Congressional Pressure for Coverage of New Technology

As we debate the possible implementation of a government health plan, it’s good to take a deeper look at decision-making within the current federal health plan – Medicare.

The New England Journal this week
has an essay about the Medicare decision not to cover CT Colonography (an alternative to colonoscopy to screen for colon cancer.) The editorialists endorse the Centers for Medicare and Medicaid approach – pointing out that there are not good efficacy studies for the geriatric population. While the CT scan might be less odious for patients than a colonoscopy, a higher incidence of polyps in the elderly will lead to a higher rate of colonoscopies after CT colonography than in a younger population.

This reminds me of a case 5 years ago that was approached quite differently, which was reported very ably by the Washington Post. Harvard Link:

In this instance, there was scant evidence of efficacy of PET scans to diagnose early Alzheimer’s Disease, and the evidence that anti-Alzheimers medications helped delay clinical disease progression was marginal. The Medicare Coverage Advisory Committee recommended against coverage and the Alzheimers Association agreed based on its literature review. But CMS and the association both soon came under a full assault by lobbyists.

"We ran into a lot of people . . . who were obstacles," [the industry lobbyist] said…[and] "Guess what? They're all gone!”

Ted Stevens (yes, that Ted Stevens, who was senior Senator from Alaska and the Chair of the Senate Commerce Committee) threatened to hold up funding for CMS – and eventually CMS relented and provided coverage for PET scans for this questionable indication. That’s not an especially evidence-based method of determining insurance coverage!

The evidence for CT Colonography is improving every few months – so it might be that CMS should eventually approve this as a screening test for colon cancer. Ang its good news for evidence-based decision-making that Stevens is no longer in the Senate.

Let’s see how much pressure Congress exerts on CMS to reverse its appropriate decision not to cover this procedure yet. The example of offering coverage for PET scan for Alzheimer’s Disease demonstrates one of the potential weaknesses of a public plan. A public plan (and private plans too) should be insulated from this type of political pressure.

A Well-Meaning But Expensive Idea In New York Goes National

Last year, Attorney General Andrew Cuomo of New York accused the major national health plans of underpaying health care providers because they were using a database from Ingenix which set “usual and customary” prices too low. In January, the health plans settled, agreeing to pay a penalty and fund a nonprofit organization that would set prices fairly and transparently. See an older post for a further explanation of this issue.

Now, Senator Jay Rockefeller has convened the Commerce Committee to investigate the issue nationally. The preliminary conclusion is that “large health insurers in every region of the country are relying on faulty databases to underpay millions of valid insurance claims.”

There’s a real conundrum here. In the US, we have a serious unit cost problem. We have fewer hospitalizations, fewer office visits, and fewer prescriptions than other OECD countries– yet our cost per unit of service is so high that we spend more than twice as much on health care as western European countries while we leave over 15% of our population uninsured.

Bashing the health plans is popular, to be sure. Further, United’s ownership of Ingenix does appear to be a conflict of interest. But the fruit of Cuomo’s labor is that effective unit prices will be even higher, and physicians who have a high amount of leverage are more likely to opt out of health plan contracts with set fee schedules and demand higher payment, driving unit costs higher still. As we struggle with how to afford health care, this is a step backward. Hopefully, the Senate Commerce Committee will not pursue a legislative remedy that will make health care even less affordable.

Will PhRMA’s $80 billion Help Fund Health Care Reform?

The Pharmaceutical Research and Manufacturers of America (PhRMA) announced $80 billion in concessions over the next 10 years to help make health reform affordable. The American Association of Retired Persons (AARP) endorsed the deal, and a substantial portion of these dollars are said to be dedicated to a discount drug program for senior citizens in the “donut hole” in Medicare Part D. Beneficiaries who have spent $2700 for medicines currently have no coverage until their costs hit $6100 when ‘catastrophic’ coverage comes into effect. The Wall Street Journal reports that some portion of the $80 billion will be used to underwrite insurance expansion, although that’s not consistent with the PhRMA press release or reporting from the Washington Post, the New York Times , or the Los Angeles Times.

$80 billion is a lot of money – although still does not approach the savings the pharmaceutical manufacturers might have to identify if the coalition of the willing (AMA, AHA, AHIP, PhRMA, AdvaMed, and SEIU) hope to find $2 trillion in savings over the next decade.

Is this a good deal for the pharmaceutical manufacturers? The Wall Street Journal reports that Wall Street analysts think so – and project that this price concession might increase drug sales by as much as $12 billion a year. How does that work?

1) The donut hole in Medicare Part D is not an accident – it’s a conscious attempt fashioned by the Bush administration to increase price sensitivity of Medicare beneficiaries. Getting rid of this donut hole could substantially decrease price sensitivity, which is good for brand name drug manufacturers.

2) Decreasing the gap between brand name and generic prices for the elderly will help decrease profit margins for generic manufacturers

3) The pharmaceutical industry has high fixed costs – so every extra sale (even at a reduced rate increases profit margin

4) It’s better for the pharmaceutical industry to keep its price discipline and offer discounts only to selected groups who would otherwise not purchase, rather than offer broader price discounts.

So – I’ll be anxiously awaiting word on how this $80 billion is allocated – and whether it lowers overall medical costs, or increases them.

Fraying of the Employer Health Care Safety Net

Health Affairs published an excellent article on-line earlier this month demonstrating that most Americans of modest income (200-400% of poverty level) are at high risk of spending more than 5 or even 10% of their income on out-of-pocket health care costs. [Abstract] [Full Text] [Harvard Link] The researchers (some from the consultancy Watson Wyatt) used national data on benefit design (Kaiser Family Foundation/ HRET) coupled with national data on health care claims (from Thomson Reuters) – and showed that well over half those at 200% of the federal poverty level with expenses in the top quartile would spend more than 10% of their income on out of pocket health care costs. The paper is important because unlike other published works, this does not rely on people’s recall of their medical expenses. Considering that even physicians don’t know what things cost, and bills can take months to arrive, using a national claims database is a better approach.

The researchers used 2006 utilization data and 2007 benefit design data – and the results showed more underinsurance than when they did a similar study in 2004. Deductibles were highly associated with an increase in underinsurance, as were high deductible health plans which did not include an employer health savings account deposit. As the authors point out in their discussion, the 2004-2007 period was marked by job growth and economic expansion – things would likely look substantially more dire if we were looking at 2008-2009 data.

The Boston Globe led today’s front page with an article describing patients who were delaying necessary medical care, and the American Medical Association’s weekly paper this week notes that physicians are seeing increased cancellations and decreased office volume.

Clearly, health care reform will only be successful to the extent that cost increases are moderated (or even reversed). Given the degree of individual financial risk in the current system, it’s not surprising to see wide public support for a government health plan. Reining in employer health care premium costs by shifting more risk to employees is likely to leave even more Americans with a feeling (and the reality) of health care insecurity.

Rationing Health Care

David Leonhardt has a succinct well-argued column in today's New York Times demonstrating that the upcoming debate about health care rationing is based on false premises. He points out that all societies make choices about where to expend resources - and that even in the US where we spend huge amounts of health care, there are three types of rationing.

1) We spend money on health care, and are unable to spend it on other needs or desires
2) 15% of our population is uninsured, and those people get less and worse care
3)We under-reimburse some types of health care, so they are less available. He mentions after-hours primary care and coordination of physicians in complex cases. I immediately think about how difficult it is to find a child psychiatrist.

Later today, a bipartisan group of ex-legislators (Tom Daschle, Bob Dole and George Mitchell) will release its health care reform proposal.

By the way, Obama's speech to the AMA yesterday has led to much discussion of the impact of malpractice on health care costs. See some background from this past fall at this link.

Congressional Budget Office Projects Insurance Post Reform

The Congressional Budget Office released its estimates of the impact of proposed health care reform on insurance. This is a preliminary estimate - the CBO states that it needs more time to project impact of some of the proposed changes. The "headline" seems to be high cost with only a small drop in the uninsured. But this is almost a 1/3 drop -- it would matter a lot to those 17 million who benefited from health insurance. Another possible important issue is "what would happen if there were no reform?" If the employer market shrinks, the actual number of uninsured could increase much more than the CBO estimates (from 50 to 54 million over 10 years). The Obama administration also seeks to address insurance adequacy -- which might change the percentage of people who are 'effectively' covered.

White House Details Some Cuts

Barack Obama concentrated on health care during his weekly radio address. The address itself lacked details, but the White House released an accompanying fact sheet suggesting additional savings and revenues to support health care reform.

The new savings (all over 10 years):

$110B – Productivity adjustments; These are provider fee scheduled decreases. We’ll see what kind of reception Obama gets at the AMA next week.

$106B – Hospital subsidies. It makes sense to lower subsidy payments for hospitals which care for “disproportionate share” of the uninsured as the uninsured gain insurance. In Massachusetts, this logic has left both of the largest urban safety net hospitals with huge budget holes.

$75B – Negotiating better prices for drugs under Medicare Part D. For a scary take on how difficult it is to negotiate with a single source charging a fortune for an “orphan drug,” see today's Boston Globe article on Genzyme’s marketing of Cerezyme in Costa Rica.

$22B—Cuts in nursing home payments and imaging fees.

Good article by Reed Abelson in today’s NY Times pointing out that interested parties advocate when they have real dollars on the line. Expect widespread provider opposition to this $238B in cuts, and pharma opposition to this $75B in identified savings. The majority of the Medicare savings in the first box ($177B of $309B) is cuts in payments to private Medicare Advantage health plans. Don’t expect silence on that either.

Health Care Savings from the “Coalition of the Willing”

The heath care “coalition of the willing,” AdvaMed (medical device manufacturers), AHIP (insurance plans), AHA (hospitals) AMA (physicians) PhRMA (brand name pharmaceutical manufacturers) and SEIU (service workers union) presented details of its plans to achieve the promised $2 billion in savings over the next decade In the last post, I reviewed a report from United Health Care suggesting means to save a half trillion in Medicare expenses over the next ten years. In this post, I’ll address the proposals encompassed in the six separate letters submitted by this coalition.

First off – the fact that this was six separate letters gives you a sense of the fractures in the coalition. Since this set of proposals was released, the AMA joined AHIP in opposing a public health plan option, which SEIU has strongly endorses, so the coalition. So, David Nexon (once Ted Kennedy’s health care chief, and now the CEO of AdvaMed, will have his hands full keeping these six groups together.


Advamed supports health promotion and asserts that its products lower the cost of health care by early diagnosis and efficient treatment, but provides no proof or examples of this. The organization quotes a study from the Milken Institute[free registration required] claiming that better care of chronic disease could save $1 trillion annually (remember, total health care cost now is $2 trillion annually), which seemed a bit ambitious. When I reviewed the 2007 Milken Institute report’s executive summary, I think the authors are talking about a combination of productivity loss and medical costs. The research report suggests that $218 billion of $277 billion in medical costs costs could be saved annually.

1) Cooperate with the AMA’s Physician Consortium for Performance Improvement to develop quality metrics for device use. Good idea, but there are no estimated savings attached.

2) Decrease medical errors. This is motherhood and apple pie. Again, no estimated savings attached.


1) Administrative simplification: Overhaul claims submission, eligibility, claims status queries, payment and remittance. Automation and standardization will take dollars out of the bloated administrative system without question. This will take an initial investment on the part of insurers and also on the part of providers submitting bills. It’s not clear that AHIP has provider buy-in for this. No estimated savings attached.

2) Common web portals: Single web site to transact business with multiple health plans. Good idea that could reduce administrative complexity. No estimated savings attached.

3) Common approach to measuring provider performance: Measurement sometimes seems like the utterly unregulated wild west- so this is a good idea. Again, no estimated savings attached

4) Improve health literacy. AHIP states that health care system costs for low literacy could be as much as $238 billion annually. Health plans are good at marketing –so they could play a positive role. No estimated savings attached.

5) Personal Health Records. Insurers want that space – but there are plenty of other efforts to make PHRs available to patients. No estimated savings, and not clear that health plans are in a better position to do this than Microsoft and Google. (The AMA announced a collaboration with Microsoft yesterday)

American Hospital Association

1) Reduce hospital acquired infections (including surgical infections, central line infections, ventilator associated pneumonias, catheter infections, and resistant hospital bacteria). These are all good ideas, and there are good models to substantially reduce these infections. The AHA has not estimated cost savings

2) Improve discharge coordination. There is good evidence that this can help, especially in the Medicare population where 20% of patients are readmitted within 3 months.

3) Implement health information technology. This can improve quality and might help with reducing hospital infections. Most observers believe that HIT adoption increases quality but the verdict is out on whether it actually reduces cost.

4) Improve end of life care

5) Prevent hospital falls

6) Decrease neonatal complications

7) Reduce supply costs (from toilet paper to physician services). This is a potential big deal – there are too few details to tell what it really means.

All of these proposals are in the sweet spot of improving care while also possibly lowering costs. None of them are new or innovative, and the absence of detail makes me skeptical that this represents a real step forward.


1) Reduce hospital readmissions by improving discharge planning. More details here than in the AHA summary – and the AMA’s Physician Consortium for Performance Improvement has done a good job in the areas where it has ventured.

2) Reduce overutilization in targeted areas, including invasive cardiac procedures, caesarian sections, antibiotic use and various imaging modalities. These areas are well chosen and there are specific dollar amounts of opportunity cited.

3) Medicine reconciliation –coordinating prescriptions by multiple physicians. AMA cites New England Health Institute study suggesting $3 billion annual savings potential.


PrRMA notes decreasing drug cost trends over recent years, and loss of 130,000 jobs in its industry globally over the last 2 years.

Specific Initiatives:

1) Support for public reporting of performance measures: This would increase the patient adherence to prescriptions so that more patients hit performance targets (such as blood pressure control, and HbAIC control in diabetes). It’s a good idea, and can deliver many years of quality adjusted life to Americans. However, most of these drugs are cost-effective, not cost-saving, so increased adherence will raise medical costs.

2) Expanded use of pharmacists to monitor patients on multiple drugs to prevent complications. PhRMA cites studies showing cost savings in pharmacist-managed diabetes care.

3) Regulatory support for follow-on biologics. This is a big deal - right now, there is no method for the FDA to approve generic biologic medications. With treatments for multiple sclerosis and rheumatoid arthritis often costing $75,000 per year, more competition in this space is an excellent idea.

4) Comparative effectiveness research, including using Medicare Part D data. The Congressional Budget Office does not think comparative effectiveness research will save much money. It’s still a good idea, and PhRMA support would be welcome

5) Development of new drugs (including some regulatory reform). I suspect that new innovative agents would be priced to be cost-effective rather than cost-saving. It’s hard to argue with innovative drug development to improve our lives, but hard to take savings from this to the bank

6) Adoption of personalized medicine: PhRMA brings out the already discredited $1.1 billion in savings from a genetic test for warfarin.

7) More access to drug coverage. See my comments above about cost-effective drugs vs. cost-saving drugs. Few interventions of any type within the medical system actually improve health AND save money. Most improve health at a cost that we find societally reasonable. I support full access to drug coverage – insurance without drug coverage is deeply flawed in a system where the pharmaceutical industry is responsible for enormous improvements in health. But I can’t figure out how to say we can do this and spend less rather than more.


SEIU cites its (reluctant) support for closing of excess hospitals in New York, its post-strike collaboration with Kaiser Permanente, and its support for health IT initiatives.

Specific Proposals:

1) More support for home based long term care. Home-based care is better for most patients compared to institutionalization. SEIU suggests diversion of 3% of nursing home patients could save $43 billion over 10 years

2) Chronic disease prevention using community health teams. SEIU suggests care plans for everyone – an aspirational goal. I’m skeptical that this will net decrease costs 4-8%

3) Nursing home payment reform: SEIU suggests that this can decrease nursing home spending by $6 billion, mostly be reducing rehospitalizations.

There are a lot of words in these 28 pages – and a lot of good ideas to make our health system better. AdvaMed has done a public service by getting these six organizations together. There’s not nearly enough specificity, and there is a lot of wishful thinking in the few instances where there is an estimate of impact. It would be real progress if these six groups can agree on a single prioritized document with clear next steps and accountabilities.

Cost Savings: An Insurer Weighs In

There are at least two reports out over the last week regarding health care costs that are worth reading and reflecting upon.  I’ll cover one today, and the other in my next posting.


United Health Care has inaugurated a new Center on Health Care Reform and Modernization, and issued a white paper suggesting 15 efforts that could lead to about a half trillion in Medicare savings over 10 years, starting next year.  Five of these represent three quarters of the proposed savings. These are:


1.      Nurse practioners in nursing homes to prevent hospital admissions ($166 billion). United’s Evercare division has pioneered an NP delivery model in nursing homes –and has shown substantial decrease in hospital admissions.   Considering that few Americans want to be in the hospital, this is great news. There is little detail behind the dollar savings statement; I am doubtful that this could be implemented starting in 2010 (there is a a huge NP shortage), and I wonder if the substitute costs of this program are fully considered.

2.      “Integrating medical management” ($102 billion)    This is extrapolating the cost savings of United’s Medicare Advantage compared to indemnity Medicare. It entails a combination of medical management and benefit design changes.  It’s a head-scratcher, since MedPAC consistently says that Medicare Advantage plans cost more,  not less, then “original Medicare” for a risk-adjusted population.

3.      Claims edits ($57 billion)  United states that preadjudication review of claims can lead to savings of 3-6% in its experience.  Certainly this preadjudication review can lead to decreased fraud. On the other hand, it also delays payment for some legitimate services, and ultimately leads to higher administrative expense on the payer and the provider side.

4.      Programs to prevent hospital readmissions.  ( $55  billion)  There is a big opportunity here – see my posting from 2 months ago on this topic

5.      Incentives for patients to get care from higher value providers ($37 billion)  United has a program to provide incentives for seniors to go to lower cost and higher quality providers – as measured by its Ingenix subsidiary.    The white paper says that UHC has extrapolated the impact of extending this program to all Medicare beneficiaries.  It’s possible that this could drive more provider system energy toward increasing quality and efficiency – so this might be a winner.  This only works if it changes physician behavior of those docs not on the “high value” list – since the highest value physicians often don’t have capacity for incremental patients.


It’s interesting that a number of the UHC proposed interventions are not associated with especially large projected savings:


·        Transplant centers of excellence (less than a billion over 10 years – surprising from a company with a highly regarded transplant center of excellence program, United Resource Network)

·        Gaps in Care program (less than 2 billion over 10 years).  These are software programs that identify departures from evidence-based care and communicate with doctors or directly with patients to increase adherence to evidence based care.

·        End of life care and congestive heart failure disease management each yield under $20 billion in proposed savings over ten years as well


Advamed   has presented a series of backup documents to its previous assertion that insurers, providers and unions will band together to save $2 trillion over 10 years.   This is a hodgepodge , with separate letters from the AMA, the American Hospital Association,  AHIP (insurance lobby) PhARMA, SEIU, and Advamed itself (device manufacturers. )  I’ll cover this in my next post.



Cost Conundrum: Small Area Variation Writ Large

Atul Gawande has once again put his finger, or I should say his keyboard, on a fundamental truth of American medicine. In “The Cost Conundrum: What a Texas town can teach us about health care, “ Gawande touches down in McAllen, Texas, where the cost of medical care is over twice as high as in Rochester, MN (Home of Mayo Clinic), or in nearby El Paso, TX. The only place in America where Medicare pays more for health care is Miami.

Compared to El Paso, McAllen residents have 50% more specialist visits when they are critically ill, 60% more cardiac stress tests, twice as many bypass operations, three times as many nerve conduction studies, and six times as many home health visits. McAllen is at the very bottom (left) of Texas on the Mexican border. I urge you to go to the interactive map at the Dartmouth Atlas and click on McAllen - it’s one of the darkest blotches on the map.

Gawande took doctors out to dinner. They complained about rapacious lawyers, but lawsuits have declined dramatically since malpractice reform. They complained that their patients were more obese or sedentary – but the underlying illness of the population is no different than El Paso. They crowed about their better quality of care- but their hospitals are below national average in quality measures. Finally, one surgeon told truth to the group:

“Come on,” the general surgeon finally said. “We all know these arguments are bullshit. There is overutilization here, pure and simple.” Doctors, he said, were racking up charges with extra tests, services, and procedures.

Gawande was on an NPR call in show earlier today, and Peter Orszag, the director of the Office of Management and Budget, blogged about this article earlier today. This is an important contribution to the discussion on health care reform. It’s nice to see it getting this attention.

A Public Plan: Some Perspectives

Three perspective articles from noted economists in this past 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. 


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.  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.   

Addendum: Elad Sharon sent me reference to a Lewin study suggesting that a public plan would drain 2/3 of patients out of current commercial health plans.  Lewin is now owned by Ingenix (a division of United Health Group) - although states that it maintains editorial independence.  This modeling is very sensitive to assumptions, and there are many unknowns.