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POLICY/INDUSTRY: The value of health care–interesting issue, but appalling analysis

An interesting report was issued yesterday with loads of fanfare by The Value Group. The actual study was done by Medtap, a technology assessment shop for the pharma industry, which was spun out of the Battelle Institute (a kind of mini-SRI or RAND) a few years back. The report says that increases in health care spending are a good thing. And as Mandy Rice-Davies said, "they would say that wouldn’t they!" The consortium that paid for the report is made up of the usual suspects, including PhRMA, the AHA and their for-profit friends at the FAH,, the Advanced Medical Technology Association (AdvaMed), the ACC, and the Healthcare Leadership Council (HLC). I assume HIMA and BIO were too cheap to chuck into the pot for this one.

You can amuse yourself by going to look at this news brief, the exec summary charts or the full report. Essentially it says that although we’ve doubled real per capita health care spending in the US in the last 20 years, we’ve had so many health gains from it that we have made out like bandits from all that extra spending. To wit:

o Annual death rates declined 16%
o Life expectancy from birth increased by more than three years
o Disability rates for seniors fell 25%
o Number of days Americans spent in the hospital fell 56%

Naturally enough there’s even a ready made video that you can run straight onto your cable news show without the bother of having to do any of that journalism stuff. I particularly love the "news-type" voice-over ending "in Washington, I’m Karen Ryan reporting" Reporting for whom? I didn’t realize PR was now called reporting! (Medtap is too embarrassed to put the video on its web site but its clients aren’t!) The video uses the example of a young guy who had a heart attack and got a stent implanted in his heart.  Unfortunately a rather detailed analysis from a Stanford team published last year pointed out that stents actually are a worse deal for the patient over time than having a by-pass. So by that logic we’ve wasted all the money we spent developing stents; but what kind of sour-puss worries about a little thing like that?

And in individual disease states, even more good news. Death rates per 100,00 have dropped for heart attacks from 345 to 186, for strokes from 96 to 60, for breast cancer from 32 to 25 (although for diabetes they’ve gone UP from 18 to 25).  And the best news of all is that when you work out the cost benefit of all this good medical care, we get back $2.40 to $3.00 for every $1 spent!

And funnily enough that’s why the report was created. While I was there a report was done at IFTF (not by me I hasten to add) showing how wonderful the contribution of research-based industries was to the US economy. Although the premise was probably true, the fact that it was paid for only by drug companies made me feel more than a little uncomfortable, and no one from the health team would work on it! In fact by the time it was released the event it was designed to protect against (price controls for drugs in the Clinton health plan) was history anyway. But that’s the reason these reports are commissioned, and consequently it’s worth looking at how they came up with that statement about getting $3 back for every dollar spent.  Here’s the logic–it’s a little dry but bear with me:

    To compute the value of investment in health care, we converted the mortality or life expectancy gains into dollars.  Published estimates of the value of a statistical life (VSL) method of calculating the value of small reductions in mortality risks derived using data on risk-compensating wage differences, consumption activity which affects risk, or hypothetical markets yield values of life that range from $1 million to $9 million (Blomquist 2001). The VOI analysis in this study uses $4 million for VSL, an estimate towards the mid-point of this range. Based on this VSL, a value of $100,000 was used as the net present value of an undiscounted life-year gained and $2,455 as the annual consumption value of an increase of 1 year in life expectancy (Mauskopf et al. 1991, Nordhaus 2002). Using these standard economic values for avoided deaths or increased life expectancy, the value of investment for every $1 spent on health care ranged between $2.40 and $3.00, depending on the outcome chosen (Table 3). The value of investment in health care is positive under a wide range of alternative assumptions. As an example, for every additional dollar spent on health care, the value of the investment remains greater than $1 for all scenarios where one life is valued at >$1.4 million and for all scenarios here a life-year is valued at >$40,000. Alternatively, assuming our base case values of $4 million for the value of one life and $100,000 for the value of a life-year, for every additional dollar spent on health care, the value of the investment remains greater than $1 for all scenarios where at least 40% of the life expectancy gains are directly attributable to the additional health care expenditures. Using a similar methodology, several researchers have computed a value of investment in overall health care expenditures for the U.S. for different time periods:

     Nordhaus (2002) between $1.90 and $2.60 for every additional $1 invested between 1980 and 1990
     Murphy and Topel (2003)  $1.60 for every additional $1 invested since 1970
     Cutler and McClellan (2001)  $3.71 for every additional $1 invested between 1950 and 1990

    These figures are likely to underestimate the value of investment in health since they do not include the value of the morbidity gains from the reduction in disability over age 65 and gains in worker productivity and quality of life attributable to new treatments for specific health conditions. Over the past 20 years, significant gains in productivity and quality of life associated with health care interventions in those under 65 years have been shown for several diseases including influenza, migraine, diabetes, and depression but comprehensive national estimates of changes in U.S. productivity or quality of life attributable to health conditions are not available.

So basically by teasing out the impact of better medical care on life expectancy, then attributing an value to an extra life-year, they claim that every dollar spent returns around $3.  The problem is that this is entirely dependent on what a life is worth, and those calculations are entirely arbitrary, and are pulled from all kinds of sources.  The sum of $4m a life or $100,000 a year they use is more or less meaningless. Let me take a different crack at it.

According to the Federal government, GDP per head in the US is about $35,000 a year. Median income per household is around $45,000 meaning way less per individual than $35,000, but that’s because not all GDP is income. But let’s assume that average person lives 75 years and is worth $35,000 per year, then their life is worth only $2.3 million rather than $4m.  So immediately almost all the gains that the report finds in terms of improved life expectancy have been wiped out.  But wait, it gets worse if you consider that the expectancy gains have been added to the end of people’s lives rather than the middle–and at the end of your life you tend to be retired and earning a considerable amount less each year. Median household income for those over-65 is only $23,000, so you could argue that, instead of being worth $100,000 a year, that year of life saved is worth less than $20,000. Therefore instead of returning a positive ratio of $3 saved for every $1 spent, we are in fact getting only 70 cents for each $1 spent–a record even worse than my stock trading!

OK, my numbers are abritrary and capricious (as are those in the report) because mine are based only on what people earn instead of what a life is "worth" but how about thinking of it in another way.  All that extra spending on medical care has shown improvements in results from as high as a 100% improvement in survival after heart attacks to little more than zero (or less) in the case of diabetes.  Comparatively the computer you could buy in 1980 cost 10 times what the computer you can buy today does and the new one is probably 2000% better.  Why hasn’t all this medical technology shown that level of improvement or that reduction in price? 

Or how about it another way, we’ve spent all that more money on health care, but couldn’t we have got a better return from educating young children?  The answer, by the way is, "yes" both for the societal benefits of early childhood education and for its future population health benefits, as better educated people are substantially healthier than the less well educated.

The overall answer is that this type of analysis is more or less junk analysis and necessarily cannot get at the underlying value of what we are doing in health care.  What we spend on health care is a societal choice (of sorts) and the folks behind this report have a large say in that "choice".  The only real contribution that can be made from this type of analysis is to consider how we should best spend the dollars within the health care system to improve outcomes. In many cases this ends up being bad news for the folks represented by The Value Group consortium, as using older and often cheaper technology often has more beneficial results (as with the stent vs bypass example but also in this aspirin vs statin case). The good news for the industry consortium is that technology and services often do have a beneficial effect and their role should be figuring out which technologies have the most beneficial effects and then to produce more of them.  And to be fair that’s what most of the medical technology industry on the R&D side is trying to do–the marketing folks of course have a different agenda.

The better news for the health care industry is that increasingly people view that these improvements are necessary luxury goods and are happy to help push society’s health paymasters in the direction of paying for them. Understanding the use of health care as a luxury good/service that we "have to have" and trying to steer it in the most beneficial direction is where the real analysis in American health economics needs to be done. The junk economics in this report doesn’t get us anywhere. It might help the industry deflect a question or two about what we’re getting for all the money, but on the other hand it just might provoke a sour-puss or two to cry "bullshit".

TECHNOLOGY: We’re all agreed about motherhood and apple pie

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Information Week (via iHealthbeat) reports on the World Health Congress in which lots of important political people agreed that IT is the way forward to fix the health care mess. Those saying this included not just the usual suspects from the industry but Bill Frist, Tommy Thompson and even briefly in the State of the Union address, Bush himself.

On the one hand, while it’s good that we’re agreeing on the solution, we’re not seeing even the modest kind of Federal leadership that Molly Coye suggested a while back in terms of dollars. On the other hand I suppose that this is an improvement on Clinton holding up a sheet of paper in his 1994 speech and saying that we were going to solve the administrative crisis by having one standard paper form. But it’s 10 years and counting and we haven’t got that far . . . and I don’t honestly think that Wellpoint handing out a few freebies is going to make up the difference even though it’s a noble effort.

POLICY: Health care becomes like foreign policy

You might note that today in the UK the Hutton report on the Blair government, Iraq and "sexing up" was released. More on that later (although it exonerates the UK government from the "sexing up" allegation).

Over at The Businessword Don, Ross and I have been having an interesting back and forth in these comments regarding the uninsurance issue. In a nutshell, if you want a universal insurance system, in some way those who are working and have decent insurance will have to subsidize those who are working and don’t, as they make up 75% of the uninsured. Don, Ross and I agree on that, but disagree about whether we should do it and also how we should do it.  But that is the rational place to start.  We also agree that it’s not a situation that will change any time soon, and that it’s an important part of health care that deserves regular comment. As Limbaugh might say, that, my friends, is an honest platform for debate. But remember that not everything you read in the health care world is quite as honest.

In my in-box today I got a very curious missive from the Foundation for Health Coverage Education a new organization that I’d never heard of (and I tend to follow Foundations in California out of egregious self-interest!).  But OK, these folks say they want to promote education about the many federal and state health care coverage programs in California, which all sounds very worthy, and they have a press release about their new online tool that does that. Wa-hoozlle! 

However, on slightly closer reading I noticed that this Foundation is run by an insurance broker:

    Philip Lebherz has been working to help Californians obtain health coverage since 1977. Although Lebherz is president and CEO of LISI health care insurance brokers, he is strongly opposed to not only tax penalties on individuals or employers who choose not to purchase insurance but also any government mandates to buy insurance.

So I’m already a little suspicious, and then it continues

    Although many journalists have reported between 6-7 million uninsured in California, the real number appears to be less than one million according to the Foundation’s interpretation of a Blue Cross Blue Shield Association analysis of the 2002 Census Bureau (news – web sites). Of the 6.17 million classified as "uninsured," 2.97 million are eligible for public insurance benefits but are not yet enrolled, an additional 2.16 million have annual household incomes of more than $50,000 per year, and 652,000 are temporarily uninsured, primarily due to changes in employment. That leaves approximately 938,000 who would be characterized as truly uninsured.

The Foundation claims that 90% of bills incurred by the uninsured are eventually paid off, and therefore forcing them to buy insurance would deprive them of the ability to buy housing, cars, food etc.  This is indeed beautiful voodoo economics.

So half the uninsured are voluntarily uninsured? Lebherz may not have noticed but the public programs that he thinks are just waiting to take in 3 million Californians have no money–all over the country they are cutting rolls rather than adding to them. Has he heard of our little budget problem and the consequent Medi-Cal cuts?

As for the rest, well the numbers are pretty dubious.  According to Kaiser Family Foundation 64% of the nation’s uninsured come from households with incomes less that 200% of poverty (~$26,000) (go to page 8 in the link for more), and only 19% make 300% or more, which equates to about $39,000.  Somehow in the Lebherz analysis this equates to 35% of uninsured Californians are in households making more than $50,000. But even if that’s right a good chunk of these folks would love to have health insurance but cannot find affordable insurance in the individual market. As I’ve posted before, I know because I’ve tried as have my friends–and I think that paying $4,000 to $12,000 a year for health insurance coverage with a $2,000 deductible and many exclusions is not realistic for many households even those with incomes more than $50,000 a year.

The problem is of course twofold. 1) We end up with very little contribution into the insurance pool from the uninsured, and it’s clear that they could probably come up with at least half of the balance required for the nation to get to universal coverage. And 2) more importantly from the point of view of the safety net system, dealing with the uninsured is a hugely inefficient financial train wreck.

However, the real point of this new "Foundation" is that no rational system would need a huge amount of waste motion otherwise know as the health insurance brokerage market–so any attempt to sell the current system as being "not in any real trouble" is all Lebherz and his ilk care about. So you can just lie and keep repeating the lies and maybe someone will believe you, or as in the UK focus on the irrelevance of whether a single claim was "sexed-up" or not. Oh yes and there really were WMDs, WMD programs, Al-Quaeda terrorists, a bad guy called Saddam in Iraq, and health care’s getting more and more like foreign policy everyday

POLICY: California docs ambivalent about SB2

The poor CMA apparently can’t get it right. It finally gets a quasi-universal insurance bill passed in California that should reduce the number of uninsured showing up at the doctor’s office and yet a bunch of its members (like the LA and San Diego Medical Societies) have noticed that they might have to buy insurance for their employees when the bill becomes law.  So of course the squawking has begun. 

But the math skills of the southern Cal docs may be lacking. Lets say that 25% of their patients are uninsured (which is about the ratio down there). Presumably if that number fell dramamtically, many of the uninsured they are treating will now be insured, and so will be paying so revenues will go up–presumably by up to 25%.  Costs may rise as the office staff need insurance, but insurance does not cost more than 10-12% of payroll. So they should come out ahead. 

And of course if they bothered to read the fine print they might notice that SB2 doesn’t apply to employers with less than 50 employees, and not many solo or small group practices have that many.

PHARMA: Price controls and foreign imports–European style

Although drug prices are generally set by the government in Europe, there is significant price variation between different countries.  Savvy European entrepreneurs have therefore gone to wholesalers in the cheapers countries (like Greece) and imported drugs to be resold to pharmacists. As you might expect the drug companies are not happy about this importing of cheaper drugs (sound familiar to my North American readers?) and have successfully gone to court to enable themselves to limit their sales to wholesalers in any country to enough for that country only. Now the EU is calling on national licensing associations to make it easier for these traders that exploit price differences to buy and sell in new markets.  To American pharmas and patients dismayed (for different reasons) at the overall lower prices outside the US, this might all seem like a storm in a teacup, but it does go to show that these days maintaining high prices for drugs is not easy.

POLICY: France faces health budget crunch

Just to follow up on the news from the UK last week, there’s a report out from the French government suggesting that they might both charge more for prescriptions and increase the payroll tax that supports health care.  The government’s fear is that it may end up with a yearly deficit of 29 billion Euros (apprx. $35 bill) by 2010.  France is supposed to be keeping its budget deficit to a specified amount as part of a wider EU agreement (although neither it nor Germany has managed that so far!) and health care accounts for 20% of the overall deficit. 

In France drugs account for more than 20% of health care spending (compared to less than 10% in the US) and so reducing Rx consumption is a likely target of cost cutting.  Incidentally the only place that uses more prescription drugs per capita than France is Japan, where doctors traditionally make most of their incomes dispensing drugs–a little like oncologists in the US, who are now finding that source of income being switched off.

TECHNOLOGY: Pew reports on wired Californians

(…and I don’t mean because of too many espressos)

Pew reports that poorer Californians use the Internet at high rates. For households with less than $30,000 in annual income 45% of Californians have Internet access versus 36% nationally, and  of those, 83% have searched for online health info versus 77% nationally.  This gives backing to some private data I have from Harris that indicates that poorer Americans who have Internet access are substituting looking online for physician visits.

If you have an online strategy you might think about what you can do for this underserved group.

QUALITY QUICKIE: Letter from England, (with UPDATE Tues)

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UPDATE: Don Johnson and I are having a friendly spat about the real cost of health care in Europe and another about the uninsured in the new comments section of The Business Word.  I hope that Don keeps support for his comments section up and that you’ll join me in commenting there. (I’m barely able to keep my blogging up, so no comments here for a while yet).

I’ve been in the UK for a few days and thought that it would be appropriate to give you some impressions of what I’ve been hearing about the state of health care over here. One of the most noticeable factors is that we’re not in France. The BBC reported last night that the French health service was about to have a doctors’ and pharmacists’ strike because of threats to reduce government finance of the system there.  The BBC reported with some incredulity that any French person can get any operation they like any time for free, but did point out that the French pay 30% more overall for their system, and that (stop me if you’ve heard this tune before) costs were going up faster than the economy can afford it, etc, etc.

The UK is also increasing its rate of health expenditure from what used to be a very miserly 5.5% of GDP on the way to 7-ish%.  In some ways they are having capacity constraints, with the result that some GP positions in London are vacant, and some patients are being sent to France for surgery to reduce waiting lists.  That’s possible because these days funding for primary (including Rx) and secondary care is organized via Primary Care Trusts (PCTs) which buy (or "commission" in New Labour-speak) hospital services from Trust Hospitals.  Although this might seem like the basis of a competitive market, in fact a PCT tends to cover virtually all the residents of one town, and the hospitals they purchase from usually have a catchment area that’s about the same size as the PCT.  In other words there’s more or less a single buyer (that looks something like a staff-model HMO) and a single seller (the local tertiary care hospital) — and there’s not real money flowing between them. Within the PCTs, the primary care is delivered by notionally independent GP practices, who behave much as they always did — although the minority which were "fundholders" under the previous reform environment probably have less control over hospital purchasing than the used to.

The most interesting development is the move towards what might be called intermediate risk sharing for chronic disease management. Starting in April 2004, GP practices will be putting up to one third of their revenues at risk, and be able to earn 1050 points by hitting a number of targets in certain therapeutic areas.  Each point will start off being worth up to 75GBP but will go up to 120GBP.  In other words each GP may have up to 120,000 GBP at risk for their practice, which may wind up to 30-40,000 GBP per doctor in real money. There are ten chronic disease states being targeted, many of them surrounding cardiac care, with some 75 metrics being measured. The measurement of the interventions, which are all the standard things of keeping the heart patients on the right drugs, making sure the diabetics get their eye exams, etc, etc, are being done from the information systems of the GPs themselves.  But this isn’t the gong show it would be in the US as by now the vast majority of GP practices have got primary care EMRs, and most GPs are taking electronic notes during consultations.

To this point, many GPs have just been coding office visits with electronic diagnoses that are the easiest to input rather than the most accurate (i.e. coding all visits from diabetics the same).  They don’t get paid any differently for different codes (unlike the US) so convenience had been the driving factor. Most of the GPs I talked with are fairly confident that the add-ons required, such as alerts to contact patients to make sure they’ve come in for an annual exam, or alerts to remind the GP in the middle of the consult that the hypertensive patient hasn’t had a blood pressure test, can be (or already have been) added to their systems – and that’s where they’re focusing the most effort. There’s also a presumption that some of the smaller one or two doctor GP practices with only a couple of thousand patients will merge to get better IT IT and admin support. Overall there’s some optimism about the system, as reflected in this American assesment from UCLA’s Paul Shekelle.

It’s also interesting to note that in the absence of the completion of the huge EMR in the sky projects that the government just awarded contracts for, the UK is already far ahead of the US in primary care IT.  However, this doesn’t really spread over to the hospital side.  In fact frequently the communication between GP and Hospital specialist breaks down (does this sound familiar?) and a patient may be put on a drug in the hospital and the GP either not be informed about it, or take them off it when they come for the follow up visit. As the GPs currently control their own drug budget they’ve been somewhat incented to under-prescribe – any savings there can be used in the rest of the practice to buy new computers, nicer chairs for the waiting room, etc. Additionally the end points that GPs are going to be rewarded on are based on intermediate outcomes, not on hospital measures.  So for example, getting the % of at-risk patients on statins up above a certain number will be rewarded and it’s just assumed that this will reduce costs down the line and in the hospital.  But at present no one’s counting and the information systems aren’t really able to talk to each other about it. However within the PCTs there are already guidelines that many GPs (are at least trying to) follow willingly, even though they’re paper based, and there is a system of clinical consultation over local guidelines at the PCT level itself.  As well as the NICE (national institute for clinical excellence) which creates national guidelines for technology and drugs based on cost-effectiveness analysis.

Additionally there was great familiarity with the Kaiser system, and the NHS has done a series of comparisons between the two, which in part inspired the new contracting system by showing that the lower use of hospital care and greater emphasis on overall patient management at Kaiser led to better and more cost-effective care.  But many people I talked to were aghast when I described the state of IT in the typical American doctors office – they just assumed that the rich Yanks must be well ahead of them!

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