Thursday, February 26, 2015
Today’s Managing Health Care Costs Number is $1.5 billion
Pharmaceutical companies are responsible for some of the most important advances in health care during my professional lifetime, including making HIV a chronic disease, curing Hepatitis C, giving us drugs that effectively lower cholesterol and treat ulcers. Rheumatoid arthritis destruction of finger joints is much rarer, and more patients with inflammatory bowel disease avoid surgery and disability.
But the pharmas are also good at medicalizing issues, especially issues related to mental health.
The FDA just approved Vynnase a used for Attention Deficit Hyperactivity Disorder (ADHD) to treat binge eating disorder. Binge eating disorder was first classified as a disease by the American Psychiatric Association in 2013. Shire Pharmaceuticals predicts that this drug, which already yields $1.5 billion in revenue, will now bring in an additional quarter of a billion. The drug was approved by the FDA without any advisory committee review since there are no drugs previously available to treat this condition.
The New York Times reports that Shire has begun a sophisticated marketing campaign to promote Vynnas for this new indication, including
· Speaking and interview circuit tour by tennis star Monica Seles
· Generous funding of patient advocacy groups
· Creating a new website giving patient scripts to use when asking a physician for medical treatment for this condition
Addiction specialists are very worried - Vynnase is a schedule 2 medication with high potential for abuse. There’s already widespread concern that the amphetamine are overused to treat ADHD – this is one more way that amphetamines can become widely available.
Binge eating is a real problem, and there is already a known effective treatment: cognitive. But talk therapy is expensive and inconvenient , and often hard to access. Moving to a pill for therapy of this disorder will mean that for many more will be treated, and total costs will go up. Diversion of this highly abusable drug to illicit use will increase treatment costs further. Shire’s campaign will increase the cost of medical care. It will be very effective in increasing share price.
Tuesday, February 24, 2015
Todays’ Managing Health Care Costs Number is 60%
Modern Healthcare reports that hospitals are closing – victims of high deductible health plans, better outpatient care, cuts in Medicare rates, and decreased smoking. Hospital occupancy rates are down to 60% (2013), compared to 64% in 2008 and 77% in 1980.
Nonetheless, employment at hospitals continues to rise, as hospitals move more deeply into outpatient medicine, including purchasing physician practices and running ambulatory surgery, imaging, and radiation therapy practices. The New York Times reports that health care continues to be one of the only sectors offering a route to middle class pay. Nursing pay increases have exceeded inflation – one of the few professions where this is true.
It’s good for patients to have fewer days in the hospital. That’s fewer chances to get hospital-acquired infections, and more opportunity to spend precious time with family and loved ones near the end of life. It’s also good that hospitals are providing fulfilling economically robust jobs – especially for women.
Hospital closures lower the capital base for inpatient care – which many would surmise should lower the total cost of care. But the market often doesn’t work that way. The hospitals closing in many markets are the least expensive hospitals, and the loss of competition often leads to more negotiating leverage and higher unit prices at remaining hospitals.
We’d like hospitals to be both the engines of economic growth and to lead the way to lowering the overall cost of health care. They might eventually get there with wider use of accountable care structures that transfer “risk” to providers for the total cost of care. But we’re not there yet.
Monday, February 23, 2015
Today’s Managing Health Care Costs Number is 20%
Source: Adapted from Jamie Robinson’s brilliant 2001 comparison of capitation and fee for service now available without a paywall.
There’s a lot of talk about the “death” of fee for service and the wholesale conversion to “pay for value” contracts in health care.
I’m a fan! Fee for service is a good way to get more (avoidable) units of service, and it encourages overuse of services with high fixed costs and therefore high margins for extra units. It distorts the “agency” of physicians, who can earn hundreds of thousands of dollars a year more by ordering more MRIs, CTs, or radiation therapy services in which they have ownership interest.
Even Catalyze Payment Reform, an employer-sponsored organization seeking to promote payment reform to improve care, has a target of moving only 20% of medical care fees to value-based payment by 2020.
I think that the announcement of the impending death of fee for service is premature.
1. There are some services that are simply better paid fee for service
· Some high value underutilized services are better paid fee for service. Vaccinations come to mind – a provider should never believe that she has to pay for vaccines out of her own pocket.
2. There are some providers who will never be arrayed to be paid in a bundled matter
· Providers in rural communities are likely not to have the scope to take “risk” on their entire population, although there might be some opportunities to bundle care.
3. There are some patients whose services should likely be paid fee for service, to encourage innovation and to discourage patient dumping.
· We should continue to pay fee for service for certain innovative quaternary services. We want continued innovation, and it’s not easy to see how we could have included bone marrow transplantation in a capitation in the 1980s.
4. Alternative payments are difficult to arrange – and fee for service is well recognized and “simple.” (It’s not so much simple as ‘familiar,’ and payers and providers are accustomed to fee for service payment.
· Many health plans find that they must initially offer financial inducements to providers to move away from fee for service, which increases short term medical expenses. The infrastructure to pay for value will take time – and will take iterations.
· Most health plans have trouble ‘zeroing out’ bills rendered by providers when services should be in a bundle –which can lead to double payment
5. While enlightened providers are pushing hard toward increased value – this transition is still hard to swallow for CFOs, who would like to obtain revenue from existing fixed assets for as long as possible.
· Providers are likely to talk positively about contracts where they are paid for value, but at the contracting table they will remain ambivalent until non-fee-for-service reaches a critical amount.
The movement away from ‘straight’ fee for service will help improve value in health care. We don’t need to achieve 100% “payment for value” to see substantial changes in health care delivery. Those who rely on predictions that fee for service will vanish in the next few years are bound to be disappointed.
Links to 2009 posts on the problems of fee for service Part One Part Two Part Three
Links to 2009 posts on the problems of fee for service Part One Part Two Part Three
Friday, February 20, 2015
Today’s Managing Health Care Costs Number is (0.1%)
Hospital prices are falling!
Modern Healthcare reported this week that hospital prices had fallen for the first time in…. ever. They were down 0.1% in January – a number which is still preliminary.
Overall hospital prices were down in January- that’s a combination of
- 2.9% decrease in Medicare prices
- 0.1% decrease in Medicaid prices
- 1.6% increase in commercial health insurance prices.
Sarah Kliff of Vox.com opines that two factors are moving prices of hospital stays down. The Affordable Care Act reduces Medicare payments to hospitals. That’s straightforward, and the hospital industry accepted this as part of the bargain to increase the number of Americans with insurance. The second is that commercial health plans have increased leverage through use of narrow networks – which helps convince hospitals not to increase their prices as much for fear of being left out of the preferred network.
There’s a third factor at work here. The expansion of Medicaid, including increases in Medicaid rolls even in states that rejected the ACA expansion, means that a larger percentage of hospitalizations are paid at Medicaid rates, which tend to be substantially below prices paid by Medicare and commercial insurance plans.
Unit prices continue to be the reason why US health care is so unaffordable, so any moderation in rate of increase of hospital prices is great news.
Thursday, February 19, 2015
Today’s Managing Health Care Costs Number is
This month’s Health Affairs has an sobering article suggesting that drug companies are, well, not making any money any more.
Researchers projected the lifetime profitability of novel small molecules and biologic agents in four 5-year periods. They reviewed or predicted revenue for each drug for its lifetime – until after a generic became available. Then they subtracted research and development costs, taxes, sales and general expenses, and manufacturing costs. The researchers subtracted the tax benefits from R&D costs. They considered present value of all revenue and costs.
As you can see, they determined that the pharmaceutical companies made substantial profits during the 1990s – but they project that the after-tax net returns for pharmaceutical companies are negative in the 2005-2009 time period. (They don’t analyze more recent periods because there is little data, so many more projections would be needed.
The authors say:
…the economic profits of newly launched novel active substances have been driven close to zero, so that returns on investment end up being very close to the opportunity costs of capital.
I don’t believe these results. I believe it’s likely the researchers are overestimating costs and underestimating future revenue. The confidence interval, even if we accept all of their assumptions, is largest on the most recent period, which is where they show drug company net losses.
But don’t look at me. Look instead at the stock market.
These are market capitalizations (as of 2/18/15) with 5 year increases in stock price.
Merck (MRK) $168 billion é59%
Astra Zeneca (AZN) $88 billion é54%
Pfizer (PFE) $218 billion é94%
Lilly (LLY) $80 billion é109%
Gilead (GLD) $156 billion é342%
Bristol Myers Squibb (BMY) $100 billion é151%
Sonofi (SNY) $128 billion é36%
Abbvie (ABBV) $94 billion é79% (3 years only)
Johnson and Johnson (JNJ) $281 billion é53%
The Standard and Poor’s 500 index has also done quite well in the last five years – up 97%. Pharmaceutical company stock prices haven’t been better than the market –but they’ve done quite well in an impressive bull market. If the market believed that future profit flow would vanish, these share prices would instead have tanked.
The acknowledgement of this research paper says
This research was supported in part by Pharmaceutical Research and Manufacturers of America, which provided funding for the data analysis undertaken by the IMS Institute for Healthcare Informatics.
Methinks PhARMA protests too much.
Wednesday, February 18, 2015
Today’s Managing Health Care Costs Number is 80%
I love technology. I got my first Macintosh computer in 1987 – and have iPhone 6 envy. We have a Nest thermometer at home – and more ipads and iphones on our Kindle account than Amazon should tolerate.
But there’s a darker side to technology. Bjorn Hofman, a former Harkness Fellow of the Commonwealth Fund, has an insightful commentary in this week’s BMJ about the downsides of the technology cascade. I especially like the graphics – which are available on line but not in the printed version. Harvard Link
He points out that with each advance in technology we miss fewer diagnoses- but the clinical value of this increased sensitivity is small. For instance, since 1998 the number of lung blood clots diagnosed has increased by 80%. But there’s been no decrease in mortality from pulmonary embolisms. The same problem has caused overdiagnosis and overtreatment in thyroid cancer and prostate cancer.
Hofman points out that even a new test that is “more accurate” is in the real world less accurate when used on a lower risk population. Finding people who have a disease that would never have hurt them convinces us that we physicians have saved another life, as long as the (unnecessary) treatment doesn’t cause their death.
He suggests more technology assessment and comparative effectiveness research, and restraining implementation of new technology until it’s been proven to work.
In Hofman’s words:
In order to use technology to help and not harm, we need to reflect and to take responsibility. To cultivate and boost its true benefits, we must avoid the allures and acknowledge the limits of technology.We must strive to bring our abilities to contemplate on the use of technologies to match our abilities to produce and use them. This will ensure we avoid becoming tragic heroes, succumbing as a result of our best endeavours.
Tuesday, February 17, 2015
Today’s Managing Health Care Costs Number is Not $9000
I’ve been consulting, writing, talking and grousing about inappropriate and self-serving measurement methodology for the last decade. I’m not the only one complaining – but the inappropriate methods continue to get published and flaunted. In recent years much of the questionable claims of success have come from third party medical management companies or health plans. But in this era of accountable care organizations, providers are climbing aboard the bad analysis bandwagon
Take this from Sutter, the Northern California system widely known for its bargaining leverage and high unit prices.
Sutter Health’s AIM Engages Patients, Saving Millions in Chronic Care Costs
Current savings to payers now exceed $9,000 per AIM patient within 90 days of enrolling in the program
The program seems great. Sutter’s Advanced Illness Management Program (AIM) sends nurses to home to be sure that especially sick Medicare beneficiaries understand their medications – and know when warning signs should send them back to the office or the emergency room. Extra physical and occupational therapy visits help patients keep their strength to stay home –and social workers pay them visits. Patients are counselled on advance directives.
Really – this is exactly what provider sponsored care management should look like.
The problem is that the Sutter folks are taking credit for savings that are likely illusory. The program enrolls patients when they are super-sick –and then takes credit for how much lower their costs are after enrollment. But the pre-enrollment period represent extraordinary cost! These patients would have lower costs in the next reporting period regardless of the intervention or lack of intervention. The few patients likely to have higher costs in the next period are likely not to join the program because of death or because they are not discharged to home.
This flawed analysis was published by the Healthcare Financial Management Association (HFMA). How much bad analytics is here?
þ Regression to the mean Sutter does a “pre-post” evaluation, harnessing the full apparent benefit of regression to the mean.
þ Selection bias Sutter enrolls those who are well enough to go home – offering itself positive selection because those who went to skilled nursing facilities (or who died) were likely sicker
[?] Survivor bias This is when only those who persist to the end of the program are counted. The methodology is unclear – but this would be yet one more way to show apparent success while harnessing the benefit of selection of those more likely to succeed
[?] Incomplete counting This is when the savings are tallied up, but the additional costs are ignored. I suspect that because these costs were borne by a CMS Medical Innovation grant, the extra costs for these incremental services was not fully accounted for
It’s totally possible that this program did save serious dollars –and even if it didn’t save dollars – this sounds like the kind of care we wish all Medicare beneficiaries could routinely access. Just let’s not claim this is saving millions of dollars. Let’s support this type of program because it’s the right thing to do.