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QUALITY: Paying for medical excellence (and I do mean “paying”)

One of the best books on health care ever, second only to Paul Starr’s The Social Transformation of American Medicine is Michael Millenson’s Demanding Medical Excellence. In his tracing of the history of health care quality, Millenson demonstrated how organized medicine destroyed the burgeoning quality analysis movement early in the century, and how even as late as the mid-1990s, medical providers who became quality focused and more cost-effective found that they were losing money as a consequence.  The problem then was that managed care payers weren’t sophisticated enough to pay based on quality and performance, so the old fee-for-service paradigm of do more, get more actually rewarded poor quality care. Millenson’s expectation was that over time as more aggressive payers realized that quality was synonymous with lower costs, pay for performance would replace fee-for-service.  (For a contrary view see JD Kleinke’s Oxymorons, where JD decides that after preaching about the virtues of the market for all those years, better health care is just more expensive).

Well, now the New York Times is coming around to Millenson’s view. In an article called Hospitals Say They’re Penalized by Medicare for Improving Care, the Intermountain system in Utah claims that it’s providing great quality care, getting it right the first time and not having to redo procedures or transfer patients to higher intensity settings. As a consequence it is losing out on Medicare payments. Millenson’s book has a very complimentary section on Intermountain, and it’s no coincidence that Intermountain is among the most computerized health systems in the country and has been for years.

According to the Dartmouth Atlas, Utah certainly has lower rates of surgery than Colorado next door. Of course you don’t really know the incidence of disease behind this variation. This led to the great comment at a meeting I was at from Larry Weed: "You don’t know whether to move to Denver to get your problem taken care of properly or go to Salt Lake City to avoid unnecessary surgery." My pretty strong hunch is that you’re better off in Utah (even if it’s murder getting a drink there unless you know where to go).

The Times then suggests that getting Medicare to "pay for performance" is the answer, as suggested by the Jackson Hole veterans in Health Affairs, although I was somewhat disparaging about the concept’s prognosis yesterday. Apparently Tom Scully thinks it’s a good idea, and the Times says he is:

    quick to agree that the payment system needs to be fixed. "It’s one of the fundamental problems Medicare faces,"

Of course the minor problem is that years of data suggests that the for-profit hospital sector that Scully represented during the 1990s is the worst offender in terms of doing too many procedures that are medically dubious and of low quality; our buddies at Tenet being among the worst examples. I bet you all a nickel each that when Scully is back in the private sector he’ll be making sure that his clients don’t have to worry about Medicare forcing them to really change their ways–that is unless those Mormons can come up with some serious cash for lobbying.

INDUSTRY/POLICY: It’s 1990 again, and the autos want a solution for health care

Back in 1990 when I first got into this health care policy stuff a guy called Walter Maher was going around saying that we needed a government single payer system. Nothing too unusual in that other than Maher was head of public policy at Chrysler. He was saying it because Chrysler and the other autos, with their unionized and older work-force and pensioners, were locked into paying very high health care costs. When they did the math they noticed that a Canadian-style single payer system paid for out of general taxation would be cheaper for them. Of course during the 1992-4 debate on the subject, the rest of Corporate America took Chrysler out to the woodshed and little was heard from Maher after that.  And of course managed care was going to fix it all, and the market was going to work.  By then anyway the 90s boom was on and the Japanese competition was running into trouble and Detroit (aided by some little known tariffs on Japanese light trucks) was making a fortune out of minivans and SUVs (which are trucks not cars, really!), and saving a fortune by sending jobs to Mexico.

However, there’s to be a sequel to the movie, given that the autos are not seeing the boom days continue, but health care premiums are. Like all good sequels, we’re now going to see a rehash of the first movie. This time it’s Ford stepping up to the plate, and putting a senior executive in charge of solving their health care cost crisis. Listen to the complaint from Ford:

    The automaker spends about $1,200 on employee and retiree health care for every vehicle it builds, a huge cost that private employers don’t bear in countries with government-funded medical care.

That was written last week, whereas in 1990 you would have read this:

    "Health care adds $700 to the price of every American-made automobile,” stated Walter Maher, spokesman for Chrysler Corporation, at meetings of National Small Business United and the National Health Forum. Besides, the existence of the uninsured is an "offense to his social conscience.” His solution: let the government pay the bill, while placing tough controls on expenditures.

I don’t know why Ford is bothering to have its own investigation.  Surely Chrysler can send over the draft of Maher’s old speeches. All they have to do is double the numbers and the job’s done.

PHARMA: More on Crestor and Astra-Zeneca

One of the great fun things about doing this blog is meeting people via email who have interesting insights. Of course sometimes I feel like an investigative journalist as I can’t always reveal my sources.  That’s the case with the Crestor issue which I’ve blogged on for a while most recently yesterday, when I suggested that it might be time to short Astra-Zeneca. Well today in my email box popped this gem from a pharma industry veteran:

    I’ve noticed some people are placing bets down on AZ stock but I’ve also seen that for the past several weeks, AZ has been buying 200,000-300,000 shares of its own stock every day.  Looks to me as if McKillop and his CFO have been propping themselves up on the ropes with their left hand while trying to parry the jabs with their right.

    In any case I don’t think that some investor activity is indicative of how Crestor and Exanta will perform competitively.  My own hunch is that if (a major "if") no ADR reports surface of rhabdo for Crestor and liver toxicity for Exanta, both products will eventually do well.  I define "well" for these products in more modest terms, however, something closer to $1b-$1.5B rather than $3B for Exanta and $2.5B for Crestor.

    I honestly feel that these Big Pharma companies do substantial harm to themselves by over-inflating the market prospects for their new drugs.  A couple of years ago I closely assessed for clients the development progress of Bristol-Myers Squibb’s Vanlev.  They touted that thing as likely to revolutionize hypertension care and as a $5B drug.  Merck similarly blared the sirens for its Substance P antagonist and its PPAR, both of which they just abandoned.  In terms of marketing strategy this early hyping makes little sense.  The companies do it mainly because it gives a short term boost to the stock and the compensation of senior managers is closely tied to stock appreciation.  By the time reality hits, when the stock price tumbles and ordinary blokes lose their jobs, these boardroom Tony Sopranos are off looting some other venture.

There’s clearly a lot in that last paragraph. Pharma execs in general benefit from actions that happened before they got to the top.  Not that they don’t have huge challenges, but they benefit (or not) from bets made years before which either turn into blockbusters (or don’t). Similarly the PhRMA’s decision to go for Medicare reform will end up profiting the pharmas in the short and medium term, but will likely open them up to price controls in the next decade or so.  Of course by that stage the executives behind today’s deals will be happily in retirement.

PHARMA/PBM: Three tier formularies work

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In a New England Journal of Medicine article called The Effect of Incentive-Based Formularies on Prescription-Drug Utilization and Spending a team from Harvard found that three-tier formularies work.  Three tier formularies are what PBMs and health plans introduced in response to rising drug uilization and prices in the late 1990s. In essence the PBM puts generics, and the branded drugs for which it has negotiated the best rebates, into the cheap first and second tiers ($5 or $10 co-pays) and charges huge co-pays for the others. Amazingly enough this means that people switch.  In this study:

    Among the enrollees who were initially taking tier-3 statins, more enrollees in the intervention group than in the comparison group switched to tier-1 or tier-2 medications (49 percent vs. 17 percent, P<0.001) or stopped taking statins entirely (21 percent vs. 11 percent, P=0.04).

While the only press article I could find on this in the Boston Globe, plays up the fear that patients will stop taking their drugs, my guess is that some of those people would have given up anyway.  The key stat is that half the people switched. Presumably switching to another statin doesn’t make much difference on health. Medpundit has some interesting things to say about the clinical impacts of this switching (and, Sydney, we agree in this case!)

This is what Ian Morrison calls "the Ross Perot effect"–you can move people around for $10. (Apparently in 1992 Ross Perot spent $10 for each vote he got). Actually it’s a little more than $10 in this case, but it shows that therapeutic substitution based on money is very powerful.

My sense is that this shows that the power of the PBM has been underused. The PBMs have been mostly the handmaiden of the pharmas. For their health plans and employer clients they have in general been unwilling to really move people away from branded drugs, unable to get too many of their clients to move to very aggressive formularies, and unable to get doctors to prescribe according to the formulary.  However, this study shows that the opportunity to move people between products is very real, and with Medicare formularies on the way (in the new PBM-managed formularies) they may become even more important.

PHARMA: Lipitor v Crestor

Forbes is running a wacky poll to see if people think that Crestor can take on Lipitor.  Lipitor should hit $9 billion in sales this year.  Early indications are that Crestor is struggling but the poll results show some support for Crestor. Meanwhile Astra-Zeneca’s stock value shows that Wall Street is certainly anticipating big things from Crestor. It’s within a couple of bucks of its all time high, and has well outstripped Pfizer’s in the last 2 years. If I ran a billion dollar hedge fund I’d buy Pfizer and short A-Z against it….but I don’t

. But these guys do and they went short of A-Z a couple of weeks ago with a price target of $40. In fairness to A-Z not much has happened since!

TECHNOLOGY: PSA tests unnecessary, but it’s typical for Medicare?

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Medpundit points to a new study that questions the use of the PSA prostate test among the elderly.  As I learned via Family Medicine Notes, of positive PSA tests, some 7 in 10 are false positives (or at least don’t mean that the person concerned has cancer).  In the study, roughly 1/3 of 75 year olds got the PSA test, 88% because their doctor told them to get it. Meanwhile a substantial number of men die with but not from prostate cancer. In other words if you’re 75 and have no history of prostate cancer, what your PSA is doesn’t matter. Not only is the test a waste of money but chasing down the false positives causes more tests, costs and incoveniences down the road.

Medicare for ever has just paid  for procedures that are of dubious medical justification in its age group. Way back when there was a clinical trial of CABGs among men under 65, but very quickly and with no trial in the relevant age group, Medicare was paying for CABG’s in its population particularly in those over 75. The provision of kidney dialysis to the very old is another example of where age is not taken into account, although it is in the UK.  Whatever the moral rights and wrongs, the tradition of excessive care of the soon to-be-dead continues and there has been no debate about it. This is a classic case of where Medicare should change its payment mechanism to encourage the right behavior.  But it won’t.

INDUSTRY: Employer based health insurance–pay more, get less

Part of the reaction from employers to rising health care costs has been to push more co-payments, higher deductibles and larger out-of-pocket maximums onto employees. This has been viewed as an easier approach than increasing share of premium contribution, even though it has led to severe labor disputes in many cases. Ignore the fact that employment based insurance is a dumb idea–it just happens to be the way it’s done in real life. But what about people going through the process of paying more and getting less from their employer?

A new study from Sally Trude at the Center for Studying Health System Change called Patient Cost Sharing: How Much is Too Much? looks at the hypothetical actuarial impacts of a move towards higher deductibles, OOP maximums and co-pays. As you’d expect, it impacts most on sicker and poorer employees.  In fact for those very rare employees earning below 100% of Federal poverty but actually getting health insurance from their employer (and that must be virtually a null set), 44% of those with a deductible of over $1,000 will be spending more than 10% of their gross income on health care.

According to the Center’s survey research "most Americans, especially lower-income people, are willing to limit their choice of hospitals and physicians in return for lower out-of-pocket costs".  But given the shellacking managed care companies got when they tried that last time, don’t expect too many of those restrictive products to be rushing onto the market any time soon (although Blue Cross is trying to pull it off in California). Trude concludes:

    Employers continue to increase patient cost sharing to reduce annual premium increases and to encourage workers to economize when using health care services. As out-of-pocket costs increase, however, both the financial and medical consequences for seriously ill and low-income people increase. Nearly half of all personal bankruptcies are due in part to medical expenses. And research suggests that patients faced with higher cost sharing cut back on both needed and discretionary care.

The debate on user fees via the Rand experiment, Evans and Barer at UBC et al, basically concluded that point of service user fees have no impact on overall health care costs but do tend to stop the poor and sick going to the doctor (meaning that minor problems become major). So from a health policy perspective employers ought to be transferring their cost cutting to the front-end–and demanding more cost sharing in premiums.  However, that translates to all employees feeling the pain, rather than just those who are sick feeling it when they are sick.

By the way, I’m currently doing some other work looking into a number of these system problems, so if you have any suggestions about things to look into in the world of clinical or care inefficiencies please let me know.

POLICY: Health Care Costs 101

Occasionally you see a really dumb article.  Not wrong, just dumb.  This one in the NY Times last week asks Who Controls Health Care Costs?.  It wonders why Republicans would promote private plans as a solution to controlling Medicare costs when it’s been shown that both Medicare and private costs increase at roughly the same rate over time. Leaving aside the fact that the Republicans are doing this for ideological reasons, it’s worth taking a little walk down memory lane on health care costs.

The reason costs go up so fast in this country is because of what Alain Enthoven calls "cost-unconscious demand" and a general pattern of Fee-For-Service medicine. Do more, get more, and no one really worries about the cost. That’s more or less what we still have, although it’s become much more sophisticated.   Even after 40 years of health care cost inflation, the same basics apply. There are only three real approaches to change this;

    1) Make individuals conscious of the entire cost of the system care–don’t disintermediate it via employers and insurance companies–including either having them pay all their insurance premiums or all cash out of pocket.
    2) Make consumers directly responsible for health care via a directly proportional tax (this is how it works in Belgium and is what Vic Fuchs proposed recently).
    3) Give responsibility for the cost of the whole ball of wax to someone else who has to manage the bottom line (almost always the government, as in the UK and Canada)

We are nowhere near any of those solutions in the US, so costs will keep going up (as will uninsurance and underinsurance, as there is a what economists call a price effect).

Meanwhile, the leading advocate for my third solution, otherwise known as single payer, Steffie Woolhandler, also got her own interview in the Times.

And for those interested in performance-based reimbursement, a group of health policy wonks who favor a market-based solution, including Enthoven, believe that Medicare could and should change the market by rewarding providers with pay for performance. Not a bad idea, but not realistic in the present climate.

PHARMA: The AMA goes out on a limb on DTC ads

While some doctors have been complaining about DTC ads for a while, surveys show that they don’t really mind too much, and that when patients ask for a drug the doctors often prescribe it.  Finally the AMA has come up with a revolutionary proposal: the ads should say what the drug is used for! Presumably doctors are fed up with answering that question to confused patients who’ve seen Levitra ads.

In fact DTC advertising has indubitally pushed up drug use and drug costs.  But it’s also increased understanding of various diseases among patients. So calling DTC advertising a major cause of increased health care costs when drugs represent less than 10% of all costs is a little over the top.  Of course the media companies do appreciate the $3bn a year that is dropped their way by the drug companies. Some of this was discussed by Art Caplan and Sherry Glied in Teri Gross’ Fresh Air show on NPR  this morning on the increase in health costs.

On a totally random aside, they can’t show DTC advertising in the UK.  Otherwise Glaxo might have slipped up in the way that GM screwed up by calling the Chevy Nova (Don’t Go) in South America (although apparently it’s an urban legend). After all the ad here says take Levitra if you’re having trouble staying "in the game"; they might have talked about trouble going "on the game", which is British slang for being a prostitute!