High Deductible Health Plans Lower Cost AND Lower Preventive Care

Today’s Managing Health Care Costs Indicator is 14%

This month's American Journal of Managed Care has a review of a year of experience for a huge diverse population with high deductible health plans.  The report is from Rand Corporation, and my Towers Watson colleague Roland McDevitt is a coauthor.

The researchers looked at change in health care costs for those who enrolled in HDHPs in 2005 – and compared this with change in health care costs of families who did not have the opportunity to enroll in HDHPs (as their employers did not offer these plans). The result: HDHPs were associated with a 14% lower cost than non-HDHPs.  They evaluated different ranges of deductible, and found that $1000 deductibles changed cost substantially, while lower deductibles (or plans that had a large company payment to a health savings account that offset the deductible) did not have this impact. The impact was large enough that total cost increases were down overall in companies that offered HDHPs compared to those which did not offer such plans.

The unexpected and unsettling finding is that those on high deductible health plans, which offered cost-free preventive care without first meeting the deductible, received substantially less preventive care.   They had fewer mammograms, colonoscopies and pap smears, and their children had fewer immunizations.  It’s incongruous, but those on high deductible plans had more hemoglobin A1C tests (for diabetic control).

The study is huge – over 800,000 households, and 53 employers.  They researchers didn’t compare families who accepted HDHPs with those that declined them, figuring that there would be substantial selection bias.   The researchers also did propensity matching to adjust for potential confounding variables. 

One potential reason for such large changes is that members switching to a high deductible health plan  “stockpiled” health care in the months leading up to the transition.  For instance, women might have made an appointment to get their mammogram and pap smear in December of 2004, just before switching plans. Elective procedures, such as knee arthroscopies or hernia repairs could also be “stockpiled.”    However, the ‘baseline” (2004) costs for those who switched to HDHPs was no higher than the cost of controls.

It’s also likely that preventive care is suggested during office visits that are not preventive in nature, so that children who see their pediatrician are flagged to get any lagging immunizations, and those over 50 seeing their primary care physician are sometimes scheduled for colonoscopies, even if their reason for an office visit is a sore throat.   The line between preventive and non-preventive care is also sometimes blurry.  In our company, women discovered that the HDHP insurance plan held them financially responsible for the increased cost of digital mammography. A ‘preventive’ colonoscopy can become a ‘diagnostic’ colonoscopy when a biopsy is performed.  This would lead to a patient believing that her procedure was covered fully, and discovering instead that she was responsible $1000 or more in “member cost share.”

It’s clear that greater patient cost exposure leads to less use of care.  This can substantially lower cost of care.  This research reminds us that patients subject to a high deductible forego both discretionary, low-value care, as well as recommended high-value care.  Even offering the high-value care free of the deductible didn’t overcome this problem.  

Post Retiree Health Care Crisis in Universities

Today’s Managing Health Care Costs Indicator is $812 million

Today’s Boston Globe reports that universities are struggling with their obligations to their retirees, just like local and state government.   Historically, pension obligations were far larger than retiree health obligation, but that has recently changed.   In fact, this year they are about equal for Harvard University.

Think about this for a moment.  Post-retiree health obligation is merely to pay for what is not covered by Medicare for retirees over 65, yet the cost is still higher than the cost of pensions!  Increases in the cost of pension and retiree health care ($35 million) exceeded the salary costs shed by Harvard as it began its painful austerity program last year ($31 million).

Harvard University’s current post-retiree health obligation is $812 million. 

This is further evidence that we really must lower the inflation rate of health care, or we will continue to suffer cuts in other areas vital to our future.

Canada, the US, and the Cost of Cholesterol Lowering Medications

Today’s Managing Health Care Costs Indicator is $364 million

This week’s JAMA  has an article with graphics that tell an important story.

Recent studies have questioned the value of the newer, brand name fibrates to lower cholesterol – but nonetheless fibrate use has increased, especially in the US. 
In the United States, the entire increase is in the expensive brand name medicine, not the generic medicine which has a better-established record of effectiveness.

In Canada there has been a tiny increase in the use of fibrates – but that increase is almost entirely in generic medication

Here is the price implication.

The US is one of the only developed countries that does not regulate pharmaceutical prices. We’re one of the few countries that allows direct to consumer advertising.  If our physicians prescribed generic fibrates at the Canadian rate, even with our high number of prescriptions, this class of medicine would have cost $364 million less in 2009.

A side note: This week's JAMA also has a review I wrote of Walter Bortz' Next Medicine.  Harvard Link.  Non-Harvard Link 

The Cost of NOT Paying for Childhood Vaccines

Today’s Managing Health Care Costs Indicator is $156 million

There are few services delivered by the health care system that save more money than they cost.  Even among preventive health care services, we almost always spend more to deliver preventive services than we can save from future averted health care costs, even looking over a long time horizon.  Mammograms, for instance, costs over $35,000 per quality adjusted life year saved. 

There is one bright spot, though.   That’s childhood vaccinations.  While most health care is at best cost effective, meaning we save quality-adjusted life years for a reasonable price, vaccinations are frankly cost-saving.  Each dollar spent the measles-mumps-rubella vaccine saves $13.

A measles epidemic in Boston last month created havoc in one of our largest office buildings last month –and measles, mumps rubella (German measles) and pertussis (whooping cough) epidemics that have started amongst the unvaccinated cost millions in excess medical costs not to mention lost productivity. 

That’s why it’s especially depressing that the House GOP budget includes a $156 million cut in the childhood immunization program. This is a classic place where spending now saves later.  And cutting now will increase the cost of health care not just in the distant future, but even this coming year.

There are a lot of places to save money in health care.  Cutting funds for childhood immunizations isn’t one of them!

Drug Prices Still Climbing

Today’s Managing Health Care Costs Indicator is 29.3%

Click to Enlarge. Image from WSJ - article referenced below

When a drug becomes available as a generic, price drops of as much as 90% are expected within 18-24 months. 

However, the Wall Street Journal used a recent report by Barclays Capital to show what happens just before a drug loses its patent protection.  The drug price goes up – not just a bit – but a lot.  Daiichi Sankyo’s Benicar, used for high blood pressure and congestive heart failure, increased in price by 29.3% last year – a year when the overall inflation rate was negative.  The General Accounting Office reported last week that annual inflation rate for brand name medications was 8.3%, while generic priced decreased by 2.6% annually.

Why do brand name prices go up just before a medication goes generic?

When a drug is available only as a patented “brand name,” many benefit plans enforce higher member cost sharing, encouraging patients to use a similar generic, or a ‘preferred’ brand name – where there is a lower acquisition price, or a higher rebate.  Therefore, the pharmaceutical company will offer rebates and preferred pricing to increase market share.

However, as a drug loses its patent protection the manufacturer removes rebates and stops offering preferred pricing and discounts.  This could encourage patients to switch to another brand name medication – but the brand name drugs are almost always from another manufacturer, so this couldn’t drive pricing behavior.

What the pharmaceutical companies are doing is maximizing their overall yield.  When they have years of exclusivity left on a medication, they price competitively to increase the drug’s market share.  When the exclusivity is about to run out, pharmacy benefit managers are hard-pressed to engage in a campaign to demarket the medication, which will soon be available generically. Therefore, the pharmaceutical company prices the soon-to-be-generic medication price high to maximize ultimate revenue from the patent.

The pharmaceutical companies are doing exactly what we’d expect them to do in a relatively unregulated market to maximize their overall profits.

Speaking of interesting price tags, the pharmaceutical company that just gained FDA permission to market progesterone injections to prevent premature deliveries announced that the drug, which had previously been available for about $20 per injection, will now ship for $1500 per dose

Brokers Seek to Protect Their Commissions

Today’s Managing Health Care Costs Indicator is 434,000

The Washington Post  just published a story about the efforts brokers are making to protect the commissions they earn on health insurance.  There are efforts in some states to mandate that individuals purchasing insurance through health care exchanges use a broker, which could easily add 5% or more to the cost of health insurance.  There are 434,000 insurance brokers in the US – a potent political force.

There are efforts in some states to mandate that individuals purchasing insurance through health care exchanges use a broker, which could easily add 5% or more to the cost of health insurance.  Brokers are seeking legislation to exclude broker commissions from the calculation of “medical loss ratio.”  If this passes, the amount of premium that goes toward health care could be less than the 80-85% promised in the Affordable Care Act

Brokers are necessary when purchasing health insurance is complicated – and they can often help steer their clients away from bad deals, and help their clients find a policy that really meets their needs.

But that’s not the world of ideal exchanges.    The state should structure the exchange so that offerings are highly standardized, and consumers should not need the assistance (and the cost) of a broker. 

With each state creating its own health insurance exchange, there is huge opportunity to legislate extra steps and expense into health insurance purchasing.   

CBO Options to Lower Budget Deficit

Today’s Managing Health Care Costs Indicator is $2.8 Trillion Dollars

The Congressional Budget Office has released its 192 page analysis  of ways to reduce the budget deficit.  Kaiser Family Foundation has redacted the document to concentrate on just the 39 pages of health care proposals.

The CBO proposals could chop over $2.8 trillion from the deficit.    They are also a road map for why it’s so difficult to make these sorts of changes.  The biggest chunk of deficit reduction comes from increased Medicare taxes, Medicare premiums, and premiums from those on military insurance.  Medicare is restricted to those over 67, and some moderate income military veterans without a service-related disability would lose Veterans Administration benefits.  Federal employees would get vouchers which would over time cover less of the cost of health care, and Medicaid subsidies to states would be slashed. The NIH research budget would be cut, and providers would see cuts. Drug companies would have to give larger rebates.  The individual mandate would be eliminated – saving dollars since fewer people would avail themselves of federal subsidies to purchase insurance.  We would have many more uninsured.  

Here’s what’s most striking about the CBO recommendations. They virtually all decrease the federal deficit without lowering the resource cost of health care. That cost is merely redistributed away from the federal government.  Almost all of the recommendations would also be vigorously opposed by important advocacy groups.

It’s not hard to come up with a list of potential ways to shift health care costs.  Lowering the overall resource costs in health care is very difficult indeed. Managing health care costs is not easy.

A brief summary of each of the initiatives with my assessment of how the deficit is lowered and who will object is at this link  
click to enlarge image

A note about the formatting

Blogger appears to have changed its templates, and this morning the blog was running with two overlapping adjacent asymmetric posts. I've been unsuccessful at getting two columns back - so that the "about the blog," subscription  and other resources are now at the bottom of this page.  I'll be working to improve this formatting - sorry.

Maryland Inpatient Price Controls – Cost Saving, or Cost Shifting?

Today’s Managing Health Care Costs Indicator is $875 Million

Robert Murray, the executive director of the Maryland Health Services Cost Review Commission, triumphantly declared in the September, 2009 issue of Health Affairs

Maryland’s rate-setting system is one of the most enduring and successful cost containment programs in the United States….The state’s all-payer system has kept hospital cost growth well below the national trend.

Murray went on to suggest that similar price controls across the country could have led to $1.8 trillion dollars in savings from 1976 to 2007.

With these kind of savings, you’d expect hospitals to look very different in Maryland.  There might be less granite or marble, and hospitals might purchase less new equipment.   There would certainly be fewer cranes building new towers!  However, I’ve asked my hospital friends whether Johns Hopkins (Baltimore) looks like it has faced substantial economic hardship, they consistently say “no.”

The recent data released by the Institute of Medicine suggests that while Maryland’s fee schedule regulation has restrained growth in commercial (under age 65) costs, those costs have instead been borne by Medicare.  The state has a Medicare payment waiver that has meant Medicare pays the same hospital rates that commercials payers pay.  In most states, Medicare pays substantially below commercial rates—often dramatically below.

It turns out that the Medicare waiver is paying Maryland Hospitals at a rate much higher than Medicare pays most other states (New York,  California, and Massachusetts are also higher than average, but each has substantially more graduate medical education).

In fact, Maryland has more admissions in its Medicare population compared to national averages ( 22.4% vs. 21.5%), and pays much more per admitted patient ($19,737 vs. $12,811, using the standardized data to adjust for illness and demographics).   Maryland only has price regulation on inpatient care; inpatient care represents over 44%  of total Medicare standardized costs in Maryland, compared under 33% nationally.

While Murray claimed savings of $40 billion over this 32 year period, Medicare paid $875 million extra to Maryland Hospitals in 2009. (excel spreadsheet posted here) 

Price regulation might indeed be a good thing, and if hospitals are functioning as utilities, price regulation might be necessary.  This is a lesson that when we control one price, we should look carefully to see what happens to other prices. Cost shifting is much easier than genuine cost saving.
Annual statewide cost - calculated from 2009 IOM data.  Click to enlarge

Late addendum:
This fall, an alert reader pointed (Christina Daw) pointed out that CMS has not separated out indirect medical education costs- which means that Maryland inpatient costs as I've calculated above are overstated.  I've printed the email below -and will update this when adjusted figures are available.

The indirect medical education payments are 5.5% increase in inpatient payment for every 10% increase in residents - but it's not easy to calculate total impact.

Regarding blog of Sunday, March 13, 2011 "Maryland Inpatient Price Controls..." -- 

Can you clarify how do your findings specifically address the following comment in the Methods section of the IOM document?

Limitations of Maryland Data: The state of Maryland has a unique waiver that exempts it from Medicare’s prospective payment systems for inpatient and outpatient care.  Maryland instead uses an all-payer rate setting commission to determine its payment rates.  Medicare claims for hospitals in other states break out additional payments for indirect medical education (IME) costs and disproportionate share hospital (DSH) adjustments, and we removed those amounts when we standardized payments in those states.  We also eliminated the effects of the adjustment for the hospital wage index.  However, the claims for Maryland’s hospitals do not identify IME or DSH payments, and the only adjustment that we made to those claims was to eliminate the effects of the hospital wage index.  As a result, both the standardized and standardized, risk-adjusted spending figures for Maryland are overstated. CMS is currently working with Maryland’s rate-setting commission to more accurately adjust the state’s spending data and make it more comparable to the rest of the United States.

Thank you.

Variation Redux: The IOM Weighs In

Today’s Managing Health Care Costs Indicator is 45%

Click to enlarge image 
The Dartmouth Atlas, as highlighted by the 2009 Atul Gawande article reviewing the high utilization of high margin services in McAllen, Texas, has focused attention on the high level of variation in Medicare spending in different hospital referral regions across the country
The Affordable Care Act offers higher Medicare fee updates to physicians practicing in areas of low utilization, and diminished fee increases for those practicing in high utilization areas.

A number of academics have long been suspicious that the Dartmouth methodology overstated differences, and have complained that the Dartmouth researchers

  •     Used only Medicare data
  •     Did not do substantial risk adjustment
  •     Did not adjust for Medicare geographic payment differentials 
The Institute of Medicine just released a long-awaited study of variation of Medicare costs with this additional adjustment completed. Costs of 45 percent of all hospital referral regions changed by at least 10%.

Honolulu remains the lowest cost HRR, and Miami remains the highest.  But the cost in Miami drops from 200% of average to 135% of average.  As you see in the graphic above, the Bronx (NY) drops from 55% higher than average cost to 10% lower than average cost after reasonable adjustment for payment differences, illness and demographics.

This highlights the difficulties of using apparent variation to lower overall health care costs.

Addendum: Thanks to reader MarilynMann - I have fixed the last link.

Don't Restrict Mail Order Drugs

Today’s Managing Health Care Costs Indicator is 5.2%

Local pharmacies were probably overjoyed at an article in last week’s New York Times  about their efforts to make mandatory mail order prescriptions illegal.  Legislative efforts are underway in NY and PA to require that health plans offer consumers a choice of mail order or local pharmacy for maintenance medications.   

There have been enormous changes over the last two decades in local pharmacies.  In the late 1980s when I started in clinical practice, there were over a dozen sole-proprietor independent pharmacists within a few miles of my office in Belmont, Massachusetts.    They did well by their communities – they knew their patients who had chronic diseases, they advocated to be sure their patients wouldn’t miss any doses of medicine, and they supported local high school sports teams and helped build local town pride.

Two of these pharmacies are still in business; one also sells durable medical equipment, and I’m not sure how the other has overcome the wave of consolidation in the local pharmacy business.

If you had asked me in 1987, I would have told you that these local pharmacists were the foundation of health care in our community.  I’ll always remember the day the pharmacist in Waverly Square opened his pharmacy up for me on a Sunday when a terminally ill patient had run out of sustained release morphine.   Without his intervention, my patient would have had to be ambulanced to the hospital.

But times have changed. There are now two 24-hour CVS stores within 3 miles of my old office.  The old, cottage-industry, highly-personalized independent drug stores provided exceptional care – but they did it exceptionally.   They were there for the rare situations where they had to come in during off hours – but that wasn’t advertised as available to everyone – even those who were not well-connected to the health care system.

Now, even the CVS on the corner is being disrupted.  Giant robotic warehouses can dispense medicines for less – and they do it with a higher level of reliability than pharmacists at a local store who are being pulled in many directions at the same time.   

The Times article focuses on the convenience of local pharmacies. But it’s hard to remember to go to the pharmacy –even the 24 hour pharmacy – every thirty days.   Ninety day mail order prescriptions are associated with a higher medication possession ratio, and thus higher patient adherence.

The scale advantages to mail order that are compelling.  Medco, one of the large pharmacy benefit management companies, reports that the annual cost increase for employers with under 50% mail order was 5.3% in 2009, compared to an annual trend of 0.1% for those employers with over a 50% mail order rate.  There were other differences between the employers – but the cost savings from mail order are real.

Local pharmacies, mostly the national chains, aren’t going away. Many patients need a medicine today, many drugs are prescribed for a limited course, and adjustments of even maintenance drugs are often better made with small numbers of pills dispensed.   But I hope that legislatures will not stand in the way of moving maintenance prescriptions to mail order houses, which can improve adherence and save money.

Narrow Networks Lower Costs

Today’s Managing Health Care Costs Indicator is 2.4%

The Group Insurance Commission (GIC), which procures health care for Massachusetts state and other governmental employees, announced next year’s health care rates, and the average increase in overall premiums will be 2.4%.  That compares to most actuarial estimates of rate increases between 7-9%.

How is the GIC offering such low rates?

In some instances, high rate increases in previous years allow for a rate increase “holiday.” That’s not the case here – the GIC has had lower rate increases than other governmental agencies for years. 

Dolores Mitchell, the long-time Executive Director of the Group Insurance Commission, says that the GIC will save $31 million when 10,000 members move into limited network health plans, which have far lower premiums.   The limited network health plans, being offered by each health plan with a GIC contract, don’t offer members the ability to go to certain hospitals and providers who have higher prices.   Each of the health plans also use some quality standards to determine their networks.

Limited networks can lower costs by:
  • Eliminating the most expensive providers from their network, or asking patients to pay the difference in cost.
  • Making it more attractive for ‘must-have’ hospitals to negotiate lower rates with health plans, which can threaten to put them in higher cost tiers, or eliminate them from the network
The GIC has offered limited networks for a few years – but there has been very low enrollment in these plans. The GIC will increase enrollment in the limited networks through:
  • Active enrollment -  all employees will have to sign up this spring for health insurance, not just those who are changing plans
  • Default option, for those who do not sign up for health insurance during the open enrollment, will be the lowest cost limited network plans
  • Those enrolling in the limited network plans will get a three month ‘holiday’ from premiums
This is a bold move.  If the GIC is able to achieve this low a rate of inflation through use of limited networks, it will increase the pressure for Massachusetts municipalities to join the GIC.

Don Berwick’s Impossible Job

Today’s Managing Health Care Costs Indicator is $509 billion

The General Accounting Office offered testimony today to Congress about why Medicare is a government program at “High Risk.”  They’re right – Medicare costs the government (us)  $509 billion annually, and doesn’t have the infrastructure or the regulatory latitude to do a superb job of improving health care.  CMS Administrator Don Berwick doesn’t have the tools to change this.

The GAO observed
·        10.5% rate of improper payment on the fee for service business (and 14.1% rate of improper payment to Medicare Advantage plans)
·        Large-scale fraud in home health care
·        Overspending on oxygen therapy
·        Inadequately vigorous oversight of nursing homes

Here are the GAO’s recommendations:

  1. Implement an effective physician profiling system
  2. Better manage payment for imaging (such as radiology)
  3. Reduce fees when appropriate as technology lowers provider resource costs
  4. Readjust the GPCIs – the geographic payment adjustments for rural providers
  5. Improve contract oversight (including better review of claims at high risk of fraud and better nursing home oversight)

This is all sensible.  Fraud is certainly a problem in Medicare, and the feds have been late to move to predictive modeling and automated approaches to ascertain potential fraud. There is huge variability of care.  Imaging costs too much.   Payment differentials among areas don’t make economic or clinical sense, and while specialty societies go to the RUC (Relative Value Scale Update Committee) to complain about under-reimbursed procedures, but no external party keeps eyes out for over-reimbursed procedures.

But how realistic is this? Can CMS Administrator Don Berwick effectively follow the GAOs gameplan to make Medicare more effective?

Medicare can profile physicians, and has a large enough penetration of most adult practices that the profiling would be better than most.   BUT – legislation requires that Medicare offer participation to any willing provider. Physicians can be removed for the program for fraud – but not for inefficient resource use.  There is no ability to change benefit design to encourage Medicare members to go to higher value providers.  So it’s not clear that Medicare has the leverage to make profiling meaningful.   It’s also a huge job that ideally requires substantial engagement of practicing physicians – and Medicare isn’t resourced for this.

Medicare has lowered radiology professional fees substantially – but of course radiologists and hospitals oppose any fee concessions.   Reducing fees to account for efficiencies in technology means there will be losers. Those who get a financial haircut are almost always vocal. 

The GPCIs, and even local fee schedules, have long been micromanaged by members of Congress.  I’ve noted before that Ted Stevens obtained a permanent 35% rate increase for Alaska Medicare providersbo just before he left the Senate.     

CMS has been improving the oversight of contracts, but doesn’t have the staff to do more nursing home site visits. Separately, the GAO noted that bundled payments (such as for transplants) are administered by private health plans, but CMS doesn’t have the case management infrastructure to do this for Medicare beneficiaries.

A few ideas:

·        We should acknowledge that as much as we hate to see dollars spent on administration, Medicare’s administrative budget is too small for a program of its size. 
·        Congress needs to back off – and leave determination of prices to bureaucrats who can implement rules
·        We need to resource the RUC to do independent evaluations, as opposed to relying on testimony from specialty societies.

We need to be patient.  For its size, Medicare is remarkably effective at procuring care for our elderly and disabled. Its inflation rate has been consistently lower than the overall market (although to some extent this represents cost shifting to the private market).   Medicare has been run by able folks – both in Republican and Democratic administrations.  But they need a little more leeway, and some time to get the Medicare house in order.