Wednesday, March 25, 2015

Medicaid Expansion Helps Hospitals, and Obamacare Fails in Mississippi.


Today’s Managing Health Care Costs Number is $7.4 billion


The federal government issued a brief on the economic impact Medicaid expansion on Monday – the headlines are that Medicaid expansion was associated with a $7.4 billion decrease in hospital uncompensated care across the country. This certainly takes some sting out of the Affordable Care Act’s decreased Medicare hospital funding.     

Specific findings:
·         States with Medicaid expansion had substantially more decrease in hospital uncompensated care
·         Simulations in 10 states showed overall increased economic activity due to Medicaid expansion. 
·         States that refused to expand Medicaid will lose $88 billion in federal funding (2014-2016), and this will reduce overall national economic output by $66 billion. 
·         Kentucky estimates that the economic impact of Medicaid expansion will be $30 billion (2014-2021) and lead to 40,000 incremental jobs.   That’s the result of the multiplier effect – those new dollars coming into the Kentucky economy create jobs outside of health care where they are initially spent.
·         The Oregon Medicaid expansion showed those randomly assigned to Medicaid had no catastrophic out of pocket medical costs, and were 25% less likely to have medical bills sent to collection agencies

Kaiser Health News also published a  heartbreaking deep dive into the failure of the Affordable Care Act in Mississippi, which has the nation’s highest uninsurance rate (37%), highest Medicare leg amputation rate, and where a family of three needs to earn under $384 a month to be eligible for Medicaid. 

A newly-elected Tea Party affiliated governor jettisoned years of (Republican) work on an exchange that had begun before the ACA passed, and a combination of lack of promotion and misinformation meant that by December 2013 less than 1000 people had signed up for Obamacare.   The vast majority of those eligible for large subsidies passed on them.    A state economist noted that failure to expand Medicaid would cost the state $1.2 billion annually by 2025, and the state will forego 9000 jobs. This didn’t budge intransigent state politicians.

Mississippi was the only state in the union last year which saw an increase in the rate of uninsured residents.

Tuesday, March 24, 2015

Medicare cuts don't lead to commercial insurance rate increases


Today’s Managing Health Care Costs Number is $110 Billion




Austin Frakt writes in today’s New YorkTimes Upshot that the “hydraulic cost shift” where hospitals raise prices for employer-sponsored health insurance to make up for shortfalls from Medicare and Medicaid funding seems to no longer be true.

This is a big deal:  One of the arguments against the Affordable Care Act has been that Medicare hospital cuts ($110 billion in foregone increases over a decade) will simply increase the cost of insurance for those under 65.  Many call this the “whack a mole” problem in health care finance.  Lower costs in one place, and they pop up somewhere else.

This makes intuitive sense, especially for the predominately non-profit hospital sector.   Hospitals face community pressures to hold their rates down, and they would be more likely to push against that pressure when they face financial shortfalls.

The hospital industry cites this when it’s opposing Medicare cuts –and visitors to DC’s National Airport over the last month saw banners everywhere proclaiming “no more hospital cuts.”   Interestingly, these were funded by the SEIU, not the hospital industry itself.

Frakt cites his own research and the research of others to show that over the last decade or more, Medicare cuts have actually been associated with lower costs for commercial insurance as well.  One researcher showed that 10% cuts in Medicare were associated with 8% lower costs in commercial insurance.  Another researcher showed that high leverage hospitals which were able to command higher prices in the commercial market had high Medicare costs (and therefore low Medicare margins).  This means that the ability to get high prices due to leverage led to higher costs and Medicare losses, rather than Medicare losses leading to higher commercial prices.  

Frakt concludes

The widespread belief [that Medicare cuts]… promote higher [insurance] premiums …may be a politically useful argument, but it is an economically flawed one.

=====


Here's the initial "cost shift hydraulic" graphic, from Health Affairs, 2006:


Here's a more recent scattergram, showing lower Medicare prices associated with lower commercial prices. 



Monday, March 23, 2015

Pharmas ditch their own drugs when they lose patent protections


Today’s Managing Health Care Cost Number is $400


What if the only cars available were late model Lexus and Mercedes Benz?


If only the “best” cars were available, everyone would have the latest safety features available.  We would all drive cars wi– 11 airbags, automatic braking based on radar, collision avoidance systems, and steering wheels that buzz if the driver stops paying attention.   What a wonderful world it would be.

Except for those who couldn’t afford a Lexus or a Mercedes.   For those who couldn't afford such an expensive car – this would be a huge problem.  People wouldn’t be able to get to work, and how would they buy groceries?

That’s what we’ve got in the pharmaceutical world.  Last week’s New England Journal of Medicine reports on insulin, a medicine first used in the 1920s.  There is no generic insulin available.  Vials of insulin (approximately 1000 units – enough for a month) cost $20 when I started in practice; they cost over $200 now.   Estimates are that many diabetics have to spend $400 per month out of pocket for their insulin prescriptions alone.

And there is no generic insulin.

The problem is accretive innovation - small incremental improvements that come with a very high cost.  The first insulins were made of beef and pork pancreas.  They were very short acting – requiring many shots a day for those with Type 1 diabetes.    They were improved sequentially by adding protamine which delayed action, and by additives that allowed mixing short- and long-acting insulin.  Then, animal insulins were further purified so that fewer people developed allergic reactions. 

In the last 30 years, the pharmaceutical industry has moved to human insulin, produced by genetically altered bacteria or altered from animal insulin – which is for most patients better still.  Each batch is the same – and there is now a wide range of short and long acting insulin, which allows for better control with fewer injections. This will lead to fewer heart attacks and strokes, less blindness, and less kidney failure.

But these great new genetically modified insulins won’t do any good for those who can’t afford them.  Pity the Medicare recipient in the “Part D Donut Hole,” where the have to pay almost have of brand name drug costs between $2850 and $4550 of total drug costs.  Pity diabetics on high deductible health plans that don’t provide first dollar coverage for diabetes drugs.

The truly awful news is those ancient insulins – that were supplanted by these wonderful new genetically engineered insulins, are no longer available.  Those who want the Chevrolet of insulins in the United States are simply out of luck.

This is a common problem.  The initial innovator is enthusiastic about its brand new drug that is covered by a patent–and does all it can to undermine the years of marketing it previously did for the drug losing its patent.  This discourages generic manufacturers from entering the competitive market.

There’s more coverage this week about Namenda, the only-slightly-effective anti-Alzheimers disease medication that will be available generically later this year.   This is expected to lower the cost by as much as 80%.    The manufacturer (Actavis) decided to stop manufacturing the regular-release medication this winter – forcing all patients to switch to the long-acting formulation, which would make it difficult for them to later move to the generic when it becomes available.   The New York Attorney General won an injunction to prevent Actavis from withdrawing the short-acting medication. An appeals court is expected to rule on this lawsuit in the next month.

Drug companies want us to use the latest medication – which is often (a little) better than a existing drug, one that is often about to lose its patent protection.  This new drug is only an accretive innovation (small increased benefit often for a high incremental cost).

Losing access to the prior (slightly) inferior drug, though, means that many patients will not be able to afford the new Mercedes Benz drug.   Affordability matters, and our limiting choice to expensive new drugs with a small amount of benefit that might only be enjoyed by a minority of patients is part of why health care in the US is so expensive.



Thursday, March 19, 2015

Should health insurance plans be nonprofits?


Today’s Managing Health Care Cost Number is $4.2 billion


The Los Angeles Times reported earlier this week that California is yanking the state tax exemption from Blue Shield of California, a massive non-profit that insures 3.4 million Californians.   The report states that BS has assets of $4.2 billion, and Blue Shield’s former Director of Public Policy resigned and started a campaign to force Blue Shield’s privatization:

Blue Shield of California Foundation, which distributes about $35 million a year to community clinics, domestic violence shelters, and support for healthcare reform implementation, does real good. But these benefits are a paltry return (less than 1%) on a public asset, which is what Blue Shield is, that is worth perhaps as much as $10 billion.Given how little Blue Shield does for the public, those assets would far better serve Californians if they were instead invested in the state’s healthcare safety net.

Should health insurance plans be nonprofits?

Much of the world thinks so.  Most of the European countries that have competing private insurers mandate that they are nonprofits (Netherlands, Germany), or mandate that they cannot earn profit on sales of basic insurance policies (Switzerland). 

But for-profit health insurance plans rule in most markets in the US.   Even in markets like Minnesota which bans for-profits from the health insurance marketplace, for-profit companies like Minnesota-based United Health Care serve as administrators for self-funded plans, and perform back office functions for Minnesota based nonprofits.     
                                                                                                                                              
One attempt to rejuvenate non-profit health plans is the Affordable Care Act’s financial support for new Cooperative Health Plans – which was initially funded at $6 billion  but that funding was limited to the $2 billion already committed under one of the “fiscal cliff” budget agreements of 2013. The Cooperative plans have not been around long enough to judge their success, but there are some worrisome signs.  The Iowa-Nebraska cooperative was declared insolvent and liquidated.  It was a victim of its own success at dominating those states’ exchange populations, but it was unable to get additional capital beyond its initial government loan to sustain initial market losses while maintaining adequate reserves.

For profit health plans aren’t required to be “mission driven,” and they must watch out for shareholder interests – which don’t always match the public interest.  They are often focused on the next quarter’s financial results, which can make long term planning difficult. The for-profits have a series of serious advantages in the United States, though, and it’s rare for a non-profit free-standing health plan to make a big acquisition or enter a new territory.  These advantages include:

·         Access to the capital: Investors front money to the health plan – and the health plan can make acquisitions and pay its executive bonuses using shares of stock. If the health plan doesn’t have enough risk based capital, it can sell additional shares.   If a non-profit health plan falls short in capitalization, it generally must be acquired by a for-profit.

·         Governance:  Securities and Exchange rules force a degree of financial and operational transparency for for-profits that is far more than the late-as-you-can-get IRS Form 990s that nonprofits can’t match.   For instance, the California regulators yanked BS’ tax exempt status in August, and this could have far reaching implications for the company.   If BS was a publicly traded company, it would have had to reveal such meaningful information 

·         Diversification: For profit companies have used their advantages to be a force in multiple markets. This has led to substantial consolidation in the insurance industry, and there are now 4 major national health plans (Aetna, Anthem, Cigna and United Health Care).    Being tethered to a single market probably leads to lower leverage in provider negotiations – allowing the for-profit nationals to obtain better provider discounts where they have adequate market share.   Their capital advantage has also allowed the for-profits to make big investments in information technology and other health services firms, and they are increasingly partnering with or purchasing actual health care delivery as well.

I worked at a non-profit health plan (Tufts Health Plan) for seven years beginning in the late 90s – and I can vouch for a real sense of mission at that non-profit, led by folks who were deeply interested in making health care better in their communities.  I know that this is true of other non-profit health plans as well.

On the other hand, I see the for-profit health plans with extraordinary strategic competitive advantages. States with serious budget needs are also likely to see nonprofit reserves as a potential new source of one-time revenue, too. 

I expect that we’ll continue to see dwindling of the number of non-profit health plans.

Additional Reporting on this:

Wednesday, March 18, 2015

Doctors and kids win with House deal to ditch SGR and reauthorize CHIP


Today’s Managing Health Care Costs Number is 8,148,397



Nancy Pelosi and John Boehner have apparently agreed to a once-and-for-all solution to the physician “sustainable growth revenue” (SGR) morass, which would decrease physician Medicare payments by 21% on April 1st to account for volume increases.  This will be the 18th time the Congress has had to overrule the 1997 law which tied physician fees to overall outpatient volume of services – and this “doc fix” would not expire in 6-18 months, as many of the others have.

The SGR cuts are a terrible idea- and could lead to substantially reduced access for Medicare beneficiaries.   The threat of these cuts is no longer credible, and so it’s great that Congress intends to resolve this issue, rather than kick the can down the road again at the last minute.   The SGR resolution will be funded by higher cost share for wealthy Medicare beneficiaries and

Buried in the article on this in Politico this evening is something that might be far more momentous. The House leaders have also apparently agreed to a 2 year extension of  the Children’s Health Insurance Program (CHIP), which would otherwise expire this fall.   There were 8,148,397 who got insurance through CHIP during 2014.   CHIP is a major reason why we don’t have so many uninsured kids in the US – and it’s a bulwark in our fight against measles by offering access to vaccinations and primary care.  

It’s reassuring to see agreement over reauthorization of CHIP, even on the day before the release of a House Republican budget that would partially privatize Medicare, change Medicaid to state block grants with dramatically lower funding, and eliminate the Affordable Care Act, and its subsidies to purchase insurance.    The reported House bill uses funny math to ignore the loss of Medicare cuts and tax increases that are part of the ACA. It has little chance of eventual enactment – but certainly leads to a sense of insecurity about our health care funding going forward.






Monday, March 16, 2015

It's difficult to change the ACA without undermining it.


Today’s Managing Health Care Costs Number is 2300


One thing that everyone can agree on – the Affordable Care Act has substantial flaws – and it would be just great to make it better.

It’s another thing entirely to agree upon how to make it better.   Thinking long and hard about the attempts from both the left and the right to alter the ACA gives me even more of an appreciation for just how hard it is to make changes in a law which reformed over 1/6 of the American economy.

I was at the Conference Board Employer Health Care Conference (sponsored by my employer, Towers Watson) at the end of last week. Jim Klein of the American Benefits Council, an employer sponsored advocacy group, talked about the employer agenda for how to change the ACA. It’s understandable why employers would want these changes – but most of them could have a substantial adverse impact on either the number of those with meaningful insurance or would lead to adverse selection, diminishing insurance affordability.

Elements of the employer agenda:

Change full time employee definition from 30 hours a week to 40 hours a week.
Some employers argue that mandating insurance coverage for those with 30 hours a week will lead to more 29 hour employees – who would lose hourly income and still not get coverage.   However, there are far more 40 hour a week employees (who could presumably be cut to 39 hours a week) – so this change would be likely to cause many more to remain uninsured. 

See below – it might be better to eliminate the employer mandate altogether – and make federal subsidies available to employees based on their total income.   Certainly many employees of Trader Joes and other retailers who dropped their insurance plans are better off financially getting subsidized insurance from the exchanges.

Add a “copper” plan with 50% actuarial value

This was proposed at the end of the last Congress by a number of Democrats.  The ACA already offers pretty “stripped down” policies –and a copper plan would generally require deductibles of $12,000.  That’s close to an absence of insurance, especially for those of modest income.  The copper plan could also take the healthiest patients out of other plans, increasing their premium costs.

Repeal mandatory auto enrollment

“Default bias” rules – and this is a good way to use behavioral economics to enroll more people – and be sure the healthiest don’t skip out on insurance.  Short of having national health insurance, this is a very important way to be sure that more people have health insurance.

Repeal the 40% excise “Cadillac” tax

Economists on the left and the right supported this tax, but at this point almost no one will stand up and say that the excise tax is a good idea. 

Recent slowdowns in health care costs have meant a smaller number of employers will hit this tax.   The point of the excise tax was never to raise money; it was to discourage employers from offering such rich plans that there would be substantial “moral hazard” and people would overuse health care.  (Remember, utilization numbers in the US are far lower than almost all developed countries – our issue is high prices rather than high utilization).   

The excise tax has helped focus employer attention on the need to lower health care costs.  There might be good changes to this (perhaps geographic adjustment, so that employers in high-cost states are not penalized twice), but eliminating the excise tax altogether sends a worrisome message – and could lead to less attention on this issue.   The excise tax should calibrated so that few employers hit it.
  
Repeal the individual mandate

The only way to get adequate participation from healthy people in the insurance market is this mandate.   No one has made any credible suggestions of other approaches that are likely to work.  

Repeal the employer mandate

Here’s the once place where employers might have a point.  Even the left-leaning Urban 
Institute has suggested that eliminating the employer mandate wouldn’t lead to a lot of insurance loss- largely because there is competitive pressure for employers to offer insurance.   The ACA drafters felt this was important to avoid a wholesale employer retreat from the health insurance market; perhaps that fear was overblown.


It’s not just employers who have ideas about how to change the Affordable Care Act that could wreak havoc with the insurance market and endanger the gains we’ve already made. 

The Obama Administration is also facing pressure from the left to consider pregnancy a “life event” that would allow pregnant women to sign up for insurance on the exchanges at any point – regardless of whether they had insurance earlier.     This sounds good; who wants to have women uninsured during their pregnancies?   However, this is a terrible idea from an insurance perspective.  It would encourage healthy young women to choose to be insured only when they were expecting.  Adding women only when they were pregnant (average allowable cost $25,000) would also raise the cost of insurance – which would decrease affordability for all.   If we want a program to allow pregnant women to sign up off-cycle, we’ll either need to raise insurance rates or provide government or other outside dollars to fund the cost of their care.


The Affordable Care Act was 2300 pages, and estimates in 2013 pegged regualations at between 10,000 and 40,000 pages.  There’s a reason that this law is so complicated –and it will continue to be hard to make changes to the law without undermining its purpose.

Note that this blog,as always, represents my personal point of view, and not the view of Towers Watson
  

Wednesday, March 11, 2015

US lowers cancer deaths - at a very high price


Today’s Managing Health Care Costs Number is 69,389



First the good news.  This month’s Health Affairs reports that the US has had 39,389 fewer cancer deaths than Western Europe over 20 years from 1990 to 2010. Further, the age-adjusted rate of death from cancer decreased substantially across US and Europe.  The researchers calculated the death rates from 12 cancers in the US compared to 20 European countries.

Now the sobering news. We saved 2 million quality adjusted life years (QALYs) at a cost of over $2 trillion, a cost of a bit over $100,000 per QALY. While our more costly treatment of breast and prostate cancers did save incremental lives, we spent more on lung cancer but had excess death from that disease. In the mid-1980s, we spent more on breast cancer treatment but had higher death rates, possibly from our premature embrace of bone marrow transplants later found to be harmful.

This type of economic analysis is by definition imperfect. Death certificates are notoriously unreliable, and data collection differs from country to country. The researchers had to estimate missing data, and made the assumption that the cost of cancer care for each type of cancer mirrored reported national rates of cancer expenditures. This makes estimates of costs for each type of cancer less accurate – although the overall conclusions are quite credible.

These results are no surprise.   When we spend twice as much of a higher GDP on health care compared to other countries, we’re bound to have a pretty high cost for each incremental saved life.


To put the lives saved in perspective, there are over 585,000 deaths from cancer each year in the US, and our incremental spending appears to be responsible for a decrease of under 3500 per year of the study. 

The authors note that screening and cancer prevention can be more cost-effective than treatment, and new “pay for value” provider payment programs could encourage more cost-effective care .  They also suggest that we should look for cost savings in end-of-life care, medical imaging, and chemotherapeutic agents, while we should provide more  palliative care which lowers medical costs and makes care more concordant with patient and family stated wishes.

Most of us want every last dollar spent to prolong or save our own lives, or the lives of our loved ones. Of course, there are tradeoffs.  We’d like to make investments in education and infrastructure – and we’d like to promote prevention, not just high tech treatment.   And spending more might get us some improvements in outcome, but the cost can be high.   That’s as high as almost 2 million per quality adjusted life year saved in those with prostate cancer.