Two case studies on why it's hard to constrain health care costs

Two articles in the New York Times on Saturday demonstrate the difficulty we have constraining health care costs.  We have trouble agreeing to cuts in home health care when independent analysis shows overly generous margins (on average), and we have trouble rejecting payment for a cancer drug that costs $36,000 a month, and has not been shown to have clinical benefit.

A front page article  follows a home health nurse making rounds in rural Caribou, Maine. (Not coincidentally, Maine has two Republican senators most likely to buck their party and vote for health care reform. One of them, Susan Collins, was born in Caribou.)   Cuts in home health care payments could force large layoffs in this community – which would deprive isolated rural seniors from a low-tech lifeline, and could lead to more hospitalizations. 

MedPAC recommended sharp cuts in home health care, as its analysis showed that on the average the margin in home care was too high.  (Of course, averages obscure many situations – and rural home care nurses who are only able to see five patients a day due to travel distances are very different than urban home care nurses who can walk from client to client!)   This information from the Dartmouth Atlas shows that overall Maine has far less home health expenses than expected, even though more highly populated southern Maine uses more resources than average. 

National Average:   434.5 services/1000

Maine Average:   350.3 services/1000

Maine uses $14,600,000 less resources on home health services than the national average

The front page of the business section  of the paper highlighted Folotyn, a drug newly approved for peripheral T cell lymphoma.  This disease is aggressive, strikes under 6000 in the US each year, and there is no other effective therapy.  Folotyn has been shown to shrink tumors in 27% of patients treated; it was not shown to prolong life. Here’s a direct quote from the article.

...Dr. Lee N. Newcomer, senior vice president for oncology at the big insurer UnitedHealthcare, called the price of Folotyn “unconscionable.” He said that Folotyn alone would cost as much as UnitedHealthcare now typically spends in total to treat a lymphoma patient from diagnosis until death. That median expenditure now, he said, is $87,000 for a little over a year of treatments.

But Dr. Newcomer said insurers would be obligated to pay for Folotyn because there were no alternatives.

So there you have it.  Home care probably is paid too much on average – but there are areas where resources spent are inadequate.  We focus on these areas in our public discussion.   Oncology care costs too much, but with no alternative for this new medication, we will keep writing checks.

Health Care Adds Jobs

Good news and bad news.

The good news is that employment is up in health care.  In a gloomy job market as unemployment exceeds 10% (and 17% when including underemployment),

The bad news is that increasing employment is almost certainly associated with continued health care inflation.   I was worried when the Council of Economic Advisors  projected robust future growth in health care this summer – I’m concerned that this will bear out my concerns.

RAND Cost Saving Estimates, August (MA) and November (US)

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The Mass Division of Health Care Policy and Finance sponsored an impressive review by RAND researchers of potential cost-saving opportunities in Massachusetts, which was published in August. I blogged about this late this summer, and have always felt that this extensive analysis didn't get nearly enough attention.

The NEJM last week published an article by same RAND researchers extending this analysis to the rest of the country.

This remains an important study - and I'm glad to see an extrapolation getting new press.

I'm also intrigued by the differences in findings.

Hospital rate setting: Maximum savings in MA 4%; US 2%
Healthcare IT: Maximum savings in MA 1.8%; US 1.5%; Maximum increase in costs in MA 0.6%; in US 0.8%
Expand scope of practice for NPs and PAs: MA range savings 0.6%-1.3%; US 0.3%-0.5%
Medical home: MA maximum savings 0.9%; US 1.2%
Disease management:  MA maximum savings 0.1%; US maximum savings 1.3%

It makes sense that rate setting might be more effective in Massachusetts to the extent that prices are higher. In fairness, this might not be a 1:1 comparison since the NEJM lumps a few different options together.  Scope of practice savings might be different based on supply of physician and non-physician providers.  I'm surprised to see higher projections of savings for medical home, since our specialist:primary care ratio is high in Massachusetts.  I also can't explain why disease management would have so much higher projected maximum savings in the US overall compared to Massachusetts.

This analytic work is especially important as we consider what cost-control mechanisms should be included in health care reform.

Lobbying and Health Care Reform

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Robert Steinbrook of the NEJM has posted the amounts spent on lobbying Congress and federal agencies so far this year.  The health and health insurance industry have spent over a half billion dollars (through September).  This is about 1/5 of all lobbying expenses.

With the dollars at stake in health care reform, this is probably a very small investment indeed.

CBO: Health Reform will Increase Value (and no segment will personally pay higher premiums)

The Congressional Budget Office has weighed in on the impact of the Senate health care bill on insurance premiums.  It's highly likely that opponents will latch on to 10-13% increases projected for health insurance premiums for those in the nongroup market (17% of the population).  However, as Ezra Klein notes on the Washington Post blog, this is a "steal." In fact, the cost is up a bit - but these are credible insurance plans of 27-30% greater actuarial value. Furthermore, more than half of those in the nongroup market will receive subsidies, so their cost of having insurance will effectively drop by more than half.  The CBO projects no change to a tiny decrease in cost of premiums for the small and large group market. For both the small and nongroup market, the CBO projects that the SAME policy would cost between 1-10% less.

All told - this is a solid double for the health care reform plan. However, we'll see how this gets interpreted by the talking heads.

NYT Vs. NYT on Public Option

The New York Times today has an editorial urging support for a public option.  The Times quotes the CBO, which has suggested that even a weakened public option could lower costs.  On the op-ed page, Paul Starr argues that the public option, as currently proposed will not save money. I have previously suggested that the public option might actually lead to higher prices and higher overall costs through decreasing health plan leverage in some markets.  

A Public Health Success That Can Save Real Dollars

Last week, the Massachusetts Department of Public Health released data showing a dramatic drop in smoking rates among low income individuals insured through the state Medicaid program.  The graph above comes from the Boston Globe on November 18.

Preliminary data also shows lower rates of heart attacks among those who used the program.

There are reasons to be a bit skeptical of this data.  Those who used the smoking cessation program were probably different than those who didn't, and the percent drop seems quite high.   Also, Medicaid is a combination of "Temporary Assistance to Needy Families" (largely pregnant women and their kids -where smoking rates do not lead to a lot of heart attacks in the short run), and those with serious disabilities, who are older and where smoking cessation could lead to prevented heart attacks over the short run.

Still - this is just great news.  Smoking is a very major cause of preventable illness and death, and smoking rates remain highest among those with lower socioeconomic status.  It's unfortunate that even in light of the proven effectiveness of antismoking programs states have cut funding for such programs in light of their current budget shortfalls.