Tuesday, October 21, 2014

Specialty Cancer Drugs – The Problem is Worse Than It Looks


Today’s Managing Health Care Costs

Number is 25%

This chart shows that inpatient care represents the largest portion of total cost of those with advanced cancer, and also has the largest amount of variation .  Source 
This month’s Health Affairs has a series of excellent articles on the costs of specialty drugs. Specialty drugs, those aimed at a very narrow portion of the population, often designed based on genetic testing and often biopharmaceuticals, represented 25% of all drug costs in 2013 and are expected to quadruple by 2020.  

An article on variation in the cost of cancer care (Brooks) suggested that the cause was much more likely to be inpatient care rather than high costs of specialty medications. 

Acute hospital care was the largest component of spending and the chief driver of regional spending variation, accounting for 48 percent of spending and 67 percent of variation. In contrast, chemotherapy accounted for 16 percent of spending and 10 percent of variation.

On the other hand, another article (Conti) notes the high cost of recently approved oral cancer medications:

Our results suggest that spending levels and trends are driven by the use of new brand-name oral oncologics. Many of these drugs represent significant therapeutic advances over the standard of care for the treatment of specific cancers.


How can we square these two articles?

The Brooks article is focused on those diagnosed over 65 with just four cancers (lung, prostate, breast, colorectal, and pancreatic) which were incurable when diagnosed (metastatic and generally Stage IV).   This isn’t necessarily applicable to those under 65, or those with other cancers.   New specialty drugs for hematologic malignancies (leukemia and lymphoma) are excluded.  

Ironically, chemotherapy administered in the hospital was not distinguishable from other inpatient costs; hence some of the variation in hospital cost was likely due to specialty drugs, too.  Even more oncology specialty drugs have become available since the conclusion of the study period.  The authors also only focused on variation --- so that if a new expensive oncologic agent was almost universally used, the increased cost would be real, but not measurable through variation.

Both hospital care and specialty medications are driving costs and cost increases in cancer treatment among the elderly.   We ignore the impact of specialty drugs at our own financial peril.  



Friday, October 17, 2014

Corn Rows, White Teeth, Manicures, Taxis and Telemedicine



Today’s Managing Health Care Costs

Number is $6 billion


A young man wants whiter teeth in North Carolina.  A young woman wants cornrows in Utah.   I want a cab to the airport from Manhattan in the late afternoon.  Executives want to get manicures without leaving the office. A woman has pain when she urinates in Idaho.

What do these all have in common?

State regulatory boards have historically restricted competition – and left important consumer needs unmet.   These regulatory boards, often populated by those who are regulated, promulgate rules that make it difficult for upstarts to compete with entrenched interests.

The Supreme Court just heard oral arguments in North Carolina State Board of Dental Examiners v. Federal Trade Commission ; the North Carolina dental board keeps on trying to shut down tooth whitening kiosks. It says it’s protecting public health – but it’s really protecting high margin business for dentists.  Why shouldn’t people get their teeth whitened at a kiosk in the mall?   

Planet Money (#381) covered the Utah Cosmetology Board’s decision to prohibit Jestina Clayton from doing hair braiding at her house in 2012, and just re-aired the episode this week.   The Board would have had her take a 1 year $16,000 training course before it would grant her a license.  (She later won a court suit, and Utah changed the law).

Municipalities across the country and around the world have tried to erect regulatory barriers to prevent Uber from offering car sharing services – arguing that the smartphone-summoned taxis, limos and private cars should be regulated by the Taxi and Limousine Commission.  But before Uber it took over ½ hour to find a taxi to LaGuardia at 5pm.  With Uber it takes under 15 minutes, costs less, and I can track every element of my ride.  In San Francisco, taxi rides are down 65% - but I’m sure total use of car services has increased dramatically.

Manicube offers office manicures – and I can’t tell you how popular they are.  Massachusetts just sent them a cease and desist letter – they use licensed manicurists, but don’t have inspectors visit each site.  The Massachusetts Board of Cosmetology sent notice to Manicube that it couldn’t offer manicures at offices.   The company only has licensed manicurists – but that’s not good enough. You can imagine how much owners of manicure shops support these regulations.

Which brings me to telemedicine.  No one would argue that physicians, nurse practitioners, and physician assistants should be licensed and regulated.  But Idaho argues that even physicians with a valid Idaho license cannot prescribe medicines unless they physically examine the patient.   As a result, residents of Idaho have no access to telemedicine services.

And why shouldn’t a doctor who is licensed in California and has proper insurance be allowed to practice telemedicine in other states?   Companies offering telemedicine services could prevent emergency department visits and diminish access problems in primary care offices by addressing acute self-limited issues.  There are concerns that they overprescribe antibiotics (the same concern applies to emergency departments and urgent care centers and PCP offices) – but this data can be readily tracked, and at the very least, telemedicine providers can’t order unnecessary tests!

Towers Watson estimated that telemedicine services could save employers $6 billion a year.


It looks like the Supreme Court will side with the tooth whitening kiosks and against the self-interested North Carolina Board of Dental Examiners.   Uber is winning the battle for customers,  and Jestina Clayton is back in business braiding hair. Manicube was in my office yesterday.  I’m hopeful this will show the way to lowering the barrier to cross-state medical practice and telemedicine in the coming years.

Tuesday, October 14, 2014

Reference Pricing: Simulation Shows Limited Potential Savings


Today’s Managing Health Care Cost

Number is 5.4%



The National Institute for Health Care Reform reported on a simulation on reference pricing  - leading.  The finding is similar to a post here in 2013

The authors point out that not all medical services are “shoppable,” and even for those services that could be sKaiser Health News to the headline “Study Finds Savings Low For Employers Capping Their Payments For Treatments.” Reference pricing is where the insurer (or employer) sets a “reference price” and provides full coverage for services at providers which agree to this price, while patients foot the bill for any excess amount billed ubject to reference pricing there are not always providers likely to compete in a given local marketplace.   Their 5.4% is likely to represent the high end of potential savings from reference pricing, because

·         Many services are simply too small to be worth the transaction cost of asking people to shop.   Laboratory tests cost a lot in aggregate, but each blood count should cost under $20 – making shopping not feasible
·         Most medical services are delivered locally – and many local markets are not big enough to sustain more than one or two providers in a service line. OIigopolies don’t lower their prices easily
·         The authors estimated patients changing providers at the upper end of the CalPERS experience.   CalPERS and the insurer did an enormous amount of patient education around the two procedures covered by its reference pricing approach.  It’s not clear that the same effort could be mounted if reference based pricing extended to a third of all services.

From the white paper:

One question is whether a reference pricing program can steer patients to lower-price, adequate-quality providers. The answer, based on the CalPERS experi­ence, appears to be yes. But, that may not be the right question. A better question may be why private health plans would ever pay negotiated prices over $30,000  for inpatient knee and hip replacements. The CalPERS reference pricing pro­gram seemingly took a hard line against hospitals charging unreasonably high prices—$30,000 or more—for knee and hip replacements. But, is $30,000 really a reasonable price for an inpatient knee or hip replacement? To put that amount in perspective, the Medicare program on average paid $14,324 for inpatient knee and hip replacements in 2011.

The answer is straightforward – the commercial health insurance plans don’t have the leverage that the Medicare program enjoys.  Medicare takes care of the old and the very sick – who represent a large portion of those who require medical services (especially joint replacements).  Medicare can dictate prices –and any physician or hospital can either accept those prices, or eschew seeing Medicare beneficiaries. That’s not a viable option for most providers. It’s hard to run a big hospital without Medicare beneficiaries!  Commercial health plans lack such leverage – that’s why they pay such high prices.

Reference pricing can help pressure providers to lower their prices – but that’s only true for a small number of procedures or services, where there is genuine competition.

Monday, October 13, 2014

Jean Tirole wins Nobel Prize. He has no connections to health care. Yet.


Today’s Managing Health Costs

Number is Two


Jean Tirole, a French economist (who has roots at MIT), won the Nobel Prize in Economics this morning.    He’s spent his career studying “difficult to regulate” markets, especially utilities such as telecommunications, water, postal services, and highways.  He has used game theory and contract theory – and has concluded that the optimal regulation for any given market depends on the characteristics of that particular market.


…Many markets are dominated by a few firms that all influence prices, volumes and quality. Traditional economic theory does not deal with this case, known as an oligopoly, instead it presupposes a single monopoly or what is known as perfect competition. The … regulatory authority lacks information about the firms’ costs and the quality of the goods and services they deliver. This lack of knowledge often provides regulated firms with a natural advantage.

Sounds a lot like health care, doesn’t it? 

Tirole has not addressed health care directly I can quickly find (there are two articles in pubmed for instance.  One is a theoretical article on individual and collective moral behaviour (2011; Link Harvard Link), and the other is a practical article about developing standards that could include patents, and not letting the patent-holders collect too much “rent”, 2014 Link  Harvard Link)

I imagine that many health policy wonks will be thinking in the coming months about how Tirole’s insights into regulating oligopoly markets applies to health care.


Thursday, October 9, 2014

Promote Competition to Address Generic Price Spikes


Today’s Managing Health Care Costs

Number is 8281%





The New York Times reported yesterday that oversight committees in the House and Senate are looking into shocking increases in the cost of certain generic medications.  Doxycycline, which is used to treat uncomplicated Lyme Disease as well as many other infections, increased by over 80 times!

This counters expectations- brand name drug prices generally decline by 90% or more when they become available generically.

The critical issue is that the real price drops happen when drugs are manufactured by 5 or more competing generic firms.   When there is only a single generic, prices go down by only 10-20%.Some long-time generic medications are only manufactured at this point by a handful of,or even a single manufacturer – and that’s when prices spike.

Some would suggest government price controls – but I’m skeptical of this.  Limits to inflation rates for some intravenous medications has led to withdrawal of some manufacturers from this market – leading to shortages of inexpensive generic oncology medications.  In the end, more competition will be more likely to lead to sustained lower prices. 

Government can play an important role.  It should vigorously enforce antitrust laws, to be sure that generic manufacturers aren’t padding their margins by agreeing not to compete with each other.   The FDA could also consider requiring a production commitment when it initially approves each manufacturer’s generic formulation.

The generic manufacturers, like the brand name manufacturers, have discovered that the fastest way to higher profits is higher prices.

Tuesday, October 7, 2014

Two Cheers for Transparency


Today’s Managing Health Care Costs

Number is $3.5 billion


The federal government unveiled a website last week to allow users to search for which physicians got funding from pharmaceutical and medical device companies.   This database covered only 5 months of 2013, and there were $3.5 billion in payments.   

This new website didn’t crash like the initial Healthcare.gov site, but the website, the underlying data and the administrative infrastructure have substantial problems:
·         40% of all payments have no payee listed – since there were name match problems in the database

·         The database makes no distinction between dollars paid for giving sponsored talks (which seem highly likely to bias a prescribing physician) and dollars paid for recruiting patients for clinical trials (most of which are spent in staff and patient payments, so these payments would be likely to cause less bias). “Only” $380 million was for sponsored talks. Physician groups are especially worried about the mixing of research and marketing dollars.

·         The website was very difficult to use – I couldn’t make it work on an ipad – and there are many layers of confusing choices for the user to make. Aaron Carroll of The Incidental Economist is quoted in Vox.com

“The website had so many bugs in it. Half the time I would click things, and no matter what I did, I was brought to an error screen.”

·         There wasn’t an easy way for physicians to correct errors, many of which were attribution of $50 or less for meals that they said they refused.  
Even so, it’s great news that this information is now public.
1)     Sunshine is good –and the data quality will improve.   I would have supported a brief delay to scrub the data better – but insisting the data be perfect is tantamount to opposing transparency
2)     The government is much better at collecting data than displaying it.   Propublica has teamed with PharmaShine to offer a search function into data they have been collecting for the last few years – this works much better than the government-designed tool.  (See screen shots below)
3)     There will be fewer payments of physicians by pharma and medical device companies going forward, and this will lead to better clinical decisionmaking

If you ever doubted that physicians should be very wary of talking to the press without getting good advice, listen to plastic surgeon Bradley Bengtson of Michigan who received $300,000 from pharmaceutical companies to give sponsored talks:

Dr. Bengtson said that any time he spends not treating patients represents lost revenue, “Although to many it looks like a lot of money, it actually is about one-tenth of the money that I’m not being compensated for being out of the office,” he said.  

The Propublica website shows payments of as much as $800,000 from a single pharmaceutical company in 2013.  I’m guessing that his statement won’t engender much sympathy.

Propublica website - screen 2 
CMS website - screen 3

Wednesday, October 1, 2014

Alarm Bells on Provider Consolidation


Today’s Managing Health Care Costs

Number is 3%


Suzanne Delbanco of Catalyze Payment Reform has an op-ed in today’s Wall Street Journal calling on employers to be very worried about provider consolidation. 

Consolidation means many things, from the merger of two hospitals or health systems to an acquisition of a physician group by a hospital. Generally, however, when providers consolidate, private insurers end up paying more for services. Nationwide, payments to hospitals on behalf of the privately insured are an estimated 3% higher as a result of consolidation, according to a 2012 report by my organization, Catalyst for Payment Reform. That may sound small, but 3% of the almost $900 billion the U.S. spends on hospital care each year is a hefty chunk of change.

The Robert Wood Johnson Foundation commissioned a review in 2012 as well. The authors conclude that competition lowered prices and improved quality, undercutting arguments that merger of multiple otherwise-competing hospitals should improve the quality or cost-effectiveness of care.