A Public Plan: NEJM Presents Three Points of View

Three perspective articles from noted economists in this week’s New England Journal of Medicine   review the pros and cons of offering a government-sponsored health plan as part of health care reform.   In a previous post, I talked the future of health plans in the context of calls for a national health plan.


Jacob Hacker favors a public health plan – saying that “competition between the public and private sectors will ensure lower costs and better access.”  He notes that it will be important to be sure the public and private plans compete on a level playing field.  The level playing field, for Hacker, includes 3 Rs – the same Rules, Risk adjustment, and Regional pricing.


Mark Pauly  also favors a public health plan – noting that choice is good, and some Americans don’t trust the market to deliver what they want, while others don’t trust the government    He suggests that there are not “advantages tgo a large plan’s dominating the market,” a position many providers in states with dominant health plans would contest.  Pauly worries that politicians might lobby to influence plan design – but feels reassured that true competition will only draw patients to plans that address their wants and needs.  Pauly says that all government plans should start small to make for neutral competitive markets.  Of course, a SMALL public plan playing by the same rules as private plans would not be able to exert much downward force on unit prices. 



Victor Fuchs says that the whole discussion of a public health plan is beside the point.  He points out that more Americans get insurance through self-insured employers than via any other method (30%, vs. 24.5% fully insured).  A government-run plan would only be relevant to this group if the government offered administrative services.   Even for Medicare, CMS actually farms this out to private contractors – so it’s not likely that the government has a competitive advantage in this space. He says that the main challenges are lack of universal coverage, cost increases and poor quality – and is not convinced that a public health plan will be a good solution to any of these issues. 

Interestingly, the point of view missing altogether from NEJM was one opposing a public plan outright, as opposed to merely saying that it is irrelevant.   

Ted Kennedy had a recent op-ed article in the Boston Globe setting out his vision for national health reform – which includes a public plan.  


I find Fuchs’ arguments most compelling.   We need to think about how to change the way we deliver care to make that care of higher value; it matters less whether the check is written by a plan owned by the government or by a private health plan.   A public plan that had real leverage would be opposed vociferously by the health plans and by providers - enough so that it would be VERY difficult to get through Congress.  On the other hand, a public plan with little leverage wouldn’t matter.  I believe that the final health care reform bill will have a trigger to implement a public plan in the future,  if costs are not reined in, rather than right away.   

Generic Drugs – Good Deal... or a MENACE?

There is a long article in this month’s Self magazine with a scary title: “Bad Bargain: All of us want cheaper medicine- but not if it costs us our health.”  The title suggests that generics are evil, and the article opens with case reports of suicidality returning in patients on the generic version of the extended-release antidepressantbupropion (Wellbutrin™) and recurrence of seizures in a patient switched to a generic antiseizure medicine.


The article, by Katherine Eban, a credible reporter with good credentials, sites many anecdotes about lack of therapeutic equivalency.   She goes on to report in depth about what appear to be fabricated reports from the Indian generic pharmaceutical giant Ranbaxy. The Ranbaxy CEO recently resigned over this issue, and the FDA has blocked importation of some (but not all) medicines from Ranbaxy.  The Self article quotes many physicians who believe that generics are not a good idea for their patients.  Most of these physicians have pharmaceutical company ties. 


Eban makes it clear that the FDA does not have adequate resources to inspect international manufacturing sites, and Aaron Kesselheim previously reported in the Annals of Internal Medicine that “the most effective way to decrease drug costs overall is the appropriate use of domestic generic drugs, which are available for almost every major therapeutic class."




The Today Show on NBC picked up the story – and Matt Lauer interviewed a pro-brand-name pediatrician and the Self magazine editor (not the reporter). Lauer gasped when he heard that pharmacists are allowed, and even required, to substitute generic medications for brand name medications. 


Generics are one of the few true successes in health care affordability. The Congressional Budget Office   concluded that generics saved $8-10 billion a year in 1994 dollars – and this was long before blockbuster medicines like Prozac (fluoxetine) and Prilosec (omeprazole) and Zocor (simvastatin) went off patent.  Pharmacy inflation has abated substantially in the last few years – and generics are the reason.

Saving money on prescriptions isn’t just about saving a few (or many) bucks. Patients facing huge bills for their medications are much less likely to follow their physician’s prescriptions – so generics will likely help us get better health outcomes. And it’s not just the evil insurance companies trying to plump up their profit margins by substituting inferior pills.  If we backpedal and make generic substitution more difficult, our health insurance premiums will go up and more Americans will find themselves priced out of the market.  Just today, Health Affairs posted a new article suggesting that almost 7 million more Americans will lose their insurance through 2010.


There are a few drugs where the toxic-therapeutic ratio is so narrow that physicians and pharmacists should choose to keep patients on medications from the same manufacturer (whether brand or generic).  Neither the Self article nor the Today Show noted that there have been problems with bioequivalence of brand name drugs, including Synthroid (thyroid medicine) and Dilantin (antiseizure medicine).  In both of these instances generics were at many points more reliable than brand name preparations.


Generic extended release bupropion is a troubling case –there are so many case reports of drug failure that I wouldn’t prescribe it.  But for the most part, generic drugs help us make health care affordable overall, and help individual patients gain the full benefits of what their physicians prescribe.  I’m staying on my generic simvastatin (Ranbaxy).



Early Childhood Interventions Could Save Billions?

I watch for headlines that promise large health care cost savings – and in general, headlines about public health oriented interventions that are more credible than interventions within the medical care system.


Here’s a headline from UPI this weekend:  Child health interventions save billions.  You can imagine I found the headline pretty exciting.  Frankly, it’s not often that an article from Academic Pediatrics makes national headlines . 


This article is a literature review – and it suggests four areas of intervention in childhood that could lower future costs. 

 (Harvard full text) (NonHarvard PubMed)  These areas are


1)     Early tobacco exposures

2)     Accidental injury

3)     Obesity

4)     Mental health


Tobacco exposure, injuries, obesity and mental illness take a terrible toll in childhood – and increased costs continue well into adulthood.   The authors conclude that there is good evidence that efforts to lower parental smoking and decrease poisonings and accidental injuries work. They admit that the medical literature on effectiveness of interventions for mental health are limited to small clinical studies, and there is less evidence still for medical interventions for obesity.


The calculation of $65-$100 billion in costs is derived thus:

-          Assume cost of $50,000 per affected child. Note this “cost” is not limited to cost within the health care sphere – but also includes lost productivity loss and civil justice.  I’m not sure how civil justice is valued.

-          Assume that 1/3 to ½ of each birth cohort is affected

-          Multiply the  number of affected children by $50,000.


So – there are probably billions of dollars of excess costs (although the accounting is cloudier than suggested by UPI).   Are there billions of savings?

It depends.  How much will the intervention cost?  How effective will it be?  We need a lot more research before we assume that these savings could be realized.  These savings certainly can't be counted on to fund increased coverage for the uninsured, or improvements to the educational system.


The authors note that medical care in childhood is 1.6% of GDP, and projected to decline by 14-29% from 2006-2017.  There’s some demagoguery in that statistic– since children will represent a smaller portion of the population over the next decade, so we would expect pediatric care to decline as a portion of total medical spending.   Even so, most clinicians would agree that a dreadful shortage of child psychiatrists isn’t a good way of saving dollars.  

Our commitment to interventions in these areas cannot be judged by how many dollars are spent in pediatric care. Frankly, tobacco cessation and accident prevention efforts come out of public health funds - and they are not likely to be reflected in the percentage of GDP spent on pediatrics.  Public health efforts are also cheap compare to initiatives in the medical arena. 

Leveraging Market Forces in Health Care

Meredith Rosenthal has an excellent commentary in the current NEJM on supply vs. demand side interventions in health care.  (Available without subscription).  She reviews interventions on the demand side, especially benefit design changes, and points out that raising consumer financial exposure leads to decreases in both discretionary and evidence-based genuinely beneficial care.  Rosenthal also notes that efforts to improve consumer information have fallen short, saying “patients frequently do not understand, trust, or rely on … reviews in selecting providers.    


Interventions on the supply side also have some downsides.  For instance, providers might shun tougher patients. (Of course, for all intents and purposes providers in the current system shun patients who require low-margin services now).  Providers also respond to fee schedule cuts by increasing the number of units of service delivered.     Rosenthal notes that information deficit is less of a problem for providers – and suggests that this might be a reason why incentives focused on providers are more likely to be effective at controlling costs with fewer unintended consequences.


We’ll probably need to leverage both demand (patient) and supply (provider) market forces in health care reform.  What’s most critical is that these market forces cause change in the delivery system and decrease not just the price for health care – but the resource cost as well. 

Making Health Care Affordable: The Painful Process Ahead

The Senate Finance Committee released a 41 page report yesterday detailing savings and enhanced revenue that could help finance health care reform, including coverage for the uninsured.  Many of the recommendations originated in the March 2009 MedPAC report to Congress. 

The report is a preview of how painful this process is likely to be. 


Cost Savings:

-          Rebase the market update for the provider fee schedule to lower increases (or impose fee cuts) on high margin procedures, and offer increased fees to low or negative margin procedures. 

§         This is an excellent idea, but  redistributes the medical dollar – and doesn’t necessarily save money.

-          Decrease market update of fee schedule (Medicare)

o        Home health (decrease fees by 5.5% in 2010)

-          Decrease direct and indirect graduate medical education funds from Medicare and Medicaid. 

§         This could save some serious dollars, but would be violently opposed by teaching hospitals, and in the past Medicare and Medicaid cuts have led to higher rates for commercial insurance.

-          Decrease disproportionate share funds to ‘safety net’ hospitals, since there will be fewer patients without insurance after health reform. 

§         That is not working all that well in Massachusetts, where under health care reform Cambridge Health Alliance is at the financial brink since ‘free care’ pool funds vanished but many patients continue not to be able to pay for their care.  

-          Base imaging technical fees on assumption that expensive machines would be operated 90% of the day, rather than 50%. 

§         This would lower imaging costs – but it would not save money as these resource value units (RVUs) would be redistributed.

-          Decrease payment for durable medical equipment.

§         This will be fought by the industry – but current rates are based on charges in the mid-1980s with inflation added – and the costs of many things, especially electronics, have dropped substantially since then

-          Increase drug rebates for Medicaid. 

§         This could net real dollars for the federal government – but there is good evidence that what is essentially  most favored nation” status raises the prices for all others.   The mandated rebates, which are calculated based on average selling price and best price, encourage the pharmaceutical companies to stick with their price discipline and avoid giving deeper discounts to anyone else.

-          Require spending reductions (through fee reductions) in geographies with high utilization or for specific providers with high utilization

§         The Dartmouth Atlas researchers have done a great job documenting small area variation and it’s clear that there is far too much utilization in some areas.   However, lowering the fees in those areas will not predictably lower utilization, and in some instances might increase utilization.   If payment reductions are done by geography, this will disproportionately hurt the higher-efficiency providers in high utilization geographies.  It would be very difficult to do calculations by provider – there is a real small number problem, it’s tough to attribute patients to fragmented providers, and the risk adjustment would likely be inadequate.

-          Decrease payments to Medicare Advantage plans

§         This is the largest element of the Obama plan likely to gain Congressional traction. There are real dollars here, although these cuts will decrease access to private plans especially in rural areas, and the insurance industry is likely to push hard against them.


Revenue Enhancements

-          Limit the tax deductibility of employer health insurance (as well as limit the tax deductibility of health savings accounts, flexible spending accounts, and itemized medical deductions as well as apply FICA taxes to student income )

§         There are huge dollars here.  Obama called taxing employer-sponsored health benefits as “the largest middle class  tax increase in history” during the campaign, so this won’t go down easy.  It’s most politically feasible to focus phasing out this deduction for high-income taxpayers

-          Limit tax deductibility of nonprofit health insurers

§         The Senate document singles out BCBS plans, but this would also apply to Kaiser and many regional nonprofit health plans.  These plans would have to raise premiums as this would make it more difficult to maintain adequate reserves.

-          Limit tax deductibility of nonprofit health providers

§         Nonprofit hospitals dominate markets in much of the country.  Their income is not taxed, they receive tax-deductible charitable contributions, and they use tax-free bonds for building.  Considering that these nonprofit hospitals are usually the largest employers in their communities, this would be a tough struggle.  Further, hospital margins are likely to take a drubbing from other elements of this health care reform plan – and adding removal of tax advantaged status would be tough. 

All told - this will be a painful process.  

Individual Hospital Quality and Cost - Randomness Rules

Great article from Yasaitis, et al on the Health Affairs web site  showing that the highest cost hospitals don't have the highest quality (and in fact many of the highest cost hospitals actually suffer from lower quality - although the risk adjustment might not be adequate).   This is further evidence that we need very substantial reform in the delivery system - there are many hospitals delivering high quality care for much lower prices.   It's also striking how much more expensive health care is in NY compared to Los Angeles!

Toles Says it All

Sometimes a political cartoonist tells an entire story in one box.  In this case, Tom Toles has used six boxes.

As Peter Orszag said on NPR yesterday on Monday, "We need to... start filling in more of the details." 

Obama and Advamed: Some Details Emerge

The White House released the two page letter from Advamed (an association  including America’s Health Insurance Plans, The American Hospital Association, the American Medical Association, PhARMA, the SEIU (a large union) and medical device manufacturers) detailing promised health industry efforts to curb costs.  The goal will be to save $2 trillion over 10 years, so health care costs will increase from $2.5 to $3.5 trillion (instead of $4 trillion) from now until 2019.


The White House, in its statement, said


We need to reform our payment system to promote efficiency and accountability while we eliminate waste and cost shifting; align incentives toward quality care and healthy outcomes; encourage shared responsibility; reduce fraud and abuse; build the base of information to undertake future program modernization; address the underlying causes of unnecessary health care spending; and encourage care coordination, prevention, and other services that are found to promote high quality, efficient health care

From the White House, a summary of promised cost savings (all over 10 years):

·         Bundled hospital payments to avoid paying for readmissions ($25 billion)

·         Decreasing payment to private Medicare Advantage plans  ($177 billion)

·         Increased drug rebates to state Medicaid programs (amount not specified)

·         Decreased fraud (amount not specified)

·         Increased inpatient quality ($12 billion)


So, only $214 billion  of the promised $2 trillion in 10 year savings is clearly defined. 


From Advamed, a list of promises includes

·         Administrative simplification, standardization, and transparency

·         Aligning quality and efficiency incentives to decrease overuse and misuse

·         Encouraging coordinated care and evidence-based practice

·         Reducing the cost of doing business


Advamed also suggests that the country must stress health promotion and disease prevention – with special attention to obesity prevention.


The White House memo includes real dollars, although not nearly enough – and the Advamed proposal is a good statement of principles, but without enough detail to assess its chances of success.  


Some questions raised by these communications

1)      Will the Advamed constituents agree to a government-financed system competing with private insurers?  Many feel that this would lower costs per unit substantially – so physicians and hospitals could join the insurance industry in opposing this.

2)      Will the Advamed constituents call off their opposition to a national Comparative Effectiveness effort?   Pharma and the device companies are worried that this will lead to restriction of access to new technology, and the UK experience shows that a comparative effectiveness organization could negotiate lower prices.

3)      Will providers aggregate to allow for true bundled payments?

4)      Has the administration calculated the impact of reducing undercare as we improve the health care delivery system –and removed that from the “savings” accrued from these other laudable efforts?


Getting these disparate organizations together is an excellent first step.  It looks like the Obama administration continues to push hard for meaningful health care reform.

No Reprise of Harry and Louise? Stay Tuned

The White House announced yesterday that the Advanced Medical Technology Association has pledged to work with the administration to identify $2 billion in cost savings in health care over the next ten years – cutting the growth rate of health care by 1.5 raw percentage points, or by 1/5.  The AMTA  is  a lobbying group that includes medical device manufacturers; the American Hospital Association; the American Medical Association; America’s Health Insurance Plans, a trade group for insurers; the Pharmaceutical Research and Manufacturers of America; and the Service Employees International Union.


This is big news – AHIP is the successor to the insurance trade organization that ran the Harry and Louise ads during the unsuccessful attempt to reform health care in the Clinton administration, and all of these organizations have a substantial role to play in reforming health care.  On the other hand, the $2 trillion is income – largely to these organizations – so the details will be difficult. 


Speaking of details – the Advamed web site and whitehouse.gov do not have the text of the Advamed letter as of 7am – so it’s hard to parse the words.   More to come on this.

Transition from Fee For Service?

Reed Abelson reports in Saturday’s New York Times  that hospitals which develop programs to decrease hospital readmissions financially penalized by Medicare (and most other payers).   This is not “new” news – and there has been substantial reporting on this for some time, including previous writing in the Times .  See my post from March referencing a number of other examples.  This is a story worth continuing to cover – and one of the reasons why it is challenging to lower the cost of health care with a predominately fee for service system. 

Interestingly, the commission on payment reform in Massachusetts is working toward a transition to more bundled (or even capitated) payments.   Massachusetts state officials feel that a Medicare waiver (to allow bundled Medicare payment to MA providers) is an important component of the transition  - but there are high hurdles to obtaining this waiver.  Here is a link to the most recent presentation from this commission’s public hearings.

Raising Taxes on Soda

Here’s an idea to lower health care costs.  Raise taxes!  Selectively, of course.


There is a long history of using tax policy to encourage or discourage behavior.  The best example is probably cigarettes, where a combination of taxes and penalties assessed against the tobacco companies has raised the price of cigarettes to $7 per pack.   This has been great news – because cigarettes are now out of financial reach of many teenagers.  Thus, the supply of younger smokers is dwindling .  Taxes on cigarettes put valuable dollars in federal and state government coffers – and they also decrease health care costs (including costs of Medicare and Medicaid paid by federal and state governments) by decreasing cigarette-related illness.   This is a real win-win.

(click on image to enlarge)

Thomas Frieden, New York City’s Commissioner of Health,  is a coauthor of an article in the April 30 New England Journal reviewing the case for increasing taxes on sugared beverages.   The authors note the excess cost associated with obesity ($79 billion per year, which looked like real money until the recent financial crisis), and the structural problem that the costs of fresh fruits and vegetables have gone up for more than the costs of carbonated sweetened beverages.  New York is in the vanguard of considering such a tax.


The authors' conclusion:


A penny-per-ounce excise tax could reduce consumption of sugared beverages by more than 10%. It is difficult to imagine producing behavior change of this magnitude through education alone, even if government devoted massive resources to the task. In contrast, a sales tax on sugared drinks would generate considerable revenue,and as with the tax on tobacco, it could become a key tool in efforts to improve health.



Patient Portals and Health Care Cost

I gave a seminar at the Center for Information Technology Leadership this weekend (on web patient information and patient portals, with Patti Dykes DNSc, MA, RN, a talented nurse informaticist.   The presentation is here).This made me go back and reread a set of Health Affairs articles from Kaiser from earlier this year.   


Kaiser found that in Hawaii the implementation of electronic medical records, scheduled telephonic visits, and a patient portal that allowed patients to send electronic messages to their physician office led to a 26% decline in office visits over four years.   There were other confounding variables, including higher copayments – but this was before the “great recession” hit, and the copay increases were modest.  There was not huge patient or physician turnover during this time. 


Quality measures, at least by HEDIS standards, were unchanged during this time period. Patient satisfaction was slightly improved.


The Kaiser researchers are modest in their claims of cost saving. They suggest that patients save 103 minutes by not having to visit the office (which is much less than the elapsed time lost by most of my colleagues when they see a physician), and point out that Kaiser does not have cost accounting systems that make it clear how much this effort has lowered resource use. They don't take credit for the potential saved costs of avoided lab tests, imaging, and prescription therapy based on avoided office visits. 


Still – this is very impressive.  Is this relevant outside of Kaiser, a large, multispecialty group tightly integrated with (and capitated by) an exclusive health plan?


Private practice fee-for-service physician offices could regard patient portals the way newspapers now regard Craigs List – which destroyed their previous business model by disrupting classified advertising.   To harness the benefits of patient portals, we need more connected physicians.  We also need some degree of payment reform.  

The Great Recession and Consumers

Thomson Reuters released the results of a survey of 100,000 families, which showed that almost a third of Americans report some difficulty paying for health care in the first wave of surveying in 2006 – a substantial increase from 2006. Further, in 2006 the main reason given for lack of access to care was lack of time, whereas in 2009 the reason given is lack of economic resources. (Double click on the graphics to enlarge them)


In yesterday’s New York Times magazine,David Leonhardt interviews Barack Obama on his view of the post-recession economy.  Obama talks enthusiastically about the need for patient engagement, while he acknowledges that physicians drive many medical decisions.  He endorses comparative effectiveness, in part to decrease the information asymmetry between patients and their physicians.    He also tells the heart-wrenching story of his grandmother’s hip fracture just after her diagnosis of incurable cancer. 


His quote directly:

I don’t know how much that hip replacement cost. I would have paid out of pocket for that hip replacement just because she’s my grandmother. Whether, sort of in the aggregate, society making those decisions to give my grandmother, or everybody else’s aging grandparents or parents, a hip replacement when they’re terminally ill is a sustainable model, is a very difficult question. If somebody told me that my grandmother couldn’t have a hip replacement and she had to lie there in misery in the waning days of her life — that would be pretty upsetting.


There is a lot of nuance here.   Obama talks about making decisions and not just doing everything all the time, but shows that he recognizes how difficult this will be.  Decisions that are obvious on a policy basis are very hard to apply to ourselves and our loved ones.  Of course, most Americans could not have paid for their grandmother’s hip replacements out of pocket.