Managing Healthcare Costs

CBO Report on Value Based Payment Demonstration Projects

2012-01-26T21:33:00.000-05:00

Today’s Managing Health Care Costs Indicator is 10%

I blogged on Tuesday about the Congressional Budget Office report on disease management and care coordination. Today, I’d like to talk about the CBO reporton four demonstration projects on value based payment.

The headline is that these demonstration projects were not very successful. That’s no surprise – the CMS payment demonstration projects violated basic fundamentals of effective extrinsic incentives.

- The incentive system should be transparent and easy to understand

- The goals would be clear and achievable

- The incentive should be available soon after the desired behavior

- The target of the incentive should clearly be able to influence the outcome

- The incentive should be presented independently from other payments

CMS wasn’t able to build incentives that fulfilled any of these criteria. The demonstration projects were long, there was little feedback along the way. None of the surgeons or hospital administrators felt abiding confidence that they could influence the outcomes. Payments were made years after savings were realized. These programs were inadvertently designed to fail.

The real surprise is that not all of them failed!

The big news is that one of these projects actually saved money! The Medicare Heart Bypass Bundled Payment project saved 10% of the cost of bypass surgery without any sacrifice in quality. (David Cutler’s 2010 review says 15%). Two of the other demonstration projects showed small improvements in quality-based process measures, and one of the projects showed no significant change in either cost or quality.

Here is a description of this project from Health Affairs in 2008:

…under Medicare’s Participating Heart Bypass Center Demonstration, four hospitals in the 1990s were paid a single amount covering both hospital and physician services for CABG surgery. An evaluation showed that Medicare paid 10–37 percent less, physicians identified ways to reduce length-of-stay and unnecessary hospital costs, and patients preferred the single copayment, with no cost shifting to outpatient care.

Gail Wilensky, a former CMS Administrator, asserts that further projects of bundling payment were stymied by regulatory findings that prohibited hospitals from gain-sharing with their physicians. That’s possible. Clearly, an incentive for the hospital that cannot be transmitted to the cardiac surgeon making decisions isn’t very promising. Also, the demonstration project was small – and it’s possible that it wouldn’t scale.

Still, it’s a surprise that CMS has not tried to replicate this! I suspect that hospitals weren’t especially enthusiastic for expansions of this demonstration project. Through the late 2000s cardiac surgery was a reliable profit center, and lowering revenue from this service line looked very unattractive to hospitals. .

The CBO conclusion is that we need to move away from fee for service. The writer concludes that it’s hard to have an impact with payment reforms that leave the underlying fee for service system untouched. I agree that fee for service is highly inflationary, and bundled or capitated payment systems can help bring us more value. See a series of posts from 2009 on this topic: Part One Part Two, Part Three

But transitioning from the fee for service will require many changes in the provider system, and is unlikely to be successful in rural areas and medical communities with little competition. Furthermore, fee for service is likely the best way to pay for some rare or unusual conditions. Therefore, we need to develop payment reform that is compatible with the existing fee for service system. Here’s a link to a Catalyst for Payment Reform issue brief on this topic.

Medicare showed us through this early 1990s demonstration project how to effectively implement bundled payment for selected services in the context of overall fee for service payment. It’s time to put that knowledge to use.

Click image to enlarge. Source

Health Absent from State of the Union Speech

2012-01-25T20:38:00.002-05:00

Today’s Managing Health Care Costs Indicator is 5

I listened to the State of the Union address last night (transcript) and I was worried my attention had wandered when Obama discussed health care reform – the signature achievement of a very productive first Congress of this presidency.

Turns out I didn’t miss it at all – there was virtually no mention of health care reform in the speech. Here are the five times he used the word “health.”

Today, the discoveries taking place in our federally financed labs and universities could lead to new treatments that kill cancer cells but leave healthy ones untouched.

Because America will develop this resource [gas]without putting the health and safety of our citizens at risk.

I will not go back to the days when health insurance companies had unchecked power to cancel your policy, deny your coverage, or charge women differently than men.

Now, I recognize that people watching tonight have differing views about taxes and debt, energy and health care.

That’s why our health care law relies on a reformed private market, not a government program.

In fairness, there were two mentions of “medical” in the speech, too. One was about “faulty medical devices,” and the other regarding “medical research.” It’s hard not to be against one of these and for the other!

There were a lot of opportunities to celebrate in health care over this past year. Health care premium increases were lower this year, and those of us with young adult children can leave them on our health plan as they weather this terrible job market. The National Institute of Medicine has confirmed that birth control is an essential benefit. Massachusetts continues to retain a high rate of insurance and premiums and costs have leveled out here, too. Health plans in Texas with low medical loss ratios will have to offer big refunds. Providers are coalescing to participate in accountable care organizations, and electronic records are proliferating. Public reporting continues to improve, and we’ve discovered that proper treatment of HIV positive patients doesn’t just prolong their high quality lives, but prevents transmission, too.

There’s a lot to worry about too. Many states are getting nowhere in developing their exchanges, and the Supremes are getting ready to hear oral arguments about the constitutionality of the individual mandate and of federal requirements to maintain future Medicaid funding. EMRs don’t talk to each other, and health care has not become especially patient-centric. The Accountable Care Organizations haven't yet saved money, and there's always a danger they will lead to higher costs through market consolidation. Health care still costs too much, and advances often lead to very slightly higher quality for a few in exchange for massive increases in cost for all.

Perhaps when all of these issues are resolved health care will feature more prominently in a future state of the union address.

(My post on the CBO “pay for value” demonstration projects isn’t yet complete – hopefully tomorrow)

The Congressional Budget Office Weighs in (Again) on Disease Management

2012-01-24T21:42:00.003-05:00

Today’s Managing Health Care Costs Indicator is 34

The Congressional Budget Office released two important reviews of Medicare demonstration projects last week. The first report is on disease management and care coordination, and the second is on value based pricing.

I’ll cover the disease management and care coordination findings in today’s post, and will comment on the value based pricing demonstration projects in the next post.

There were a total of 34 different trials – enrolling almost 290,000 patients. The first started in 2002 and the last was completed 2009. A single project (at Mass General Hospital) showed significant savings, and a handful of projects showed lower inpatient utilization. The programs were expensive; the CBO reports that the programs would have had to lower overall costs by 13% to break even. You can get a sense of the financial results of these demonstration projects from the graphic below. (Go to Page 22 of the working paper to see more details)

There are caveats, of course. Medicare often wasn’t able to transmit timely data to the participating providers. It’s hard to run a randomized or quasi-randomized trial in the real world; and providers could not make changes “on the fly” because of the study designs. But these issues don’t change the headline. The Medicare demonstration projects didn’t save the money that advocates promised.

My conclusions from this report

1) There were many different trials targeting different patients using diverse approaches. All of the patients were Medicare beneficiaries who are old and are often ill – so the opportunity to improve care was large. If it’s this hard to demonstrate impressive savings in this population – it will be harder still to show savings from similar interventions on a younger and healthier population.

2) The interventions were expensive. Medical management efforts either have to be very tightly focused (but predictive modeling is notoriously unreliable) or the interventions have to be low-priced. The CMS demonstration projects were neither

3) The success of interventions had at least some relationship to proximity to care delivery. It’s better for a medical management intervention to be delivered by (or with ) the health care system than by a third party on its own. Here’s an essay I wrote about this in 2005)
4) Surprising to me, "at risk" programs were no more likely to lower overall Medicare costs than programs where the program would not have to repay management fees if costs were not reduced.

My recommendations based on this report:

1) CMS should continue to do demonstration projects. Careful measurement is crucial to our making the right investments in the right care management.

2) CMS and private payers and employers should carefully measure the results of their medical management programs. Just because a program seems like it should work doesn’t mean it will!

3) Medical management programs need the engagement of patients, their families, and physicians. Programs that are designed without connection to the provider community and engagement strategies for patients are unlikely to succeed.

Click on image to enlarge. Source

Next post: Value Based Payment Demonstration Project

It's STILL the Prices

2012-01-22T17:11:00.000-05:00

The New York Times has an editorial today again reminding us that the prices of care in the US are the major reason why costs are so much higher here than in other developed countries.

Here's the accompanying graphic:

Click image to enlarge. Source

A Plethora of Good News?

2012-01-22T16:38:00.000-05:00

Today’s Managing Health Care Costs Indicator is $275 billion

Click on image to enlarge. Source

I wrote earlier this month that health care costs are rising less quickly than anticipated – due largely to the effects of the recession and substantially less generous insurance plans that leave patients shouldering a much higher portion of the total health care bill. The CMS Office of the Actuary published data in the January Health Affairs that documents this.

Today’s Boston Globe (subscription required) reinforces this:

State regulators have approved premium increases averaging 2.3 percent for health insurance covering hundreds of thousands of residents, the most modest hikes in at least a decade and a sign that years of efforts to control costs may be working.

The Commonwealth Fund has calculated that the recent changes in the CMS estimate of total health care costs indicate that total health care costs will be $275 billion less in 2020 than estimated previously this year. Health care costs are now estimated to be 19.8% of GDP in 2020; they were estimated to be 21.1% before health care reform was passed (and before we knew the depths of the Great Recession.

These pieces of good news are the direct result of the grim economy. However, Austin Frakt of The Incidental Economist had an optimistic commentary last Wednesday entitled “How a health care efficiency revolution could make the next century even greater than the last.”

I’ve started a comment string with 5 factors that make it more likely we’ll welcome disruptive innovation in health care in the coming years, which can lower health care costs and increase value. Austin added 6 more – and the list is now up to 16. Go to this link to read the initial commentary and please add additional reasons (or object to those already posted.)

Internists Step Up to the Plate and Identify Low Value Tests

2012-01-18T08:10:00.001-05:00

Today’s Managing Care Indicator is 37

Last May, a group of intrepid oncologists identified five behavior changes and five attitude changes that could allow oncologists to increase the value of health care, largely by not performing certain tests and not administering chemotherapy in certain circumstances. This is an important effort, encouraged by the Institute of Medicine.

The American College of Physicians, the professional society of internists, has followed suit with an expert panel that identified 37 diagnostic tests that should not be provided to patients. Each of these tests does little to decrease uncertainty, and many of them are likely to lead to false positives which induce further unnecessary tests.

The list is at this URL, which is unfortunately behind a paywall. That’s especially unfortunate, because ACP also announced that it would invite physicians and the public to comment on this list. This is a great example of how to improve a document through crowdsourcing and leveraging the “wisdom of the crowds,” but it will only work if ACP puts the article and the survey outside of the paywall!

Examples of tests that should be avoided:

- Annual lipid profile for those at low risk and not on therapy

- Screening tumor marker tests for ovarian cancer in those at low risk

- Screening for colon and prostate cancer in those over 75

- Repeating colonoscopy in less than five years for those with benign adenomas

- Doing too many tests on people who faint but have a normal neurologic exam or patients with migraine headaches

- Echocardiography for those with innocent-sounding murmurs

- Many preoperative tests on those at low risk

- “Screening” EKGs for those at low risk

Some tests that require more judgment:

- If risk of heart disease is high, go directly to cardiac catheterization with angiography (more invasive.) If risk is low, instead do exercise stress tests. In all instances, do nuclear imaging with the stress test only if the patient cannot exercise or if his/her EKG is sufficiently abnormal that the EKG alone would not give a clear reading. If the risk is very, very low –don’t do any test at all!

- For patients with suspected blood clots, do a sensitive blood test for those at low risk, and do an ultrasound test for those at higher risk

Physicians must estimate the pre-test likelihood of a diagnosis before ordering a test. If the pre-test probability is very low, the likelihood of a false positive is often unacceptably high. If the pre-test probability of a test is very low, the likelihood of a false negative is high, and the physician should often go directly to a more invasive test. This makes it even more important to take a careful history and understand underlying risks. Physicians must be more conversant with the mathematics of test results – and the likelihood of false positives and false negatives based on pre-test probability. See a post from last year on our misguided quest for ‘certainty.’

This kind of evidence-based medicine is anything but a “cookbook.” It takes considerably more meaningful decision-making to follow these rules than to simply do an EKG on every adult. Exerting this kind of decision-making can lower the cost of health care, and can also increase the meaning of physicians’ work.

An accompanying editorial in the Annals suggests these decision-making rules for physicians to consider before ordering tests (slightly condensed)

· Did the patient have the test previously? (If so, is the result likely to be different and can I get the result instead of repeating the test?)

· Will the test change my care of the patient?

· What are the probability and consequences of a false positive?

· Is there short-term danger of not ordering the test right away?

· Is this primarily for patient reassurance (and if so, is there a better way to reassure the patient?)

This work to identify tests often ordered unnecessarily is an excellent follow-on to the new ACP Ethics Manual, which states:

Physicians have a responsibility to practice effective and efficient health care and to use health care resources responsibly. Parsimonious care that utilizes the most efficient means to effectively diagnose a condition and treat a patient respects the need to use resources wisely and to help ensure that resources are equitably available.

Following these decision-making rules and eliminating these unindicated tests can help lower costs and improve the quality (and value) of health care delivery in the US.

Available at URL -but behind paywall. Click image to enlarge.

$1 Office Visits

2012-01-17T06:16:00.000-05:00

Today’s Managing Health Care Costs Indicator is $1

I’m a fan of Planet Money, an NPR project that includes podcasts, a blog, and co-reporting with This American Life and other journalistic endeavors. The “Managing Health Care Costs Indicator” is clearly modeled on (or shamelessly stolen from) Planet Money.

Reporter Adam Davidson has an article in the January-February Atlantic Monthly (and some related reporting on Morning Edition last week) about Greenville, South Carolina. He investigates how manufacturing has changed in the US over the last 20 years. It’s an amazing picture in terms of quality and cost – American manufacturers make exceptionally high quality goods, and make them at costs that are often not a lot more than the cost of manufacturing in

China

where wages are a tiny fraction of those here.

The new American manufacturing is great for consumers (we get high quality American made replacement fuel injectors for cars for under $200 each), and it’s pretty good for highly skilled workers, who can make better than a living wage. But it’s not a pretty picture for unskilled workers though, who will lose their jobs the moment that a robotic arm costs less than twice a worker’s annual income

American manufacturing companies watch every penny of resources they spend – because they know that the brutal market will insist on cost-effectiveness. Standard Motor Products, the subject of Davidson’s reporting, must watch every penny, which means firing its unskilled workers when it becomes more cost effective to invest in a robotic arm, or when the work could be done in China or Mexico or Poland for much lower cost including transportation. If Standard Auto Parts didn’t do this, it would be out of business. Quickly.

From Davidson’s article:

Across America, many factory floors look radically different than they did 20 years ago: far fewer people, far more high-tech machines, and entirely different demands on the workers who remain. The still-unfolding story of manufacturing’s transformation is, in many respects, that of our economic age

…

A few decades ago, “turning machines” like these were operated by hand; a machinist would spin one dial to move the cutting tool large distances and another dial for smaller, more precise positioning. A good machinist didn’t need a lot of book smarts, just a steady, confident hand and lots of experience. Today, the computer moves the cutting tool and the operator needs to know how to talk to the computer

…

To keep the business of the giant auto-parts retailers, Standard has to constantly lower costs while maintaining quality. High quality is impossible without good raw materials, which Standard has to buy at market rates. The massive global conglomerates, like Bosch, might be able to command discounts when buying, say, specially formulated metals; but Standard has to pay the prevailing price, and for years now, that price has been rising. That places an even higher imperative on reducing the cost of labor. If Standard paid unskilled workers like Maddie more or hired more of them, Larry says, the company would have to charge its customers more or accept lower profits. Either way, Standard would collapse fairly soon

I keep on thinking about how this relates to health care. At first I though that no one was thinking about health care like the CEO of Standard Motor Parts.

But it turns out I’m wrong. The NYTimes had a blog last week about the $1 office visit (often delivered virtually) in

India

. We have little or no price sensitivity for the cost of health care in the US –so we deliver exceptionally expensive health care services. In India, there is little insurance, income is low and most people have to pay out of pocket for health care. That’s a recipe for extreme price sensitivity – and that price sensitivity leads to innovation – and slashed prices -- in care delivery.

The inexpensive and virtual visit in India represents much better care than the alternative. In the

, though, such a visit would be profoundly disruptive. We’ve had a hard time embracing disruptive innovation in the US with the current health care financing system. There are no such barriers elsewhere in the world.

Office visits are a service – they are not a product like Standard Motors’ fuel injectors that can be manufactured and assembled anywhere in the world. We won’t see those $1 office visits from India in Manhattan anytime soon. But we are likely to see models that are far less physician-centric, and offer far better value to patients.

We can continue to learn from the developing world about how to more effectively use resources.

Disparities and Health Care Costs

2012-01-16T08:01:00.001-05:00

Today’s Managing Health Care Costs Index is 41%

The Kaiser Family Foundation, an exceptionally good resource on almost anything in health care policy, publishes a summary of research and articles on health care disparities each month. For MLK Day, a few of the articles from January.

The toll of diabetes on Hispanics near the Mexico border continues to increase. 41% of Hispanic children in Arizona are overweight, compared to 22% of Arizona white children. More teens and young adults have Type II diabetes – which will subject them to a lifetime of poorer health.

African Americans have higher BMI, eat more poorly and exercise less than whites. However, researchers have shown that these differences are strongly correlated to socioeconomic status (SES). When SES is adjusted for, the differences vanish.

Living in decaying neighborhoods was strongly related to risk of premature birth – more strongly than race

Uninsured and minority patients get less appropriate discharge instructions and post-hospital care after hospitalizations for trauma.

Those with low SES and racial minorities were more likely to be exposed to high levels of air pollution in the US Northeast.

Black women were more likely to get diabetes after having gestational diabetes, even after adjusting for BMI and other characteristics.

The differences in prescribing of Highly Active Antiretroviral Therapy (HAART) between whites and blacks disappeared by 2006.

My summary – the health outcomes and ultimate health care costs of children still have more to do with where they live and the color of their skin than the content of their character. There is plenty of work left to do.

2011 Redux

2012-01-15T19:32:00.001-05:00

Today’s Managing Health Care Costs Indicator is 162

I posted 162 times in 2011, and for the New Years (OK, for Martin Luther King Day weekend), I’ve selected a small sample of these posts that either seem more relevant now than when I wrote them, or that I’m especially proud of.

January:

Why positive early trials fade to mediocre results later (a review of a Jonah Lehrer December, 2010 New Yorker article). Note that an April post showed how Tamiflu demonstrates this concept.

February:

High Cost California Hospitals Have Lower Mortality, although by my back-of-the-envelope calculations it looked like it would cost over $2 million per Quality Adjusted Life Year to move patients from lower to higher quality hospitals.

The IOM provides data showing huge variation, but refuting the idea that higher quality is reliably associated with lower cost.

March:

The cost of not paying for childhood vaccines

High deductible health plans lower utilization and cost, but also lower preventive care even if it's fully covered.

April

Contraceptive coverage saves money

Cost shifting vs. cost saving in the Ryan Medicare plan

May

An open letter from a corporate CEO to health care providers

The importance of provider payment reform to health care reform

What we need to promote disruptive innovation in health care

How health insurance mandates make health coverage unaffordable

A cautionary tale of a diagnostic cascade

Summary of 2010 Managing Health Care Cost class at Harvard School of Public Health. Note that the 2011 list is a bit expanded; I’ll publish that in the near future

June

Courageous oncologists list what they could do to lower health care costs

A list of different ways evaluators falsely demonstrate that interventions save health care dollars

July

How genomics is upending our understanding of what is evidence based medicine, and how to assess quality

A nice demonstration of accretive vs. disruptive innovation in American medicine.

August

More on cost-shifting vs. cost saving, with states deciding not to cover influenza vaccine

September

A knock-down of an influential article projecting huge savings from a country-wide obesity reduction program.

October

Paul Starr’s take on approaches to constraining the growth of health care costs

One of many posts on the problem of health care unit costs

November

More on health care unit costs in Massachusetts

Vaccines save money through herd immunity as well as disease prevention in those vaccinated. It turns out the same is true of HIV therapy.

December

Why new innovations won’t lower the cost of health care: Hemophilia edition.

Sometimes I worry that I focus too much on purported silver bullets and modern-day snake oil, and I worry I don’t emphasize what really works to control health care costs. Therefore, I ended the year (and began 2012) with a series on things that really work, including

Regulating coal-fired power plant mercury release

Preventing early elective deliveries

Provider risk (aka capitation)HIV therapy

Preventing health care fraud

Massachusetts health care reform

I think 2012 will be another great year for policy wonks, as the Supremes consider various elements of health care reform, the 2012 presidential race heats up even further, and we get closer to the 2014 Affordable Care Act provisions to mandate and subsidize health insurance coverage. Happy MLK weekend, and thanks for reading.

Doctors Going Broke?

2012-01-12T08:07:00.000-05:00

Today’s Managing Health Care Costs Indicator is $1.6 million

A story from cnn.com last week has been getting a lot of attention, especially among physcians in private practice.

NEW YORK (CNNMoney) -- Doctors in America are harboring an embarrassing secret: Many of them are going broke.

This quiet reality, which is spreading nationwide, is claiming a wide range of casualties, including family physicians, cardiologists and oncologists.

H/T to Shimul Shah for pointing this article out.

One oncologist profiled says that he was ‘stuck’ with $1.6 million of oncology medications that Medicare wouldn’t reimburse after chemotherapy reimbursement rules were changed. The article goes on to point out that steep cuts in reimbursement for noninvasive cardiac tests have taken a bite out of cardiologist income, too. The potential Medicare 27.4% SGR is said to be a Damocles sword hanging over the heads of practicing physicians.

Reimbursement cuts are tough for physicians with office practices. Overhead often runs 50%, so a 10% fee cut yields a 20% reduction in physician take-home pay.

Some of the reimbursements that have been cut by both Medicare and private payers represented excess margin, often from self-referred procedures. Cardiologists who own nuclear imaging machinery order more stress tests, and orthopedists who own MRIs do more imaging test. That’s simply not a good idea. I don’t want an oncologist to depend upon margin from chemotherapy to pay for a mortgage or a her child’s college tuition.

There are some jolting changes going on among physician practices, and solo physicians and small groups are becoming increasingly endangered.

- Electronic medical records require scale, capital investment and support infrastructure. Small practices are at a huge disadvantage.

- Hospitals and large groups are scurrying to coalesce to form accountable care organizations and accept bundled or capitated payment. This requires meaningful financial integration of many physicians.

- The President of the American College of Cardiology estimated in 2010 that the portion of cardiologists who owned their own practices dropped by half.

- The Medical Group Management Association (MGMA) estimated that the portion of physician practices owned by hospitals exceeded those owned by physicians in 2008.

- Kaiser Permanente has been a hiring powerhouse in Northern California, and physician groups there report difficulty recruiting new grads.

Payment changes and the disruption of small, nonscalable, “cottage industry” practices is jarring –especially for physicians close to retirement. The practice community will indeed look very different in ten years than it does today. But the current office practice arrangements meet patient needs poorly if at all. Patients have little access to their own medical records, and getting advice often means losing a half day by coming into a fee-for-service oriented office that doesn’t want to ‘give away’ free service on the phone or by email. We expect to be able to do banking 24 hours a day from our mobile phones, but I can’t even set up an appointment with a physician except during regular business hours. We spend far too much on imaging, specialty diagnostics, and emergency department visits, and far too little on primary care and public health.

We should expect compensation changes aimed at increasing health care value will be hated by many practicing physicians. But we’re not meeting patient needs especially well now, and there is a real opportunity to improve this through the coming payment reform.

By the way - I can't say how scary I find it that a single oncologist had purchased that much chemotherapy medication when it was associated with high profit margins.

Health Growth Slows – Will We Lose Our Burning Platform?

2012-01-10T22:08:00.000-05:00

Today’s Managing Health Care Costs Indicator is 3.9%

Click image to enlarge. Source

Health Affairs just published the annual review of health care spending (from 2010) as calculated by the CMS Office of the Actuary. The headline in the New York Times is “Recession Holds Down Health Spending,” and the Wall Street Journal says “Weak Economy Curbs Health Spending.” Total health care spending was up only 3.9% - and reached about $2.6 trillion. Overall increase in GDP was 4.2% - making this the first year overall GDP increased more than health care spending in my memory.

The study showed:

- The effect of the Affordable Care Act on overall health care costs was 0.1-0.2% (by increasing access)

- Hospital spending up only 4.9% (despite the aging of the population)

- Professional services (mostly physicians) were up only 2.6%

- Prescription drugs were up a measly 1.2% - reflecting more generic usage

Out of pocket medical spending was up only 2.8% - a surprise to me given that so many more families are covered by high deductible health plans. That’s an indication that many Americans have been deferring or foregoing health care that they would have received just a few years ago.

Increases by source of health care spending:

- Employer Premiums: 6.3%

- Out of pocket: 2.8%

- Medicare: 7.0%

- Medicaid: 9.2%

Government spending on health care is up – but don’t assume this means that government is less efficient. Rather, the Medicaid rolls went way up, and Medicare enrollment has increased as well as we continue to live longer and the baby boom ages in to Medicare. Ezra Klein had this graphic yesterday showing that effective inflation rate in government programs is considerably lower than that for private insurance plans.

Source

We know separately that maternity rates are dramatically down as a result of the recession. These are likely to return to prerecession levels in the future – which will lead to increases in hospital and professional costs.

Source Click Image to Enlarge

It’s heartening to see health care costs leveling off – but I hope that the sense of urgency in redesigning our health care system will not recede. Health care still costs far too much, and we must make meaningful efforts to be sure we get more value from the health care system. Health care is crowding out other important public investments, including education – which can have a larger long-term impact on population health and life than many of our health care system expenditures. And even if Medicare is relatively “efficient,” we can’t afford this program as my generation becomes eligible.

2010 was a good year in terms of health care cost increases. However, this wasn’t the payoff from great efforts on health care reform; it was rather the consequence of a grim economy. We’ll have to redouble our efforts to control costs in the environment of economic growth we hope for in the future.

Smoking Cessation Saves Money

2012-01-08T21:55:00.002-05:00

Today’s Managing Health Care Costs Indicator is $14.7 million

Massachusetts just announced that researchers at George Washington University have completed an evaluation of the state’s smoking cessation program –and found it offered a 3:1 return on investment.

Here’s a link to the peer-reviewed journal article.

This study uses previously reported decreases in rates of cardiovascular hospitalizations among participants, and then monetizes these. The decreases are jaw dropping:

- 46% for acute heart attack

- 49% for heart disease

- 32% for nonspecific chest pain

Program cost was about $183 per participant (for drugs and counseling), while decreased hospitalizations were valued at $571.

The strength of this analysis is only moderate. The weakness of this design is that those who were motivated to use the program were more likely to have lower costs than the general Medicaid population anyway. I would have liked to see the original study show total cardiovascular diease totals, to help insure that this finding does not represent selection bias. Still – there were likely to be other health claims cost benefits which are not counted in this analysis.

Most states have used little or none of their tobacco settlement money to encourage smoking cessation. Massachusetts has gained real benefit by continuing to fund smoking cessation. States which are cutting smoking cessation programs due to their budget shortfalls can look forward to higher medical claims costs.

Contrasting Future Prospects for Health Insurers and Hospitals

2012-01-07T01:18:00.001-05:00

Today’s Managing Health Care Costs Indicator is 23,000

Click image to enlarge. Source below

This diagram shows that health insurers’ stock prices have outperformed the overall stock market over the last three years. As Sarah Kliff of Wonkbook notes, it’s ironic that the health plans opposed health care reform, but are likely to profit significantly from the Affordable Care Act with its increased government funding of privately-procured health plans.

On the other hand, Citigroup just released a sharply negative earnings outlooks for hospitals. (Registration required). As a result, stock prices of HCA, Tenet, and the other major for-profit hospital companies lost ground – and they are already much lower than they were a year ago.

What does it mean that hospital stocks and health plan stocks are moving in different directions?

The stock market is betting that there will be lower hospital utilization going forward, and hospitals are stuck with expensive capital improvements and will be paying back bondholders for decades to come. Health plans are increasingly developing the infrastructure to sell services to providers seeking to become Accountable Care Organizations. This is a new revenue source, and also makes providers less likely to effectively compete in the health insurance market on their own.

In the meantime, the excellent jobs report this morning (200,000 new jobs) included 23,000 new jobs in health care.Since health care represents 1/6 of the economy, this at least means that other sectors are adding jobs faster than health care. Perhaps the reshuffling has already started.

Cuts in School Nurses Will Increase Health Care Costs

2012-01-05T01:22:00.000-05:00

Today’s Managing Health Care Costs Indicator is 51

That’s how many school nurses were laid off in Philadelphia due to the budget crunch in that city. NPR reports that school systems nationwide have laid off scores of nurses – and here’s why this will raise health care costs.

1) School nurses are able to do triage for children with minor illnesses, and monitor them until they are transported home. Sometimes school nurses even treat major illnesses - such as seizures in the NPR report. Some of these children will go to emergency departments absent a school nurse. Cost savings for the school system will lead to higher health care costs.

2) School nurses help advocate for a ‘culture of health’ around a school, which is where the young develop the habits that will help or haunt them for their entire lifetimes. School nurses can promote exercise and proper nutrition, and diminish teen smoking.

3) Many school nurses play an important nonparental role with regard to birth control. Teens are often more willing to confide in a school nurse than their parents, and some school nurses distribute condoms and actively participate in sex education. Fewer school nurses è more teen pregnancies è higher medical costs. These school nurse cuts probably mean more abortions, too.

4) School nurses are often the professionals who identify untreated depression and behavioral health disorders, and encourage treatment. Untreated behavioral health problems increase the overall cost of health care.

It’s ironic that school nurses are being fired just as employers are implementing new on-site health centers and recognizing the opportunity to improve employee health through coaching and educational programs. These employer programs meet many of the same needs addressed by school nurses for our children. These cuts will increase health care costs over both the short and the long term.

Harvard School of Public Health Projects

2012-01-04T12:07:00.000-05:00

Today’s Managing Health Care Costs Indicator is 12

I’m taking a break from my usual commentary on news, opinion pieces and recent research to celebrate great work done by 12 groups in this fall’s class in “Managing Health Care Costs” at the Harvard School of Public Health. The final project (in groups of 4-5) was to describe an innovation that could genuinely lower health care costs, and build a business plan to make it happen. (Full information on the project is on page 40 of the course syllabus, which is available without Harvard ID).

The class is comprised of 58 students, including physicians, medical students, public health students, dentists and lawyers. Most will graduate with an MPH or an MS in Public Health this May, although a minority will graduate with an MS in May, 2013.

Here is a list of the projects, with brief descriptions which probably don’t do each project justice. A few of these projects mirror work happening right now – although many represent potential innovation that is not, to my knowledge, yet being tried. The good ideas represented here are one more reason to be optimistic that we can effectively address the rising cost of health care in the US.

Diabetes Disease Management

Web-based education and training for patients, case managers, and physicians, with a decision-support module for electronic medical records to promote evidence based practice.

Reference Pricing

Firm will provide consulting and on-line tools to facilitate reference pricing initially in New Hampshire, and later expand to other geographies. Note that this is already happening – see for instance Castlight, Thomson Reuters, Change|Health Care, and Health Care Blue Book. See Catalyst for Payment Reform for more details on reference pricing.

Farm Fresh Food

Nonprofit will provide crates of locally grown food with appropriate cooking instructions and other ingredients to be distributed through schools, with initial grant funding and graduating to redirection of current farm subsidies.

Decision Software for End of Life Care

Software and consulting services to help hospitals decrease variation and futile care at the end of life

Real Time Cost Tracker

Software and GPS device to simplify implementing time derived activity based costing (TD-ABC) in hospitals. See a post on the Robert Kaplan/ Michael Porter article in HBR this fall. We have to know where the resource costs are to lower them - and this would be a very helpful tool to lower the barriers to TD-ABC.

USB Medical Record Card

Expanding on the experience of using cards with embedded chips in France and Taiwan to improve coordination of care and decrease duplication.

Handwashing Monitor

Putting cameras near sinks outside ICU patient rooms and remotely monitoring handwashing. This approach has been successful at decreasing contamination in meatpacking plants – a good example of taking learnings from other industries.

Readmission Prevention

With a predictive modeling tool to identify those at highest risk of readmission

Medicaid Fraud Detection

Using a combination of software and human claims auditors

Pioneer Accountable Care Organization

Developed a business plan to convert a primary care practice to a Pioneer ACO

End of Life Surgical Check List

Add-ons to hospital EMR systems to alert surgeons and others to likely outcomes based on the terminal patient’s comorbidities.

Thanks to this year's class for great projects!

Day Six of Good News: Massachusetts

2012-01-03T05:17:00.000-05:00

Today’s Managing Health Care Costs Indicator is 2%

If you watch the Republican Presidential debates, you’d guess that the health care system in Massachusetts was in utter disarray. Mitt Romney at least intermittently runs away from what’s probably the signature effort of his one-term governorship, and Newt Gingrich and others rarely go a day without throwing mud and bombs.

Here in Massachusetts, things are… much better than you might think.

Our rate of uninsured is about 2% - the lowest in the nation
Our current rate of health care cost inflation is no longer the highest in the nation, although it’s still far too high
There has been a dramatic move toward contracts that include global payments, which will likely mean that providers will play an important role in modulating future health care cost increases
The Attorney General has published meaningful cost data that has been risk adjusted.
The state just renegotiated its Medicaid waiver, allowing continued funding for subsidies for health care coverage for the poor and near poor.

Massachusetts’ health care reform was clearly a model for the Affordable Care Act. It’s working well here –which augers well for the future of health care in the US.

I wish all a Happy New Year –and I’ll have some 2011 wrapup and health care innovations that could lower cost from my HSPH fall course “Managing Health Care Costs” over the next week.

Day Five of Good News: Health Care Fraud

2012-01-02T17:29:00.004-05:00

Today’s Managing Health Care Costs Indicator is $3 billion

Health care fraud is rampant and unconscionable. Fraud fighters have made real progress in the last year.

Many commentators think 10% or more of total health care costs represent actual fraud – as much as $250 billion a year. We’re not talking about honest mistakes (such as billing for a C-section that was necessary and actually performed but using the wrong code). We’re not talking about ‘abuse,’ such as billing for a laboratory test that was actually performed but medically necessary. We’re talking about downright heists, like setting up a fake laboratory company, purchasing patient Medicare numbers, billing and collecting reimbursement, and shutting down the operation before anyone asks any questions. (Great Reuters story about these phantom firms at this URL)

The good news is that health care fraud is becoming more difficult due to aggressive enforcement action by the federal government, many state governments, and many private health plans. The Department of Justice has had the second year of record settlements, including a $3 billion settlement with Glaxo Smith Kline for improper marketing of the diabetes drug Avandia, which has been associated with increased risk of heart failure.

Here’s why I believe health care fraud will decline in the coming years
New dollars for fighting health care fraud as part of the Affordable Care Act.
Improved technology to detect fraud before payment, and willingness to submit claims to preadjudication audit. Medicare and health plans historically paid bills and then “chased” fraudulent providers after the fact. In many instances, that was simply too late
Transition to bundled payment, which is less amenable to fraud than fee for service
Increased transparency – which will make some of the egregious cases visible to journalists who can start the investigation ball rolling

Here’s a list of pending health care fraud settlements from an advocacy group, Taxpayers Against Fraud.

Health care represents such a large part of the economy that it will never disappear. However, I believe that current efforts are already paying off.

Day Four of Good News: HIV Therapy

2012-01-01T17:56:00.001-05:00

Today’s Managing Health Care Costs Indicator is 2.8 million

Click on image to enlarge. Source

When I was in medical school, we still didn’t know what caused AIDS.

When I was in my residency, the HIV virus had been identified, but we were at best able to treat associated infections and cancer. AZT (zidovudine) was licensed in 1987 – the year I finished my residency. Everyone I cared for with HIV disease during my training died – most within a year of diagnosis. Some died the very hospitalization of their diagnosis. When I moved into practice, treatment was improved a bit, but AIDS still had a 100% mortality.

Highly active antiretroviral therapy is one of the miracles of my medical lifetime. I now frequently see patients who have had HIV for years and even decades. They have to take pills –and the pills are expensive. The pills have some dreadful side effects, too. But the incidence of pneumocystis pneumonia and Kaposi’s Sarcoma and brain lymphomas and ophthalmologic fungal infections has plummeted. People with HIV are living meaningful and productive lives with their disease – a huge medical success.

In the early years of highly active antiretroviral (HAART) therapy, the cost of caring for HIV patients declined. We were diagnosing people earlier, and while we spent a lot on medications, we spent far less on hospitalizations than we had in the terrible early days of the HIV epidemic. It’s estimated that HAART has saved 2.8 million years of life – and prevented 2900 cases of HIV infection of infants at birth.

But this is a blog on managing health care costs, and at $14,000 HAART is hardly cheap. However, there is more evidence this year that treating HIV is a good bargain.

It turns out that HAART dramatically decreases the rate of transmission of HIV. Look at the chart at the top of this post. There are finally fewer global cases of HIV in 2009 than in 2008. HIV might have peaked –and it’s this cocktail of antiretroviral medicines that have likely made the difference.

It’s rare to have medicines so expensive serve as a viable public health intervention. This is one of those heartening examples. HAART for HIV infection is a great example of how progress in medical care can yield future societal benefits and even cost savings.

Good News Day Three: The Return of Provider Risk

2011-12-30T15:26:00.000-05:00

Today’s Managing Health Care Costs Indicator is $1.1 billion

The Centers for Medicare and Medicaid Services recently announced that the Pioneer ACOs could save $1.1 billion over the next five years. Blue Cross Blue Shield of Massachusetts has declared its Alternative Quality Contract a big success. Physicians and hospitals across the country are at least asking the question “Can we deliver excellent health care and use fewer resources?”

Do I believe that the Pioneer ACO will save $1.1 billion? I do not.

Did the AQC in Massachusetts save any money in its first year? No

Still, this is great news! Physicians and hospitals determine the resources that will be used in delivering health care. The combination of the Affordable Care Act, state government shortfalls, and pressure from employers unable to tolerate continuing increases in health care expenses is driving the provider community to consider global budgeting – which was known in a different bygone age as capitation.

Providers have shown that they can lower costs and improve quality when the incentives are aligned. See this post on Caremore earlier this fall. Providers also can make health care a fertile environment for disruptive innovation – just as our current fee-for-service system only encourages accretive innovation.

Increased provider risk-sharing is highly likely to lead to improvements in the value delivered by our health care system. And this year there seems to be substantial movement toward more provider risk sharing.

Who says I can’t be optimistic?

Day Two of Things That Work: Preventing Early Elective Deliveries

2011-12-29T18:22:00.000-05:00

Today’s Managing Health Care Costs Indicator is 39

Something is broken with deliveries in the United States. Our Caesarian Section delivery rate has increased to over 34% - and the VBAC rate (vaginal birth after C-section) has plummeted. Caesarian sections are a major abdominal procedure, requiring significant recovery time, and raising health care costs. Further, women who have had C-sections are more likely to have placenta previa complicating later pregnancies, which can threaten the life of the mom and the baby.

Early elective inductions – done for convenience of patient or physician without medical indications – are an important cause of preventable C-sections. Attempting an induction when the cervix isn’t ready is more likely to result in failure of labor to progress –which can trigger the cascade toward C-section. Early elective inductions also lead to premature births that require extra days to weeks in a neonatal ICU. Again, this leads to higher costs and worse outcomes.

Here’s what’s working. The Leapfrog Group began publicizing voluntarily-reported early induction rates earlier this year – and hospitals are taking notice. WBUR’s Martha Bebinger reported late last week that top Massachusetts maternity hospitals are prohibiting early elective deliveries. In her report some expectant moms argued that they wanted ‘control’ over when to deliver their babies. But excellent medical evidence suggests that early inductions increase adverse outcomes – and physicians shouldn’t offer patients options that increase the risk to them and their unborn babies.

It’s important that the approach of hospitals is to administratively interdict unindicted early inductions. Clark et al showed that a “hard stop” is substantially more effective than peer review or physician education. These researchers also showed a 16% decline in NICU use associated with implementing this hard

There are many other issues with organizational structure and payment methodology that drive increased C-section rate. These include lack of obstetrical practice integration and labor coverage, underuse of nurse midwives, and higher hospital payments for C-sections. So – there is plenty more work to do. Catalyst for Payment Reform recently published a tools for employers to promote maternity payment reform.

For now, we can celebrate that many hospitals are doing serious work to prevent early inductions that are not medically indicated.

Mercury Regulation – Good News and Real Cost Savings

2011-12-28T22:30:00.001-05:00

Today’s Managing Health Care Costs Indicator is $90 billion

These are power plants likely to be closed by the new EPA regulations. Click image to enlarge. Source

It’s a light week – and in the spirit of the holiday season, the rest of my posts this year will be positive. No more blogging about pharmaceutical company price yields or insurance plan positive selection. No more greedy self-interested physicians or businessmen. No more hopelessly flawed studies that purport to show the magic solution to our health care cost crisis – but really just show data manipulation.

Just five full days of stories about things that are working!

First up is news from last week, when Washington Post reported that new EPA regulations to limit future mercury emissions will provide between $37 and $90 billion in health benefits by 2016 – and will cost a bit under $10 billion to implement. The regulations will also save 11,000 lives and prevent 4,700 heart attacks, and 130,000 asthma attacks each year.

I often talk about how most of the best health care interventions give us QALYs (quality adjusted life years) for a reasonable price, but it’s rare to get QALYs AND actual cost savings. But this intervention –forcing utilities to shut or substantially renovate some of the oldest and dirtiest coal-fired power plants- -saves money AND saves lives.

And there’s more. These regulations save money even without quantifying the value of saving children from mercury-related brain damage, or decreasing the carbon dioxide emissions from the exceptionally inefficient plants that will be closed. The actual societal benefits are even larger than the stated billions of savings.

The stated savings from this regulation:

Avoided Outcome	Savings Range (3% discount rate)
IQ loss from mercury	$4-6 million per year
Adult premature death	$34-87 billion per year
Infant premature death	$1.4 billion per year
Heart attacks	$900 million per year
Hospitalization for respiratory or heart disease	$40 million per year

It is typical that public health efforts – even those which have a high initial cost – are often cost-saving, while interventions within the medical sphere tend to be cost effective rather than cost saving. Hoorah for preventing 11,000 deaths per year AND saving money at the same time.

The EPA has an exceptionally good web site explaining savings - and segmenting these by state.

Four more days of positive news on the way. Stay tuned.

Greece – The Impact of Austerity on Health and Health Care

2011-12-27T21:57:00.000-05:00

Today’s Managing Health Care Costs Indicator is 13%

Click image to enlarge. Source: OECD (see below)

Greece has been grabbing the headlines for months, as we’ve learned about widespread evasion of taxes, rampant government accounting fraud, shady bank deals to obscure the actual debt, and the threat of default which could throw the Eurozone into disarray and perhaps catapult the world into another severe recession.

Today, the New York Times has helped put a face on what austerity has meant for Greeks needing health care. The Greeks have decreased their health care expenditures by 13%, from $19.5 to $17 billion. They plan almost a billion more in cuts next year.

The result isn’t a pretty picture.

Diabetics running out of insulin
Women with breast cancer waiting three months for surgery
Cancer patients having to pay up front for chemotherapy drugs – if they can even find them. At last one global pharma company (Roche) is no longer selling its chemotherapy agents in Greece.
Increasing rates of HIV infection and suicide
Children going unvaccinated.

The Times referenced an article in Lancet in October, which cited 40% cuts in some hospital budgets , elimination of many addiction treatment programs, and a tenfold increase in attendance at street clinics run by Non Governmental Organizations.

I know the word on the street is that the Greeks have overspent for decades –and it’s time for them to start being responsible. But reports from the Organization of Economic Cooperation and Development (OECD) demonstrate that many of these changes in the health care system are in the exact wrong direction.

Click image to enlarge. Source OECD

Greece historically spent substantially less on health care than other European nations, yet had pretty good outcomes. Public spending on health care has actually been low (5.6% in 2006) – while out of pocket spending has represented a high portion of the total cost of health care (38%). (OECD p 8) So increasing out-of-pocket spending is not likely to help reform the Greek system.

The Greek health care system does have some substantial problems:

Too many physicians and too few nurses
Too many specialists and not enough generalists
Too few physicians in rural areas
Drug spending that is too high – with far too little generic substitution (a bit over a third in 2008 -while the rest of the OECD was close to half).
Fragmented regulation – with multiple overlapping ministries with conflicting responsibilities
Fragmented financing – with hospitals getting some of their payment from insurance-type funds, and other payment directly from the government budget.
Informal payments – bribes – required for patients to get care.
Some National Health Services physicians work part-time, and divert patients to their private practices.
Terrible data collection –making it difficult to assess program effectiveness.
Outmigration of physicians to other countries.
Low immunization rates
High smoking rates and low tobacco costs (due to low taxation)
High rates of use of MRI scans

The austerity spending limits WILL lower health care costs; there is no question about that. It's likely to improve a few of Greece's problems, like overuse of brand name medications and high cost imaging. However, the price of lowering health care costs is likely to be worse health outcomes, growing disparities based on wealth, and higher future social burden from poor health.

Note public spending low compared to OECD countries, while private spending high. Click on image to enlarge. Source: OECD

A crisis might be a terrible thing to waste. But the Greek health system (and Greek patients) doesn’t look likely to benefit from this one.

Cost shifting vs. Cost Saving

2011-12-22T18:58:00.002-05:00

Ezekiel Emanuel has a commentary in the New York Times criticizing plans to convert Medicare to vouchers (aka ‘premium support.’ He reminds us that we really need to control costs – not merely shift them. Austin Frakt of The Incidental Economist has also just wrapped up a series on Medicare premium support – which points out that premium support could be designed so that it didn’t cost shift (although that seems unlikely given political realities).

We have a multi-payer system, and there are many opportunities to shift costs from one party to another. No value is created in the system by cost shifting. Private health plans and the government both practice robust cost-shifting in our system. They do this because it is far easier to shift costs than to genuinely lower costs.

The Affordable Care Act takes aim at some of the cost shifting in the current health care market. However, it does not do nearly enough. It’s possible that regulatory action alone won’t be the cure for cost shifting.

Let me review some additional examples of cost shifting in the US health care system:

Medicaid Underpayment

Medicaid pays quite low rates in many states to most providers – rate that are below the real cost of providing care. Providers bill extra to private insurers to make up this shortfall. The state balances its budget by cutting Medicaid provider payments, but this makes private health insurance in the state even more expensive. Employers who might benefit from a tax subsidy that forces budget cutbacks pay for the health care of the uninsured through a nontransparent extra fee added to their health care premiums. Voila. Costs are shifted.

The Affordable Care Act addressed a very small segment of this problem by fixing Medicaid primary care payments and Medicare rates for a limited period of time with full federal funding.

However, states continue to ratchet down Medicaid fees to address their current budget shortfalls. More cost shifting is in the wind.

Dependent Audits

Many employers have been performing audits to be sure that their employees are not enrolling ineligible dependents. That makes sense – why should the employer pay for an uncle or a godchild that is not an actual dependent? On the other hand, when ineligible dependents are removed, there is no cost saving in the health care system unless they no longer access care. The cost is merely shifted to another party – in some cases to ‘free care’ which is an invisible surcharge on all health care charges.

The Affordable Care Act specifies that children up to age 26 can stay on their parents’ health plan regardless of college status, work status, and even their own marital status. This is not very expensive – since the average cost of those between 18-26 is very low. It gets rid of a whole series of administrative hurtles to coverage – so that parents don’t have to get paperwork from their children’s college.

Medicaid Funding

Many states have developed ingenious ways to get the Federal government to pay for a larger portion of total medical care. Massachusetts managed to get Medicaid to fund replacement of a University of Massachusetts hospital fascade based on some fancy legislative dance in 2001. In some instances, states agreeing to pay providers a higher fee (with the feds picking up more than half of the cost). Then, the states tax the providers to recoup some (but not all) of the excess costs. http://www.washingtonpolicy.org/publications/legislative/state-lawmakers-propose-using-phony-bed-tax-and-provider-tax-secure-more-fe The total cost of medical care goes up, but the state has constrained its own outlays.

Lifetime Limits

One thing that’s certain about hemophiliacs is that without blood factor concentrates they will have bleeding episodes, which can threaten their lives and cripple their joints. Many hemophiliacs require over $100,000 in biopharmaceuticals each year – so it’s easy to hit lifetime limits very quickly. This is a cost shift either to patients (few of whom could afford this) or more likely to state Medicaid programs, for which some hemophiliacs qualify if they hit the lifetime maximum in their employer-sponsored plan. The Affordable Care Act eliminated lifetime maximums as of this year – although there are still some employers who are “grandfathered” and will be allowed to maintain
Mini-Med Plans

These are health plans with very low premiums which pay benefits up to a very low total limit – as little as $5000 or even $1000. They are marketed to low-wage employees –often in retail or service industries, and often by companies that for competitive reasons simply can’t afford to pay the employer share of a more conventional health plan. The problem is that this is “upside down” insurance, which max out if a member has any significant illness at all. If a member gets leukemia – costs are not “controlled,” but are shifted to the patient, or again to state Medicaid plans if the member qualifies after hitting the employer plan maximum.

Raising Eligibility Age for Medicare

Austin Frakt has previously published data showing that raising Medicare eligibility age would save the federal government $5.7 billion, while it would cost individuals and businesses $11.4 million. A bad deal indeed.

Not all cost shifting is necessarily evil – and there are some examples which seek to change behavior by making health plan members responsible for a larger share of the costs.
For instance, reference pricing requires that health plan beneficiaries pay for any excess cost if they get elective care from providers who charge more than an allowed amount. These can save money for employers by shifting costs to the employees – but can also save money in the system by encouraging beneficiaries to choose lower cost providers. Reference pricing thus saves money for health plan sponsors through a mixture of cost shifting and actual cost saving.

Advocates also suggest that high deductible health plans save money through encouraging more responsible resource use. Studies have shown consistently that these plans do overall reduce utilization, but recent studies also suggest that these plans reduce both unnecessary and beneficial care.
Cost shifting will be a continued reality in our fragmented, multipayer system. Shifting costs to others is almost always easier than genuinely lowering health care costs, so we’ll need to continue to develop regulations to discourage cost-shifting. The Affordable Care Act is at least a start.

The managed care indicator will return with the next post.

Who's Responsible for the Rise in Medicare Costs

2011-12-21T18:50:00.003-05:00

Today’s Managing Health Care Costs Indicator is $300 billion

Click image to enlarge

Today, the New England Journal e-published an evaluation of which states and which specialties have “overspent” in Medicare, leading to the SGR (sustainable growth rate) cuts of 27.4% as of January unless Congress acts to overturn this. Congress is having trouble – because eliminating the SGR and freezing physician payments would cost $300 billion over the next ten years. Ali Alhassani et al have shown huge discrepancies. This article is a good demonstration of how the threat of across-the-board cuts is unlikely to drive diverse providers to diminish their utilization.

Excess expenditures in Alaska from 2003-2009, for instance, are 130% of total 2002 expenditures, while Maine has increased its spending at such a low rate that they are responsible for ‘saving’ almost half of 2002 expenditures over the same time period. I’m guessing that former Senator Ted Stevens’ securing a 35% permanent rate increase for Alaska providers probably plays some role for overspending in the frozen northwest.

The authors also show that large states like Texas, Florida and New York drive much more of the total Medicare costs – but of course these states will also see a larger portion of the total across-the-board cuts.

The authors also show that radiation oncology has driven very large increases in Medicare expenditure, while thoracic surgery costs have substantially lagged the SGR target. Of course, there have been huge improvements in radiation therapy over the last decade, while the decrease in smoking and improvements in less-invasive techniques have happily led to much less work for thoracic surgeons.

The current impasse in Congress makes it more likely that the SGR will not be fixed for the thirteenth or so time since 2003 – which could lead to these across the board cuts. This could well lead to access problems for Medicare beneficiaries – it’s a terrible way to lower health care costs!

There is a better way. This is reprinted from a 2009 post:

The SGR was not a “glitch,” but it was a poorly designed way of trying to prevent overutilization. The problem is that the benefit of increased revenue to individual providers overwhelms the risk of a pay cut due to overall higher than expected utilization. This is a classic “tragedy of the commons” problem – where it pays for each individual provider to do more procedures, knowing that her contribution to the “overgrazing” will be overwhelmed by the practices of the general population.

SGR is poorly designed because the group of procedures it applies to (the equivalent of the “pasture” in the tragedy of the commons) is too big – and no physician would rationally think about cutting back on utilization to prevent future fee cuts. There is a better way.

Japan

has an SGR-equivalent which is by individual service –not generic across all services.

Prices are revised individually, adjustedfor each procedure and drug, and not by an across-the-boardconversion rate. In particular, the prices of procedures thatshow large increases in volume tend to be decreased. (Ikegami and Campbell, Health Affairs, 2004) Harvard Link

As a practical matter, procedures with large increases in utilization are sometimes those where there is new evidence of efficacy, but they are likely to be procedures with an exceptionally high margin. This method of adjusting helps diminish the excess margin associated with particular services, so there is less likelihood they will continue to be overused.

So – we should get rid of the SGR – it’s not effective at changing physician utilization, and would cause politically infeasible across-the-board cuts. As long as we are using primarily fee for service payments, Medicare should adopt the Japanese approach to targeted fee cuts for certain procedures if the volume increases.

Click image to enlarge.

Generic Biosimilars: Good News Buried in Today’s Newspaper

2011-12-20T20:24:00.001-05:00

Today’s Managing Health Care Costs Indicator is 27%

The best news about managing health care costs this week is probably buried on Page B6 of today’s New York Times. Amgen – the maker of epogen and other biologic medications, has formed a joint venture with generic pharmaceutical manufacturer Watson Pharmaceuticals, to manufacture and market biosimilars- the equivalent of generics for the biologic medications. They’ll be looking to make biosimilars of drugs that competitors to Amgen currently market – which is fine because other biopharmaceutical companies including Biogen-Idec have also begun to enter this market.

Why is this such good news? The biologic medications – including medicines for multiple sclerosis, rheumatoid arthritis, hemophilia, other rare genetic diseases and certain forms of cancer represent a larger and larger portion of the total pharmaceutical budget. Many people aren’t aware of this because these medications are often administered in a physician’s office- so the costs of them are not obvious when patients go to their local neighborhood pharmacy. Many of these medications cost $30-$40,000 per year – and drugs for hemophilia and other rare genetic diseases can cost hundreds of thousands of dollars per year.

CVS Caremark estimates that specialty medicines – the kind of drugs that Amgen and Watson have agreed to market – will be up from 13% of total pharmacy cost (2005) to 27% of total pharmacy cost (2015). I’ve already seen some instances where specialty pharmacy spending for certain employers was that high. These are good drugs – delivering longer and better quality life to many patients. But they are enormously expensive.

Biosimilars won’t be cheap like generic “small molecule” drugs – but they will be less expensive than the current specialty medications, and they will help pressure brand name biopharmaceutical manufacturers to constrain their own prices.

The Affordable Care Act requires that the FDA chart a path for marketing of biosimilar medications. The government should get these regulations out quickly so that we can let the competitive market work its magic.

Why Quality Assurance Doesn’t Save Much Money

2011-12-15T20:37:00.000-05:00

Today’s Managing Health Care Costs Indicator is 30%

A perspective e-published by the New England Journal yesterday asks a challenging question:

Why haven't nearly two decades of work on improving health care quality had a measurable effect on health care costs?

The article answers the question, too.

The authors note that truly variable costs like supplies and medications – which are saved if utilization decreases – are pretty small. While economists and accountants frequently say “there are no fixed costs,” that is over a long time horizon. Today and tomorrow, there are many costs that are fixed in health care. We can’t close hospital real estate or fire clinical and nonclinical personnel based on just a LITTLE less utilization – we need to have a LOT less utilization to get rid of many of the costs of our system. Quality improvement can lead to small incremental decreases in utilization, but these are often not enough to let us diminish the underlying cost of delivering care.

Let me give two examples.

If a quality assurance program keeps a patient out of the emergency department – what cost savings would you expect to receive? All numbers are illustrative only.

- $1000 (likely charges for an emergency department visit)

- $600 (average allowable cost of an emergency department visit)

- $400 (average allowable cost of a lower intensity visit that is preventable)

- $100 (cost of the time that the nurses and physicians spend with the patient)

- <$5 (cost of the electricity used, tylenol dispensed and the wax paper from the exam table)

The emergency department would have been there, as would the doctors and nurses, regardless of whether that patient was seen unnecessarily. So it’s only fair to credit the quality assurance program with a small amount of “real” savings.

Here’s another example. Many have suggested that electronic medical records will decrease the duplication of laboratory tests. This is a good idea – people shouldn’t be stuck with needles because we’re bad at keeping track of lab tests! But if a physician doesn’t order an unnecessary blood count, what will be the savings?

- $50 charge

- $12 allowable

- <$0.50 cost of reagent to perform the test.

The real savings are probably under a dollar - unless a LOT of blood counts are eliminated.

I’m told by my friends in hospitals that the marginal cost to deliver additional hospital services is generally about 30%. (This is assuming there is some surplus capacity in the system, which is usually the case.) That means that preventing overutilization might decrease billings and decrease the amount paid by health insurers. But the nasty secret is that lowering this utilization only lowers the actual resource cost of hospitalization by about 1/3 of the amount of saved billings.

The authors of the article are skeptical that the time-defined activity based costing suggested by Kaplan and Porter can significantly lower health care costs. I'm more optimistic that engineering studies of health care can save dollars. If TD-ABC is really effective, organizations could diminish more of the formerly-fixed costs. But that’s a hypothesis – and we need to measure true cost savings carefully before we prematurely declare victory over the high cost of medical care.

House Republicans Strike a Blow for Self-Referral

2011-12-13T22:38:00.000-05:00

Today’s Managing Health Care Costs Indicator is $300 million

Really?

The House passed its payroll tax reduction extension – and it’s got a provision that repeals elements of the Affordable Care Act that restrict physician-owned hospitals. These are the hospitals that were immortalized in Atul Gawande’s Cost Conundrum, which described how physician-owned hospitals lead to overutilization in McAllen, Texas.

[Renaissance Hospital] is the newest hospital in the area. It is physician-owned. And it has a reputation (which it disclaims) for aggressively recruiting high-volume physicians to become investors and send patients there. Physicians who do so receive not only their fee for whatever service they provide but also a percentage of the hospital’s profits from the tests, surgery, or other care patients are given. (In 2007, its profits totalled thirty-four million dollars.) Romero and others argued that this gives physicians an unholy temptation to overorder.

Self-referral leads to more utilization. The CBO estimates that this provision will increase costs for Medicare alone by $300 million.

If we want to control health care costs and control the federal deficit, this is the wrong direction.

How Would You Price the Cure for Hemophilia?

2011-12-12T22:55:00.000-05:00

Today’s Managing Health Care Costs Indicator is $20 million

The New England Journal this weekend published an exciting small series showing that a genetically engineered virus can infect the liver of hemophiliacs and produce the missing protein that can prevent abnormal bleeding. This was covered in the New York Times, and an accompanying NEJM editorial calls this a landmark study – the first evidence that we can use the body as a factory for deficient proteins, rather than manufacturing them outside and administering them artificially.

Granted, it’s a small study – a total of six patients – and only two got the highest dose therapy. One of those had only a brief positive response before his immune system destroyed the (good) infected liver cells, and those who got a lower dose had relatively small responses. This viral infection can only be administered once – as future doses would be rejected by the immune system.

The editorialist points out that the annual cost of factor to treat this type of hemophilia is $300,000, and the lifetime cost can be up to $20 million. She writes

Since the vector [engineered viral infection] is estimated to cost $30,000 per patient, dramatic cost savings have already been achieved.

Will this dramatic advance lead to lower health care costs?

I doubt it.

First of all – it’s likely this treatment will only work in a portion of patients with this disease, and will only work for a limited period of time. Further – there will undoubtedly be some adverse effects, possibly even induction of liver cancer. Most of those treated continued to need some factor concentrate – just not nearly as much.

More importantly, the cost of the injection was stated to be $30,000 in this government-funded study. That's probably just for the marginal costs of each injection - and doesn't include any of the earlier research that led up to this point. The treatment will need considerably more testing – it’s not yet ready for widespread use.

If the treatment is commercialized by a private company, the price would not be based on the resource cost of production, but rather based on the value created by the treatment. I’d argue the true value of such an injection, assuming it worked in 50% of patients with few side effects and assuming it was effective for 5 years would be about $650,000 – or the net present value of $150,000 of savings each year for five years. (I used a discount rate of 5%).

So – if the pharmaceutical company which commercializes this treatment is rational in setting the price for it – it will capture most of the social value of the innovation. Of course, our current health care system financing will have a difficult time dealing with a one-time $650,000 injection, in a world where many people change employer or change insurance frequently.

The likely high price for a cure for hemophilia isn't bad – it’s part of why we have such intense innovation and so many life-saving innovations in the biopharmaceutical space. However, we can’t count on these innovations to lower cost – because they will be priced to capture a substantial portion of the value for those who own the patent.

We can count on innovations like this, over time, to improve the quality and perhaps quantity of life for those who suffer from this and other genetic deficiencies. And that’s the purpose of health care – to make life better, not to save money.

It will be a long time before such an innovation is available as a generic!

Generic Atorvastatin: Expensive Delays

2011-12-09T08:56:00.000-05:00

Today’s Managing Health Care Costs Indicator is $324 million

This week New England Journal has a simulation showing the value of the introduction of generic atorvastatin in terms of lowering health care costs.

Some numbers:

· Pfizer had revenue of $7 billion last year from Lipitor. It was the top selling medication in America

· Judging from generic simvastatin introduction in 2006, the cost will decline by 16% one month after generic introduction, 19% at six months after generic introduction, and 60% by 12 months.

· Savings from the introduction of the generic medication will be over $2 billion next year, and will be over $4.5 billion in 2014.

· Pfizer’s agreement with Ranbaxy to delay the introduction of generic Atorvastatin by 6 months cost Americans $324 million in savings. (I suspect this understates the lost savings – since the delay will continue to increase costs for an entire year or longer after the final introduction.)

Generic drug introductions continue to remain one of the major sources of new value in the health care space. Vigorous antitrust enforcement and regulatory actions to speed introduction of generics is important to be sure we get the maximum value from generic introductions.

Pfizer’s efforts to lower the profits of the generic companies that brought the first atorvastatin to the market might seem like a good deal at first. Consumers can purchase brand name Lipitor for as low as $4 per month – as opposed to $160 per month at Drugstore.com today. However, these efforts will lower the profits of the initial two generic manufacturers and could dissuade generic manufacturers from pushing hard for early generic introductions in the future.

Affordable Care Act and Pharmacy Savings

2011-12-07T06:31:00.001-05:00

Today’s Managing Health Care Costs Indicator is $1.5 billion

I’ve been on the road early this week – where I see a lot more of USA Today. The top of the fold Tuesday trumpeted “Health Care Law Changing Behavior.” The article itself mostly recounts pharmacy savings from the ACA, and briefly mentions full coverage for preventive care in some of the last paragraphs.

The article states that Medicare beneficiaries saved $1.5 billion this year (through August) because of the 50% discount on brand name drugs that are purchased within the “donut hole,” where cost of outpatient drugs are entirely the patient’s responsibility. The donut hole is between $2700 and $6154. CMS states that the average saving was $569 per person.

Where did these savings come from? The ACA included mandatory price cuts for seniors who are in the “donut hole,” and thus the funding for this comes from the brand name pharmaceutical industry. This isn’t all a giveaway, though, by any means. Lower priced brand name drugs for those on multiple prescriptions is a great deal if there are no generic equivalent. However, generics tend to be 90% less expensive than brand names – so a 50% discount on a brand name remains a bad deal for seniors.

I suspect the $569 is the average savings for those who had any savings – because a bit over half of Medicare beneficiaries does not hit the $2700 in eligible outpatient pharmacy expenses.

The pharmaceutical industry made a deal early to support what became the Affordable Care Act. PHaRMA agreed to some price concessions, but gained many more elderly with meaningful drug coverage. Out of pocket costs went down by more than 20% for seniors, leading to a bit over a 5% increase in overall drug utilization. Marginal costs to produce drugs are very low- so these extra customers are very important to industry profitability.

Has there been behavior change? Perhaps. But the USA Today reporter didn’t probe very hard. Catch this quote.

“Seniors are becoming more engaged in their care, [CMS director Jonathan] Blum said, citing the hundreds of forums Medicare has conducted about the changes.”

I’m guessing the benefit design of full coverage for preventive care might change behavior more than the hundreds of forums!

Further Evidence that Self Referral is a Bad Idea

2011-12-05T22:43:00.000-05:00

Today’s Managing Health Care Costs Indicator is 86%

An enterprising radiology resident reviewed a series of 500 imaging studies (lower back MRIs) ordered by orthopedists; half had a financial interest in the scanner, and so made more money when a scan was ordered. The other half had no financial interest in the scanner, and their income was independent of MRI scan volume.

	Self Referral	No Self Referral
Average Age	50	57
% Negative Scans	42.45	22.8%

The results are exactly what you’d expect. The physicians with a financial interest in the MRI scanner ordered scans on younger patients. The scans they ordered were 86% more likely to be negative -- suggesting overutilization.

This is a small study- done by a single researcher – and he was likely not blinded to which group the orthopedists belonged to. Still, this is consistent with all the other evidence available. Doctors make different clinical decisions based on their financial interests.

Physician financial interest in enterprises they refer to continues to be an ethical and financing dilemma. I don’t believe that many physicians who own imaging consciously believe they are ordering extra tests. However, there is plenty of evidence that they are. Here are just a few links to past chapters of this sordid tale:

Nuclear cardiology ordered more by those who own scanners

Urologists who own IMRT radiation therapy have higher costs

Orthopedists who own a share of a surgical center do more surgery

Some potential solutions

Incidentally, you might worry for the intrepid radiology resident who did this study. Will he be shunned by colleagues for exposing their dirty laundry?

By no means. Radiologists have been aggressive at pointing to inappropriate self-referral incentives for specialties that compete with them for some time! Harvard Link

Don Berwick’s Exit Interview

2011-12-04T18:36:00.000-05:00

Today’s Managing Health Care Costs Indicator is 5

Don Berwick ended his 17 month run as Center of Medicare and Medicaid Services Administrator –and it’s too bad that we won’t have his willingness to be disruptive and his vision to lead CMS through these critical next few years.

Kaiser Health Networks praises Berwick for his top 5 accomplishments:

1. Made CMS less bureaucratic and more responsive
2. Made CMS a force for U.S. health improvement.

3. Pushed hospitals to improve patient safety.

4. Started to move Medicare from paying by the procedure to paying based on outcomes.

5. Encouraged "innovative" health care delivery models

Perhaps to be symmetrical, Berwick gave an interview to the New York Times as he was packing his bags, and noted that “20 percent to 30 percent of health spending is “waste” that yields no benefit to patients.” He cited five key areas of waste in health care.

Berwick’s top five list, with my annotation.

Overtreatment of patients

There is certainly plenty of overtreatment – especially in Medicare patients at the end of life. Much of the underlying reason is cultural –and cultural changes take a long time.

Failure to coordinate care

The sickest 1% of our population represents 20% of costs –and patients are on polypharmacy (more than 8-10 medications a day), and it’s hard to find a hospital discharge that includes appropriate discharge instructions.

Administrative complexity

By definition a system that has multiple payers will be complex- and the Affordable Care Act increases that complexity further through a series of regulations to protect patients – but which require compliance efforts that some will find burdensome.

Burdensome rules

One person’s burdensome rules are another’s critical protection. Some rules can simplify choices (like Massachusetts’ requirement that plans offered by the health care exchange are easily comparable), while others just make for higher cost (like requiring an RN or MD license to give injections, even though medical assistants are well trained for this). We’ll have to take a surgical scalpel to rules, not a bulldozer.

Fraud

Fraud is certainly rampant in health care, and health plans and Medicare are doing a better job of ferreting it out. Fraud settlements are the highest they’ve ever been in the last two years. Building fraud detection into payment systems, rather than waiting for someone to complain, is critical. There are tradeoffs in combating fraud, too. Some systems to interdict fraud might delay payment to legitimate providers, and could increase the cost of providing care.

This is a good list, but it’s not exhaustive. I was surprised and a bit happy not to see variation on the list. It’s pretty hard to get to rural Minnesota levels of utilization in urban Boston or New York – but that type of variation is usually included in estimates of health care waste. Just because there’s waste, doesn’t mean that it will be easy to remove that waste. I was also surprised not to see medical errors and health care acquired complications and infections. Berwick, as the CEO of the Institute for Healthcare Improvement and as CMS Administrator, has worked tirelessly to reduce health care complications, and there is still plenty of work left to do.

Don Berwick, I’m sure, will still be working to improve health care in his next role.

Health Care Jobs Grow – in Bureaucracy Rather than Care Delivery

2011-12-01T21:06:00.000-05:00

Today’s Managing Health Care Costs Indicator is 95,000

That’s how many new jobs were created in health care so far this year – one of precious few sectors in the entire economy to show significant increase in jobs.

A Kaiser Health News article in today’s USA Today has some information that is even more scary than more health care jobs (which generally will mean continued growth in health care costs). The new jobs being created are largely administrative. Hospitals that cut their clinical staff after Medicaid cut rates are hiring up clerks and information technology staff. Many attribute this new surge of nonclinical hiring in health care to the Affordable Care Act. I expect to hear about this on the campaign trail.

Hiring more nonclinicians in health care isn’t always bad. Banks hired a lot of IT staff and shed many teller jobs – and the customer service experience of banking over time got better for most of us. Hiring a few system engineers to smooth flow and increase capacity is often more cost effective and much better for patients than hiring a bunch of extra clinicians. But while some of the newly-hired nonclinical staff could really improve health care (such as better IT systems that prevent medical errors), many of the new nonclinical staff are likely to be billing clerks or intermediaries making health care more expensive without any benefit to patients.

Tiered Plans: Threat or Promise

2011-11-30T06:07:00.000-05:00

Today’s Managing Health Care Costs Indicator is 1.5x

Monday’s Boston Globe had an article on page one (“top of the fold”) on tiered health plans. The title was “Tiered health plans cutting costs, restricting options.” The authors tried to be even-handed – but stories with narrative force are more compelling than some dry statistics. It’s hard to come away from the article with a positive feeling about health plan network options that charge patients more for care at hospitals and providers with higher prices.

The focus of the article is Glenn McCarthy, 48, who was found to have prostate cancer. Faced with a potential month-long wait to have surgery done at a community hospital ($150 cost share), he chose to have the surgery at an academic medical center ($1000 cost share). His total out-of-pocket liability ended up not being a thousand dollars, but $4500 because he had a series of complications that led to additional cost sharing. He and his wife are now struggling to pay this off, and their insurer has denied their appeals.

Enrollment in narrow network or tiered plans has increased sharply in the last few years. The Massachusetts Group Insurance Commission, which purchases health insurance on behalf of state and governmental employees and retirees, offered a three month employee “premium holiday” to encourage state workers to choose narrow network plans this year, and 10,000 made the move.

Employers have found that when overall cost of care has increased but they feel cannot afford to raise the employer contribution to this, they can

Raise employee contributions
Lower the benefit level (raising member cost sharing across the board)
Raise cost sharing for providers who have very high prices.

The last option is attractive because it could encourage some patients to move to more cost-effective providers, as well as encourage providers with high allowed prices to lower these prices. That’s happened in California when CalPERS, which covers state and other governmental employees and retirees started using ‘reference pricing’ for knee and hip replacements. Some hospitals with allowable fees in excess of the reference price renegotiated their rates to avoid losing patients.

Tiered networks that are based on price alone could actually destroy value by directing patients to hospitals or providers of lower quality. Most of the available tiered plans use some form of quality ranking to be sure that high quality providers are available within the lower cost tier.

Clearly, tiered networks have the attention of the more expensive providers:

“[Tiered Networks] present one of the greatest threats to access that there is in the Commonwealth right now,’’ said Dr. James Mandell, chief executive of Children’s Hospital Boston.

Many would say that the greatest threat to access is high cost – not health plans that offer lower premiums and a choice of paying higher cost share to get care at Children’s, which is very expensive compared to comparable hospitals. How expensive? The Attorney General reported that risk adjusted total medical expense at Children’s was among the three highest in Massachusetts for all three major health plans – over 1.5x the least expensive provider in BCBSMA and Tufts, and over 1.9x in Harvard Pilgrim.

As I’ve noted before, increase in unit cost is a major problem in Massachusetts, and is the major factor making health care in the US more expensive than in other developed countries.

Clearly, with huge disparities in cost and without clear correlations with quality, efforts will continue in Massachusetts to rein in higher allowed prices. Tiered networks are a market lever to try to reduce the price at the highest cost facility.

There are alternatives. Former Massachusetts governor Mike Dukakis spoke earlier this week at Harvard School of Public Health and said

If we paid a little attention, it might be a good idea, to the experience of other countries around the world who are doing this and who, for some reason, seem to be able to provide rather good health care to their people at half the cost we do -- whatever the siltstone, whether it’s Australian medicare or a multi-payer system in Germany or an essentially privatized system in Switzerland -- every one of them regulates cost, without exception…Now don’t get me wrong. Nobody loves having to regulate. We had something called the rate-setting commission when I was governor... We treated hospitals as public utilities. They couldn’t raise their rates a nickel unless they went to the rate-setting commission. We certainly didn’t have these huge disparities between what Partners gets and what the BI gets. Wouldn’t allow it. So, we’ve got to get on with the business of regulating costs.

I’m guessing that we’re likely to continue preferring market approaches to price disparities, so tiered networks will continue to expand. Efforts to reintroduce price regulation continue to heat up as well.

Obesity Reduced by Lifestyle Intervention

2011-11-28T06:31:00.000-05:00

Today’s Managing Health Care Costs Indicator is 38.2%

Obesity isn’t easy to treat.

We all know that even people who reduce their caloric intake by 30,000 calories often don’t lose 10 pounds, and recent research shows that hormonal changes subvert our efforts to become svelte (or even to become non-obese).

Two studies published in the Thanksgiving New England Journal of Medicine show surprising efficacy of lifestyle coaching to help patients lose weight. In both studies the interventions were built around the primary care practice (not the insurance company), and both studies were part of an ambitious 24-month three center study funded by the National Heart Lung and Blood Institute.

The NEJM published the Johns Hopkins study, done in collaboration with Healthways. This study showed losses of 0.8kg (control group), 4.6kg (telephonic coaching only), and 5.1kg (in-person coaching). A striking 38.2% of people in the telephonic coaching group lost more than 5% of body weight. That number was 41.4% in the in-person group, even though participants only attended a small fraction of the recommended in-person sessions. Persistance with the web portal was also high.

NEJM also published the University of Pennsylvania study, which compared usual care with brief and enhanced brief lifestyle coaching. Enhanced included treatment with medications and free provided low calorie meals. The UPenn study showed weight loss of 1.7kg (usual care), 2.9 kg (brief coaching), and 4.6kg (enhanced coaching). Again, a striking portion of the participants lost more than 5% of their body weight (usual 21.5%, brief 26%, enhanced 34.9%).

These are impressive studies. They were difficult to carry out, although they were well funded. Both studies had low dropout rates. It will be important that the researchers also publish the results of the third study – to see if the results are consistent. Even so, this reporting is much less subject to publication bias than most of what we see in the wellness literature. The studies are also small – only about 400 people in each three-arm study, so under 150 in each of the treatment groups. It’s also striking that the participants in usual care lost so much weight, since this is quite contrary to the usual practice experience.

Obesity is clearly one of the major causes of future preventable death and adverse health care outcomes – and it’s heartening to see credible evidence of efficacy of the coaching intervention.

Statins Remain Cost Effective, Not Cost Saving

2011-11-26T06:57:00.000-05:00

Today’s Managing Health Care Costs Indicator is $169,549

Click on image to enlarge. Source below

Statins are enormously effective drugs that, along with a decrease in cigarette smoking, have been responsible for a huge decrease in the incidence of cardiac death, especially in young men. Statins were shown to be effective at lowering mortality in 1994 in the 4S study (Scandinavian Simvastatin Survival Study). This study was reevaluated in 1996 to look at changes in hospital costs, and the saved hospitalizations in the treatment group covered 88% of the cost of simvastatin in the high risk group.

Simvastatin has been a generic medication for a few years, and atorvastatin (Lipitor) is going generic this coming month. Have we finally reached a point where the use of statins is not merely cost-effective, but is actually cost-saving?

Even with dramatic declines in the acquisition cost of the statin medications, though, treatment in this simulation done in BMJ this past March was not cost-saving in any cohort. The cost of a Quality Adjusted Life Year for a 55 year old man with a 5% ten year risk of a heart attack was 125,544 euros (or almost $170K)

Harvard Link

Non-Harvard Link

As you can see from the graphic – the cost to save lives with simvastatin was actually quite modest in many instances - especially over the longer time horizons. For instance, it cost only 5394 Euros for each QALY for 55 year old men at a 30% risk for a vascular event over the following 10 years. Still, not a single simulated group gained QALYs with LOWER costs.

We don’t save money by using even generic statins for primary prevention of heart of vascular disease. We only gain good health outcomes for a reasonable cost -- which doesn’t seem to me to be a bad outcome at all.

Avastin: Great hope, or futile care?

2011-11-23T06:16:00.000-05:00

Today’s Managing Health Care Costs Indicator is $7 billion

That’s the annual revenue that Genentech gets from sale of Avastin.

Avastin is the first of the anti-angiogenesis medications – which we all hoped based on mice studies would kill cancers by starving them of blood supply. It works – but not nearly as well as we hoped. An early study suggested that the drug might prolong life in those with breast cancer, but subsequent studies have actually shown that the drug offers no benefits, but does come with severe and even life-threatening side effects.

The FDA advisory panel voted 6-0 to remove the breast cancer treatment indication from this drug, which costs $90,000 per year. The drug remains on the market – and continues to be recommended for the treatment of other cancers. CMS will continue to pay for the drug when prescribed for breast cancer despite the adverse evidence, as will just about all private insurers. Those that announce they will not pay for Avastin are subject to blizzards of emails and protests and appeals.

Here are two voices on this issue. The first, yesterday’s Wall Street Journal editorial:

…There's no denying that [The FDA decision] decision is an awful turn for anticancer progress and innovation, and especially for the women who may lose a treatment option in the time they have left to live.”

The second, Joe Nocera today in the New York Times:

Here is an enormously expensive drug that largely doesn’t work, has serious side effects and can no longer be marketed as a breast cancer therapy. Yet insurers, including Medicare, will continue to cover it...If we’re not willing to say no to a drug like Avastin, then what drug will we say no to?

We won’t solve the health care cost crisis if we continue to cover expensive, ineffective drugs. It’s hard for me to see this as heavy –handed government overreach. Forget about the cost –the medicine appears to make the lives of terminally ill women worse. Giving physicians and patients the information they need to make the best decision seems like a good role for the FDA.

The Stakeholders Would Just Plotz!

2011-11-22T20:32:00.002-05:00

There’s been some jubiliation in Massachusetts with the Commonwealth Fund report that insurance here is no longer the most expensive in the country. My colleague Nancy Turnbull, has a great post in the Commonhealth Blog entitled “Stop Kvelling, We Still Need Aggressive Action To Halt Rising Premiums.” She points out that any jubilation is misplaced – our health care premiums have gone up rapidly – just not as rapidly as a handful of other states. In fact, by many measures our health insurance remains the most expensive in the country – which means the most expensive on the planet.

The problem, of course, is that halting the rise of health care premiums will create hardship in the state’s growth industry – health care. In fact, most of the proposals to lower health care costs make the stakeholders want to plotz!

The commentary is great - and it’s topped off by a prolonged metaphor that left me chuckling. Nancy’s response to a question about why politicians don’t address the impact of rising health care costs on small business:

There's clearly a great fear of "killing the golden goose" of health care in Massachusetts. The problem is that the golden eggs are not distributed fairly although we're all paying for the feed, and the price of over-feeding the goose is a starvation diet for others (including public health). Sort of like the health care equivalent of foie gras.

(Kvell is a great Yiddish word that means something approaching gloating –but it’s virtuous. We kvell when our kids make deans list. Plotz is to be so annoyed that you could faint with anger. When someone threatens to take away what’s mine, I could just plotz.

Self Referral: Another Installment

2011-11-21T22:13:00.000-05:00

Today’s Managing Health Care Costs Indicator is 215%

Nuclear exercise stress tests are generally not recommended as “routine followup” after coronary revascularization. However, cardiologists who were paid either professional fees (to read such tests) or who actually owned the equipment and were paid both technical and professional fees were 1.6-2.3 times more likely to order such tests, according to an article in last week’s Journal of the American Medical Association. The same pattern was found for stress echo tests, which are performed much less frequently.

The authors looked for patients who were 90 days out from bypass or angioplasty, and found imaging tests performed within 30 days of a cardiologist office visit. They excluded patients with an intervening cardiac event. This was from a large database of commercial claims, and the patients were on average between 54 and 55.

The authors note that the frequency of these tests in cardiologist offices increased 215% between 1998 and 2006, 181% in other physician offices, and only 32% in radiologist offices.

The physicians ordering these tests no doubt believed they were necessary. Self referral has again been shown to lead to higher utilization and higher costs. It also appears to be associated with lower levels of practicing evidence-based care.

Ezekiel Emanuel and Health Care Costs

2011-11-20T21:57:00.000-05:00

Today’s Managing Health Care Cost Indicator is $26 billion

Ezekial Emanuel, noted oncologist, ethicist, recent presidential advisor and brother of Rahm, finished a four-part article in the Times Sunday Review about health care cost control. It’s well worth reading.

Post One: Spending more doesn’t make us healthier reviews the fact that we aren’t getting better health or health care for the extra dollars we spend in the US - and these health care dollars crowd out other meaningful uses for those dollars

Post Two: Less than $26 billion – don’t bother makes the point health care costs go up over $100 billion a year. He reasons that if a potential intervention wouldn’t save at least 1% of costs – we should put our efforts into other initiatives. This threshold is important in terms of setting priorities.

Post Three: Billions wasted on billing points out that the administrative costs of our complex and fragmented system are enormous, and he uses his own experience with minor surgery as an illustrative example. He doesn’t suggest fixing the fragmented and complex system – merely standardizing transactions.

Post Four: Saving by the Bundle suggests that there are huge potential savings associated with better coordination of care of the sick – and they’re the ones whose medical expenses are driving cost increases.

I recommend the series – it’s thoughtful and provocative

It’s also missing an important element of our health care cost crisis.

There is no acknowledgement that the underlying reason why our system costs dramatically more than Canada or the European countries is not even administrative costs or poor coordination. It’s that we have very high prices compared to these other countries. Here are some charts from Massachusetts about this topic, here’s a reference to a September Health Affairs article on the issue of unit cost, and here is a post that gives links to International Federation of Health Plan data and the original 1993 Anderson/Reinhardt article “It’s the Prices, Stupid?

There are plenty of reasons why stakeholders don’t want to talk about the unit price issue.

Providers are being paid these high unit prices. It’s easier to talk about someone else’s utilization than one’s own price!
Pharmaceutical companies like high unit prices just fine
Health plans are a bit embarrassed that they’ve been unsuccessful at controlling unit costs
Health plans and other parties have a profitable business in lowering utilization
Government wants continued growth in health care sector jobs

Movements toward narrow networks and reference pricing will be future counterbalances to high prices (and high variation in prices from facility to facility). If we can better control unit prices, we can lessen medical inflation substantially.

Hospital-Health Plan Contractual Feud Goes Public

2011-11-17T09:09:00.001-05:00

Today’s Managing Health Care Costs Indicator is 3%.

Dear Business Partner:

Tufts Medical Center and NEQCA Are Terminating from Our Network
The single biggest piece of health care spending is what doctors and hospitals are paid to care for patients. About 90 cents of each premium dollar goes toward medical services. When these costs increase, premiums go up. In our meetings with hospitals and doctors over the past several months, we made it clear that we want to pay them the reasonable costs of caring for our members, while being responsive to the community's expectations about affordability.

Regrettably, both Tufts Medical Center (TMC) and the New England Quality Care Alliance (NEQCA), an organization that represents doctors, have told us they do not want to participate in our provider network at the rates we offered to pay. We still hope to reach an agreement with these providers. However, if we do not, these providers will be terminating their HMO Blue^®, HMO Blue New England^SM, and PPO contracts with Blue Cross Blue Shield of Massachusetts, effective January 17, 2012. These providers will be terminating their Indemnity contracts effective March 31, 2012.

With these words, Blue Cross of Massachusetts set in motion the latest salvo in provider-health plan contractual wars. Tufts Medical Center and its affiliated physicians care for somewhere between 88,000 (WBUR) and 200,000 (Boston Herald) Blue Cross Blue Shield members – so this is a big deal.

It’s a good opportunity to review some of the underlying issues in the intricate dance of health plan - provider contracting.

Why do these contract disputes become public in the fall?

Fall is open enrollment season – when many patients have the option to change their insurance plan. Providers in general feel that they have a higher amount of leverage at the time when health plans worry that members will switch to competitors.

However, many members now have only a single insurance health plan available through their employer, so the opportunity to shift from BCBSMA to a competitor is much lower than a decade ago.

If Tufts Medical Center leaves the Blue Cross Blue Shield network, will that lower health care costs?

Click image to enlarge

Not likely. Tufts Medical Center is paid substantially less than other academic medical centers, and even less than some community hospitals. See this graphic from the recent Attorney General Report. (Find Tufts under “New England Quality Care Alliance” about 1/3 from the left on the graphic below). Here’s a link to my post from June when this report was released, which shows Tufts (as NECQA) always below the middle of the pack in terms of expense. Here’s a link to the AG report. Ironically, this type of transparency might have encouraged Tufts Medical Center to demand higher rate increases. CEO Eric Beyer says Tufts asked for a 3% increase.

However, BCBSMA wants to send a signal that it is serious about not offering large rate increases – so this public negotiation could strengthen the health plan’s hand in private negotiations with other delivery systems.

Who goes public with a contractual dispute?

Usually, parties go to the public when they feel they have more leverage. On the other hand, BCBSMA states that it was legally obligated to go public because it must inform clients and members 60 days before a provider leaves its network.

Who has more leverage in this negotiation?

I have no inside information. Generally, asymmetry of influence determines leverage. BCBSMA could easily represent a fifth of Tufts Medical Center’s income (if Medicare represents about half, and considering that BCBSMA represents almost half of the commercial market), while Tufts Medical Center represents only about 2% of hospital discharges for the state – so is unlikely to represent more than 3-4% of total BCBSMA business. (Data from 2006 – most recent I could quickly find)

Provider leverage is diminished by the movement from HMOs (where patients have no coverage outside the network) to PPOs (where patients can go outside the network but must pay deductible and coinsurance). There is increasing acceptance of narrow networks – which also diminishes provider leverage. The demand for all-inclusive provider networks in the 1990s helped gain many hospital systems large increases during that decade.

The total amount of the disagreement is reported by the Boston Globe as $11 million in a $1.2 billion contract. That’s not much – so I’m guessing that 88,000 (or 200,000) patients will not have to scramble for new providers in January.

Uwe Reinhardt has a commentary this month in Health Affairs suggesting that we should do all-payer rate negotiation, which would mean that each provider would be paid the same for similar services. I'll be talking about that idea in a future post.

Three Graphs Tell the Story: It's the Prices!

2011-11-14T18:04:00.000-05:00

These three graphs are from the Recommendations of the Massachusetts Special Commission on Provider Price Reform. released last week. For anyone who wonders if unit cost is a substantial portion of the cause of health care cost increase in Massachusetts, these data paint a clear picture.

The entire report can be accessed at this link.

Click on any image to enlarge it.

Jon Kingsdale, the founding Executive Director of the Connector Authority in Massachusetts, will be talking about the role of government in health care costs in our HSPH course on Wednesday. Here's a link to a Health Affairs blog post of his from July on the problem of "costitis."

Pfizer Maneuvers to Delay Access to Generic Lipitor

2011-11-14T07:25:00.002-05:00

Today’s Managing Health Care Costs Indicator is $106 billion

Saturday’s New York Times documented efforts Pfizer is making to thwart conversion from brand name Lipitor to generic atorvastatin. Pfizer is promising huge discounts on brand name Lipitor if the Pharmacy Benefit Managers (PBMs) block coverage for generic atorvastatin for six months.

Here’s what this will do:

1) Patients will continue to pay the higher ‘brand name’ copay or coinsurance, rather than paying the lower cost share for a generic

2) Employers will in general pay more – although if the Pfizer discounts are deep enough the incremental payment could all be absorbed by increased patient cost-sharing

3) Enhance profitability for PBMs, which will take a share of the ‘discount’ offered by Pfizer as detailed in employer contracts. PBMs usually make more money with generics – but Pfizer’s move would upend that situation for Lipitor for the next six months.

4) This will be a financial body blow to the two generic manufacturers, Ranbaxy and Watson, who have a 6 month window of semi-exclusivity when they can sell their generics for a discount compared to Lipitor. Six months later, when all generic manufacturers are able to produce and sell atorvastatin, the price will collapse, and there will only be a small profit opportunity.

New generic medications, in general, sell for about 20% less than the brand name equivalent during the 6 month semi-exclusive window. At that point, it’s likely that the price of generic atorvastatin will decline to just a little bit more than generic simvastatin, which is now sold at WalMart and other pharmacies for as little as $4 per month. Lipitor now sells for $160 for a one month supply (drugstore.com, 20mg).

Pfizer has earned a quarter of its revenue, or $106 billion, from Lipitor over the last decade.

The manufacturers willing to run the legal gauntlet to challenge Pfizer’s patents to be the first to offer generic equivalents must see a substantial payoff, otherwise we would have a de facto six month extension for drugs going off patent. Delaying availability of generics could cost us billions.

More important than the higher prices consumers or employers will pay is that Pfizer’s actions threaten the profitability of the initial generic manufacturers. That could prove the most expensive result – and employers and regulators should look at this deal very closely.

Steward Shops for Docs

2011-11-10T22:37:00.001-05:00

Today's Managing Health Care Costs Indicator is $3 million

It's no surprise and no secret that hospitals are buying up and affiliating with physician practices.

This could lead to some social benefits. Hospitals have the capital and expertise to make the big IT investments necessary to bring physician practices into the 21st century. Organizations that bring together hospitals and their associated physicians can better accept bundled payment, and even capitation. More integration could certainly lead to better coordination of care. Some even suggest it could lead to cost savings.

Today's Boston Globe highlights a northeastern Massachusetts group of 150 physicians, who represent most of the medical staff of Anna Jacques Hospital of Newburyport. The physician group just announced it would sever its ties to Beth Israel and affiliate with Steward, the for-profit hospital system which has promised to be the low cost high value delivery system in the state. Steward is also seeking to purchase delivery systems in Rhode Island and other states.

Both sides have lawyered up, and The Incidental Economist suggests that Steward is likely to prevail, and I agree.

What will this do to the cost of health care?

Steward said that the physicians could earn $3 million more through their contract compared to their potential earnings through the Beth Israel contract. Steward is also said to have promised to cover any losses under a large global budget (capitation) contract with Blue Cross of Massachusetts.

If any delivery system is promising higher physician income, and no “downside” risk without new processes to decrease resource use in the system, this will lead to either dashed physician hopes or increased health care costs.

Disruptive innovation: United offers on-line hearing tests

2011-11-09T23:04:00.001-05:00

This week's American Medical News, an AMA publication, notes that a subsidiary of United Health Care, hi Health Innovations, is offering an online hearing test, which will allow users to order hearing aids without a physician visit.

No surprise that the AMA opposes this move. It's not in the best financial interest of physicians for their patients to be able to get hearing aids without a physician visit. The costs of obtaining a hearing aid this was a estimated to be as much as 3/4 less than comparable devices purchased through conventional channels.

This fits well with some of the bolder ideas from the Connected Health Symposium last month. The new word for me there was "de-skilling," replacing a highly trained professional with a highly automated process.

UHC might not succeed with this venture, especially since trust in the Internet (And high speed access) are higher with a younger demographic that those with a higher rate of hearing loss. But even if this fails, there will be more attempts to replace physicians with hardware and software, and this type of innovation can bring cost saving without sacrificing quality.

“Government Study Debunks Stroke Treatment”

2011-11-09T06:18:00.000-05:00

Today’s Managing Health Care Cost Indicator is $20 million

It’s not often you see such a headline in the New York Times. The paper is reporting on a paper published in JAMA that showed those with history of “prestroke” with proven blocked neck arteries who received surgery to increase brain blood flow had no fewer strokes than those who were treated without surgery. The study was stopped early when there was not even a trend of improvement among those treated, and far more early strokes.

A JAMA editorial writer wrote that “doctors liked new technology, were paid well to use it and tended to believe in what they were doing, even without data.”

The thing is –the procedure worked! Those who had the bypass surgery did have greater brain blood flow. Unfortunately, the intermediate outcome measure (more brain blood flow) was not especially correlated with the desired outcome measure (fewer strokes.)

This is the kind of effectiveness research we need so that we spend precious health care dollars on services that genuinely improve health, and the kind of research that only the government is likely to fund. It’s a small investment –since if 24,000 Medicare recipients a year would have been candidates for this operation, the total cost if it was widely adopted would have approached a billion dollars. But who besides government would spend $20 million to study this? Alas, funds for the NIH are being cut, and this kind of important research will be threatened.

There were two reports in the NEJM this past week also reflecting the importance of large, multi-year, government-funded studies of interventions that seem like a good idea, but had never been rigorously studied. Alas, both also showed little of the financial savings promised by boosters.

RTI reported on the Medicare Health Support trial, which was terminated in 2008 when none of the disease management companies appeared to be on target to save as much money as their interventions cost. The study is flawed, of course, since the information available to those companies about the “at risk” Medicare beneficiaries was often available far too late. Still, most of us deeply believed that these programs would be more successful at preventing hospitalizations in the Medicare population, a target-rich environment.

The other is a commentary about the Physician Group Practice Medicare demonstration project. The groups improved quality substantially. However, high hopes of dramatic declines in health care spending were not realized. 2 of the 10 groups had savings of over 2% at one year, and half had savings of over 2% at five years. These were all groups with robust infrastructure, committed leadership, and cultures of prudent use of resources. This shows that creating Accountable Care Organizations from physicians in practices that are currently fragmented and disorganized will be very hard indeed.

Combination Drugs: At What Price?

2011-11-08T18:29:00.000-05:00

Today’s Managing Health Care Costs Indicator is $167.40

I’m a devoted reader of the Medical Letter – a nonpartisan, nonprofit biweekly newsletter on drugs that is not supported by pharmaceutical advertising.

This week’s issue highlights a new medicine, Duexis, which is a combination of a high dose of ibuprofen (800 mg, Advil or Motrin) and a high dose of famotidine (26.6mg, Pepsid). These medicines make sense together – ibuprofen causes a substantial amount of GI upset and some ulcers, and famotidine can prevent these complications.

All the elements of this medicine are available over the counter – and they’re all available from multiple different generic manufacturers. The cost of a month of this therapy – using generic OTCs, would be well under $30, and would allow more dosing flexibility. (Many patients experience relief from ibuprofen 600mg, and famotidine is generally not prescribed as more than 40mg a day).

The cost of the combined pill? $167.40 per month.

There are compelling reasons to put medicines together – and a single “superpill” to address cardiovascular risk (combining aspirin, angiotensin converting enzyme inhibitor, and statin cholesterol medication) would be an enormous boon.

There are good reasons not to prescribe Duexis, though:

1) It’s far too expensive

2) The fixed doses are convenient but not clinically optimal

The manufacturer has priced this medication with reference to the cost of brand name antiinflammatories and antiulcer medications – but it makes better sense to value this medication with reference to generic/OTC medications.

I’m hopeful that health plans and pharmacy benefit managers will choose not to increase the cost of health care by providing coverage for this medicine.

Another Vaccine Success Story

2011-11-05T22:43:00.003-04:00

Today’s Managing Health Care Costs Indicator is

$200 million

The October Journal of Infectious Diseases reports that rotavirus vaccine, administered to prevent early childhood diarrhea, decreased the number of hospitalizations for diarrhea by 66,000. This represented a decrease of 69% for discharges coded as rotavirus, and 36% for all hospital discharges with diarrhea of unspecified cause.

Between 15-20% of this decrease was due to ‘herd immunity,’ where even the 43% of infants that had not gotten a single dose got some protection because there was less rotavirus in the community due to those who did get vaccinated. Huge decreases in hospitalizations were seen in children ages 5-14, who had not received the vaccine. This is similar to findings with influenza vaccine, where immunizing young children might be an especially effective way to prevent flu deaths among the elderly.

The total savings from hospitalizations prevented by the rotavirus vaccine was estimated to be over $200 million.

Immunizations remain one of the few medical interventions that are not merely cost-effective, but which are frankly cost saving. The newer childhood vaccines, which are quite expensive, probably won’t be nearly as cost saving as the older vaccines, such as the measles-mumps- rubella (MMR) vaccine. Rotavirus vaccine costs between $60 and $70 per dose. We should we consider the prevention of disease in those who themselves are not vaccinated when we calculate the overall cost impact of these vaccines.