pay out as a penalty what you would have spent anyway to treat me. And as an added bonus, I’m dead, so you don’t have to worry about paying for any other diseases I might get or any therapy I might need after I survive this treatment.

    Today’s ruling is a little more complex than the papers are indicating. For example, it doesn’t apply to people buying insurance on their own, so it doesn’t apply to everyone (it just applies to most people, who get their insurance from large self-insured companies). But clearly, today’s ruling creates yet another perverse incentive in our health care system. Insurance companies are now actively incentivized to deny medical treatment because there’s no downside to denying care. In addition, they’ve got an incentive to lie to their customers, promising benefits to get people to enroll that they have no intention of ever delivering. Because there’s no penalty for not keeping their promises.

    You can’t really blame the Supremes for this–it’s a proper interpretation of the law as written. And Congress should definitely amend ERISA. But this is what you get when you make medical care an employment benefit. It’s patently ludicrous to pretend that medical care is a pure economic good, like cash in a pension plan, and it says volumes about our understanding of health care that we could ever write a law saying so.

POLICY: Perpetual war hits military families hard

It’s well worth looking at this commentary from Kaiser Family Foundation’s Drew Altman, and preeminent health care policy expert Bob Blendon at Harvard. They recently surveyed military families about the costs of the extended tours of duty being forced upon our troops in Iraq. While most readers of THCB will have their minds made up one way or another about the war long before now, any casual walker down a mainstreet in any large American city can tell that we haven’t done a good job looking after our veterans. Altman and Blendon suggest that this lack of attention is also visited on the families of soldiers on deployment, in both health, social and financial terms.

    The emotional toll that soldiers and their families pay when they are overseas for extended periods can also be high. Fifty-six percent of spouses of extended-duty soldiers are living day-to-day with the fear that their husband or wife will be injured or killed overseas. When asked about the families in their spouse’s unit, half report that marital problems are very common; 40 percent cite depression as a very common problem; 27 percent report alcohol or drug abuse problems in the unit; and 16 percent say domestic violence is very common.

The financial impact is also severe.

    The financial stress of extended deployment can be severe for military families. Fully three in 10 report that in the past year, they and their family have had trouble paying bills. For more than one in five, their current financial situation is such that they have to get food stamps or Women, Infants, and Children program aid from the government. (Even 6 percent of families of officers say they receive food stamps or WIC.) Clearly more financial support is needed for the families of soldiers risking their lives for their country for an extended period of time.

Interesting that two of America’s larger employers of those who have lower educational status–the Army and Walmart–both have plenty of employees’ dependents on welfare. But given the poor follow-up social and health care given to Vietnam Veterans and the issues with Gulf War syndrome, the concept of "supporting our troops" needs to become more than just a jingoistic slogan. Or the result will be more pressure on the healthcare system in years to come.

TECHNOLOGY: ePrescribing facing tough going

I’m on the road this week so things might be a little backed up here at THCB. So please excuse the unusual publishing schedule, but as always you get what you pay for!

Today I wanted to point you at Manhattan Research’s Mark Bard’s article in HealthCare Informatics on the Economics of ePrescribing. Manhattan’s numbers from their physician tracking study are actually showing some stagnation in the numbers using ePrescribing tools. This jibes with a rumor I heard about the Mass Blue Cross and Tufts rollout of ePrescribing using Zix Corp’s Pocketscript. Apparently getting any physician who wasn’t already one of the hundred or so in the pilot program to use it has proved very hard, and instead of the 3,000 targeted for use late last year fewer than 200 are using it so far. However, Bard remains confident:

    It is clear that electronic prescribing will happen. The only question is how long it will take to reach critical mass, the point at which the next wave of users takes a fraction of the time it took to get the first wave.

But he also points out how the economic incentives to use ePrescribing aren’t lining up::

    One area that remains a challenge when it comes to the future of e-prescribing is aligning economic interests across the healthcare delivery system. For example, there remains a real need to dissect the entire value chain of traditional prescribing and truly understand where digitizing the process saves money, saves time, or improves quality of care. Understanding who benefits, when they benefit, and to what extent they benefit is critical to understanding who should invest and to what level. For example, if the end-user physician receives little to no economic value from digitizing the prescription order entry, why should she pay for this benefit?

In other words, if the savings is at the pharmacy and the drug company benefits from more utilization, why should the providers pay for the technology? The answer is that so far they haven’t.

HEALTH PLANS: More tittle-tattle about WellPoint

Just to add onto all the fuss about Wellpoint’s merger with Anthem, California’s biggest newspaper The LA Times has a none too glowing analysis of the motives behind the merger. The point it hints at but doesn’t really follow through explaining is that both Wellpoint and Anthem have both kept their expansions to buying up other for-profit Blue Cross plans. As there’s usually only one Blues plan per state the newly merged company will be bigger nationally but not regionally. The region (or enlarged metro area) is of course where the power plays between plans and providers work themselves out. So in that sense the LA Times article is right, in that there’s no compelling economic rationale for the merger, other than to create a national company that can have the scale of a United or an Aetna. In some ways we are moving back to the big 5 insurers that were the "national" players in the 1980s, only that instead of Aetna, Travelers, Met, Cigna and the one I forgot (oh, yeah; Prudential), it’s United, Humana, Anthem/Wellpoint, and Aetna (albeit an Aetna that’s gone through many changes).

However, because health care contracts are regional, a national presence still isn’t that important in health care. So the lack of rationale for the merger also means there’s no national rationale for the FTC or anyone else to stop it. My sense is that once some of the more egregious pay-outs are scaled back, it will still go ahead. Wall Street seems to agree in that Wellpoint’s stock is still nearly 30% higher than it was when the merger was announced back in October last year .

PHARMA: Statin redux as FDA issues new advisory for Crestor

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(Hat-tip to Sydney at Medpundit for this one). The FDA late last week issued a new advisory for Crestor, Astra-Zeneca’s blockbuster statin. THCB readers not suffering from medium term memory loss might remember a series of articles from various interested contributors late last year that were started mostly by the British medical journal The Lancet. That journal was highly critical of Astra-Zeneca’s stance in getting the drug through the FDA. I’m not enough of a pharmacy expert to interpret the FDA’s latest advisory, but the key section says:

    FDA has received reports of rhabdomyolysis in association with Crestor, as it has with other drugs in the statin class. In ongoing fashion, we are evaluating these reports of adverse muscle effects with regard to clinical severity and apparent relationship to the drug. FDA is comparing the frequency of reporting of muscle injury with Crestor to that with other statins, given differences in prescribing rates for the different drugs. Pending the evaluation of the recent Crestor safety experience, FDA is not proposing to change the US labeling for Crestor, but does want to re-emphasize to physicians to the importance of carefully following the recommendations in the current product label. Analysis of accumulating safety data in the U.S. and worldwide will be considered in any future labeling changes for Crestor, and to make recommendations on risk management plans for Crestor.

Crestor’s removal from the market is still an extremely unlikely wildcard, and those who suggested shorting AZ’s stock last year have seen it stay in a tight $45-50 range since the Crestor launch. I’ll try to raise more information about the statin market, but given that in 2003 Lipitor and Zocor had $16 billion in sales between them, you understand that developments like this in the statin market are very serious business. But like everything else these days you can bet on it in an online idea futures market.

Meanwhile, if you were concerned that high cholesterol may not be a sufficiently nebulous condition to demand all this attention, don’t worry. Metabolic syndrome has been pushed by the pharma press for a year or so now and it makes its first appearance (at least first one that I’ve noticed) in a mainstream business publication (Forbes)today. The article is appropriately enough called Inventing a New Heart Disease.

POLICY: Another view on the uninsured numbers tells the same story

FamiliesUSA, a pressure group that was deeply connected to the Clinton health plan back in the 1992-4 period, has produced a new report about the uninsurance numbers. Their analysis of the CPS data shows that over the course of a full year some 82 million Americans were uninsured at some point. Here’s the full report.

Last year when the CPS report came out, I had a conversation with Ross at the (now sadly mostly silent) Bloviator in which we teased out the real numbers. And these are pretty consistent. The numbers are roughly 7%, 15% and 30%. That means that, of the non-elderly 7% are uninsured for more than a year (and probably permanently), 15% are uninsured at any one time, while 30% are uninsured for some period during the year. The oft-quoted 43 million number is the 15% number, which is a snapshot. The Commonwealth Fund study showed something around 32 million Americans were uninsured for over one year in a four year period, while another 52 odd-million Americans are going in and out of uninsurance. That is the movie, and that’s where too many of us are living.

The problem for those that want to do something about this is that there is little political will to do anything about this. Despite what Bush said on the campaign trail nothing is happening on the right wing of the aisle, and the Democrats are only going to move on this in response to either a demand from a middle class that is worried about losing insurance (the political factor that drove the Clinton reform movement) or from its core constituency in the minority communities who are concerned about the very high rates of uninsurance in those populations. Thus far, we haven’t heard much from the traditional leaders of the Hispanic or African-American communities about this issue, and that seems to be the case for the long term.

TECHNOLOGY: How much is really being spent on IT?

A recent spate of studies is out on health care IT spending. iHealthbeat had an article about Forrester Research’s report on health care IT spending, which they think will be $61 billion in 2004. Their estimate is that 3.7% of health care revenues are spent on IT, while for hospitals it’s 5.5% of revenues. Interestingly Forrester says that the rate of increase for hospital spending on IT is less than 2% a year, which sounds dubious to me, but maybe the big increases were earlier in the decade.

This all somewhat contradicts an earlier June 8 iHealthbeat story which bundled together several different studies, including those from Datamonitor and the (newly bought by HIMSS) Dorenfest organization. All these studies showed that the rate of growth in the health care IT market was pretty strong:

    The most recent survey from analyst firm Datamonitor found that 66% of U.S. health care providers plan to increase their IT budgets by more than 10% by 2006. In addition, analyst firm Gartner predicted that IT spending would grow to $47.9 billion in 2006, up from $34.1 billion in 2001. Research firm Sheldon I. Dorenfest & Associates predicted that the growth in health care IT spending would outpace that of other industries, growing from $23.6 billion in 2003 to $30.5 billion in 2006.

While all of these totals somewhat disagree and are all measuring somewhat different things, my rule of thumb was that the total health care IT vendor market back in the late 1990s was around $20 billion (or 2% of the total $1 trillion spent). $65 billion out of $1.6 billion is only 4% of all spending (still way less than the oft-quoted 10% spent in other information intensive industries like financial services) but it’s not a small number.

How true that number is can be debated. Last week at Healthtech one CIO told the group that his system was spending 3.8% of revenues on IT, a number he claimed was much higher than average, and no one argued with him. Some others indicated that they didn’t much trust the traditional surveys (and didn’t participate in them).

However, the number is clearly bigger than it was 5 years ago and as the denominator (i.e. overall health spending) is much bigger too, the total spent on IT is increasing. However, the question is what will be done with the money? In the UK, IT spending was relatively low in advance of the recent infusion of roughly $20 billion over 10 years for the new IT contracts. But even that money is less than 3% of all health care spending, and yet the UK has already got almost all of its primary care practices computerized before the big bang approach that’s now being taken to link the whole nation together. In the US, we haven’t got anywhere close to that level of daily clinical computerization use, and apparently we’ve been spending way more than the Brits (2-3% of 14% of a bigger GDP per head, as compared to 1-2% of 7% of a much smaller GDP per head).

Hopefully good old American know-how allied to the emerging demands of government and payers will get us there. The CIOs at the Healthtech meeting believed that they had to act in the next 5 years to survive in their markets. It may be that fear which finally pushes us towards the real use of computing in the clinical setting. But of course predicting the imminence of EMRs has been the graveyard of many a futurist, and may still be.

PHARMA/TECHNOLOGY: Picking your statin to match your genotype

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It’s for long been a somewhat dirty little secret of the pharma world that not all drugs work for not all patients. That goes for statins too, despite the best medical advice saying that we should all be on them. Forbes has an interesting little article showing some developments in the combination of genomic diagnosis with therapy to figure out which statin works best for which genome. Some farsighted pharma professionals (notably Kim Slocum at Astra Zeneca) have been preaching for years that the combination of genomics, information systems and better targeted pharmaceuticals will not only improve health, but also improve the financial health of big pharma.

Of course the corresponding fear of many within big pharma is that as a result of this trend there will be no such thing as a blockbuster, because genomic testing will show that most drugs should be restricted to a smaller segment of their target population. So instead of 3-4 leading statins, we’ll need 20-30 — each with their own need for clinical trials, $800m development costs and expensive outreach programs.

Whether Kim’s right or the nay-sayers are right, it looks like we’re going to a world where genomic testing, drug delivery and outcomes information will be better linked. And that will be a different world for pharma and doctors, and hopefully a better one for patients.

HOSPITALS: Capital issues for hospitals

The NY Times has an article suggesting that hospitals may soon have less ability to invest in capital projects than they have had in the last few years. The blame is put mostly on higher interest rates. I’m a little suspicious about that logic. Hospitals are in much better financial shape now than in the very late 1990s as they are over the worst effects of the Medicare cuts in the BBA, and they now tend to be in bigger systems which have better credit ratings and are able to borrow more cheaply.

Molly Coye from HealthTech said at the conference last week that there are 160 acute care hospitals under construction, with another 223 in planning. This is all based on several forecasts that we’ll need lots more (20-40% more) hospital beds in 10-15 years. (There are around 5,000 hospitals in the US now). Obviously some of the new ones are replacing older ones, but we clearly are going to a world of more beds, and a world of more demand.

The article in the Times says correctly that if money gets tight hospitals will spend on stuff they can bill for (new Cardiac cath labs) and less on stuff they can’t bill for (new CPOE or other IT systems). But my sense is that these long term plans to invest in plant and IT are based on long term strategies as much as on the availability of cheap interest rates. So I’m not as pessimistic as some quoted in that article about the likelihood of these investments drying up.

Of course, exactly how much hospitals are spending and will spend on IT and other capital improvements is a matter for some debate, with several leading analysts out with recent reports that disagree. I’ll comment on that later this week.

HOSPITALS: Tenet borrows another $500 million

Speaking of hospital systems accessing capital, after the market close Tuesday Tenet borrowed another chunk of cash, about $550m worth and rolled over some of its shorter-term debt to longer-term notes. It now has about $1.1 billion cash available, but remember that it "acknowledged in March that its current capital structure was not meant to cover any major settlements." Whether these newly issued bonds (paying over 10%) will be a good buy or will be future wallpaper is anyone’s guess.

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