Noneconomic costs of malpractice cases

I’ve blogged in the past about the (small) impact of malpractice on health care costs. One of my former teachers, Joan Savitsky, MD, had a heartfelt piece in today’s New York Times on the (huge) impact an impending malpractice trial had on a then-practicing physician.  It's not all about the economic costs!

Will eliminating the donut hole break the budget?

Good article in today’s Washington Post about the potential downside of closing the “donut hole” that forces seniors to bear full financial responsibility for all prescriptions between $2700 and $4350
Between ¼ and 1/8  of Medicare beneficiaries with Part D coverage fall into this gap – which was established to lower the total cost of Part D coverage, and also as part of the Bush administration attempt to keep patients’ “skin in the game” so that they would comparison shop. 

There’s been a sea change in Washington – in the prior administration the mantra was to keep patients engaged by exposing them to a portion of the price of care. The current administration is pushing to eliminate substantial gaps in coverage.  Congress enacted minimum out of pocket deductibles for health savings account eligibility in the past.  Congress is now seeking to enact maximum out of pocket deductibles.   Harry Reid called the donut hole an “indefensible injustice for American's seniors." 

The big problem with this plan is that the funding is in part from the $80 billion pledged by pharmaceutical companies, which will use this to subsidize 50% of the cost of brand name drugs prescribed for Medicare beneficiaries in the ‘donut hole.”  This is a terrible idea, since many of these brand name medicines could be substituted, and the brand names remain a bad value even at half price.  Some brand names, of course, offer unique advantages, and this will be a valuable break for Medicare beneficiaries on those medications.

Some have claimed that increased medication adherence will prevent hospitalizations and therefore save money.  Since almost all medications are cost-effective and not cost-saving, this is not true.  Purchasing medications so that beneficiaries follow their doctors’ instructions will buy us better quality – but will not save dollars to fund the increased pharmaceutical spending.

Politically, closing the donut hole is critical.  Clinically, decreasing nonadherence among sick elderly is an excellent idea.  This will likely raise the overall cost of health care, though, while improving quality.

The Senate Bill: Better for Cost Control than the Status Quo

Cost Control Implications 

There has been substantial buzz about whether the proposed health care reform does enough to address the problem of health care inflation.

There is almost universal agreement that it does not do as much as we’d like it to do control costs, especially when we compare the health care reform in the Senate bill to each of our “ideal” version of health care reform.  Compared to the status quo – the Senate bill does much more that might lower health care costs.   This includes
- Medicare independent commission
- Substantial cuts in Medicare fee increases going forward
- Tax incentives to avoid overcoverage (Cadillac tax)
- Many pilots – each of which might show us the way to lower costs substantially.  Here is Atul Gawande’s take on the importance  of experimentation in controlling health care costs.
We have to start somewhere.

Nate Silver of has a good graphic showing his point of view about how preferable different health care reform proposals would be in his mind. I’ve taken his graphic approach – and applied the lens of “cost control” – so I am not giving “extra credit” for the dramatic decrease in the uninsured projected under health care reform.

There are a few things I would rank differently. I added “price controls,” since there is good evidence that price controls DO lower prices, although they often have unexpected consequences.  Here’s an interesting take by Uwe Reinhardt, pointing out that if we import drugs from Canada, we are ‘outsourcing’ price control to the Canadian government. Remember, Japan is the home of the $98 MRI because the government price book says that’s the price.

I also ranked a ‘weak’ public option as worse than the current Senate bill in terms of cost control. I continue to be worried that a weak public option merely fragments  the payer market further – and could lead to higher unit prices.

By the way, the market says the health plans “win” in the Senate bill, and their stocks are up sharply today.  

Council of Economic Advisors: Economic Growth is Dependent on Controlling Health Care Costs

Anyone who doubts the importance of controlling health care costs should look at the graphs in the report from the Council of Economic Advisors.  Economists generally agree that a major reason that family income has been stagnant for decades in the face of higher worker productivity is that the extra dollars have gone into into health care.  The Council estimates that health care reform will produce higher growth (as much as 4% increase in GDP by 2030) by freeing up resources for other investment, decreasing workforce disability, and lower government and employer insurance costs.  This will lead to higher family income as well as lower federal deficits.

Wednesday addendum: David Leonhardt of the NY Times weighs in, noting that the "insurance lock" of the current system contributes to what he calls our "innovation deficit," where 1.5 million don't change jobs because they don't want to jeopardize their current insurance.

Adding 55-65 year olds to Medicare: Compelling reasons (but won't lower cost)

In my third year of practice, I took on the care of a retired Ivy League professor and his wife. He retired at 65, and at his “exit interview” was told that he could purchase the “Medicare family plan” for his wife – who had multiple preexisting conditions.

Of course, there is no Medicare family plan – and the university ended up leaving his wife on its medical plan until she qualified for Medicare at age 65.  But I think of this story often.  It’s hard for people between 55 and 65 to get insurance on their own –and when they lose their jobs (or if their spouse provided insurance and s/he retires), they can find themselves uninsured just when they start having serious medical problems and worrisome medical bills. 

So, from a public policy point of view, I like the idea of a Medicare “buy in” for people 55 and over who don’t have access to employer-based (or other) health insurance.

I’ve been thinking about whether this is likely to lower the overall cost of health care – since that’s the point of this blog. 

Here are ways that allowing those over 55 to “buy in” to Medicare could change the overall cost of health care:

1)      55-65 year olds newly-eligible for Medicare would have insurance, and those with insurance have better health and fewer years of potential life lost.  They see physicians and obtain medical care more than the uninsured. This means that Medicare would see less “pent up demand” when people turn 65.  BUT –it’s always more expensive to have people insured than have them out in the cold.   Alas, there is not likely to be savings from the cost-effective (not cost-saving) health care these 55-65 year olds received because they were insured. So  - score one for social benefit – but not one for cost containment.

2)      Medicare pays hospitals and physicians lower fees than most employer-sponsored health plans (but more than most state Medicaid programs). So, the care delivered to these 55-65 year olds would have lower unit costs.  This could help lower overall costs.  However, if providers simply ‘shift costs’ and raise private insurance rates to cover this new shortfall, aggregate health spending would not go down.

3)      Medicare generally has lower administrative cost than the private sector.  Adding 55-65 year olds on a voluntary basis but with some qualification requirements would increase Medicare administrative costs a bit . Further, those over 65 have their Medicare premiums deducted directly from their Social Security payments – and this new addition would mean Medicare would have to contract for billing services.   If these 55-65 year olds were coming to Medicare from private insurance, there would be some administrative savings. If they were coming from the rolls of the uninsured, the administrative costs would actually be higher (since the cost of administering insurance to the uninsured is zero).

I do see a big risk selection issue likely in voluntary enrollment in Medicare for uninsured 55-65 year olds.  For one thing, those who are eligible for employer based insurance are likely a bit healthier – so those eligible to buy in to Medicare are likely to have higher burden of illness.  Further, a voluntary system tends to attract adverse selection. Therefore, it might be hard for this program to pay for itself if the beneficiaries were paying the full cost (since with adverse selection each successive year the premiums go up and more healthy people drop out, a phenomenon fondly referred to as a “death spiral.” )

Employers have been getting out of retiree health insurance   for some time,   and Medicare eligibility would likely accelerate that.   Paradoxically, if more of the older, sicker early retirees went to Medicare, this could lower health insurance premiums for employers and their employees. But this would not be lowering health care cost overall – it would be shifting some of the higher risks on to the federal program.

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The increased administrative costs of adding this new population to Medicare and the potential of adverse selection are serious concerns.   Some sort of individual mandate would go a long way to preventing a ‘death spiral’ of this type of a program

There is a big social benefit to being sure that 55-65 year olds can be insured.  The ability to buy in to Medicare could make this group feel more comfortable changing jobs or taking a risk, and it would mean fewer medical bankruptcies going forward.   

It doesn’t seem to me that this initiative is likely to lower overall health care costs.  There are compelling reasons to offer Medicare to 55-65 year olds who cannot otherwise obtain insurance.  Lowering overall health care costs is not one of the compelling reasons.

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

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

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

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

National Average:   434.5 services/1000
Maine Average:   350.3 services/1000
Maine uses $14,600,000 less resources on home health services than the national average

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

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

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

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

Health Care Adds Jobs

Good news and bad news.

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

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

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

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

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

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

I'm also intrigued by the differences in findings.

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

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

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

Lobbying and Health Care Reform

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

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