Let the Pharmas Data Mine Prescription Records

Today’s Managing Health Care Costs Indicator is 3.99 billion

Vermont, New Hampshire and Maine have passed legislation prohibiting pharmaceutical companies from using data from aggregators that track physician prescribing practice for marketing purposes.  The Supreme Court heard arguments yesterday about whether these laws should be struck down as restrictions of free speech.

Physicians wrote 3.99 billion prescriptions in 2010 , a rich database that can be used to increase the value of the health care system, or to market increased use of high margin medications.

I don’t have a lot to say about the constitutional issues posed by this legislation, but I’ve been thinking about the practical implications.  When I was in full-time clinical practice, I was always surprised that the drug representatives who visited our practice knew which drugs I used and which I didn’t.  Frankly, I didn’t much like it.  However, I certainly learned that my prescription practices were being watched.

The pharmaceutical companies use this data to focus on which physicians are more likely to be persuaded to prescribe the drugs that they were targeting –which were often high-priced high-margin brand name medications.  The legislators in northern New England saw a powerful public policy reason to restrict use of this data. They saw physicians prescribing unnecessarily expensive medicines, impoverishing patients, raising the cost of health insurance, and increasing the cost of state Medicaid programs.  Further, they also explicitly allowed use of this data for purposes felt to be socially beneficial, such as research or quality reporting.

The pharmas, the data aggregators, and the American Medical Association have lined up in opposition to these state efforts to restrict data mining.  The AMA is concerned that physicians might be inappropriately profiled, and also incidentally  makes more money from licensing physician lists than it does from member dues each year. 

 

I hope that the Supreme Court does not uphold the states’ rights to restrict the use of this data . I think there is a good public policy reason to let the pharmas use this data – even while knowing that their intent is to increase profits, which will drive up the cost of health care.  

I fear that if the pharmas are not allowed to use this data in a way that  they find commercially viable, it’s highly likely this data will not end up being developed.  It’s fine in theory to restrict the use of this data to “socially valuable” purposes like research, physician quality profiles, and counter-detailing.   But there are large costs involved in sorting through this data, and lack of an “anchor customer” to underwrite the cost makes it more likely that this data will never see the light of day.

Transparency can help decrease variation, and can be used to develop profiles in which physicians are most cost-effective.  I imagine a future where patients will be able to have robust information about the practice patterns and quality of their physicians. Open databases are more likely to lead to accountability and systematic improvement than databases subject to large restrictions on their use.  I support the open availability of this data, even when it will be sometimes be used in ways that don’t make me happy.

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It's A Health Care Problem: Not A Debt Problem

Today’s Managing Health Care Costs Quote is

The federal government does not have a spending problem per se. 
What it has is a health-care problem

Click to Enlarge.  Link  

That’s from James Surowiecki in this week’s New Yorker. 

He’s pointing out, as many progressive bloggers and columnists  have recently noted, that the Ryan plan would lower overall federal spending by shifting costs of Medicare to the elderly and costs of Medicaid to states and to beneficiaries. 

The Affordable Care Act has laid out a series of cuts (or decreases of planned increases) which would help make Medicare more affordable, but would be painful for doctors, hospitals, pharmaceutical companies and medical device manufacturers.  It would cut as much as a trillion from health care spending over the decade. By contrast, the Ryan plan would increase the overall cost of health care while shifting the burden away from government.

A third approach would lower the deficit far more – and that’s offering a public option to compete with existing health plans. That’s because the government could negotiate lower prices and exert more cost-control pressure on health care providers.  This isn’t especially welcome among insurers or providers.  The CBO suggested this could save $15 billion a year by 2020. 

There is a historic “iron triangle” of cost, quality and access – you can’t change one without making a tradeoff in another. There are some places where it appears we can increase quality and decrease costs (more childhood immunizations and fewer hospital acquired infections and medical errors). Alas, the dollars in these areas are small.

Surowiecki suggests a new iron triangle: senior access to care, reduction of the debt, and no change in provider payment. He tells us we can only have two of these three simultaneously.

The Managing Health Care Costs Indicator will be back with the next post.

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Tamiflu: Less Effective and More Dangerous Than Initially Believed

Today’s Managing Health Care Cost Indicator is $10 billion

That’s how much the world spent on influenza preparedness in 2009; about $4 billion was spent in the US alone.  Two billion dollars were spent on purchase of Tamiflu (Olseltamavir).

However, there is increasing evidence that Tamiflu has more serious neuropsychiatric side effects than initially thought, and the evidence of its effectiveness appears to be overstated. There was a well-referenced review of this in the current issue of New York Review of Books. 

The initial approval of Tamiflu was based on a manufacturer-sponsored metaanalysis of ten studies, 

only two of which had been published in peer-reviewed journals.  Researchers associated with the Cochrane Collaboration initially published a positive review of the medicine, but have more recently been rebuffed in their efforts to obtain the primary data from those three studies.  The author of the metaanalysis has ‘lost’ the data, and  the pharmaceutical company which markets Tamiflu in the US has only been willing to share summary data. 

There are powerful reasons why initial small studies tend to overstate the effectiveness of a medication. That’s why we need more comparative effective research, which must be continued after a drug is approved for marketing. 

Keeping us safe from influenza, either avian or swine, is pretty important.  The FDA needs to do more to be sure that the drugs we spend billions on are both safe and effective. 

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EPA Study Shows Health and Financial Benefits of Clean Air Act

Today’s Managing Health Care Costs Indicator is 160,000

That’s how many lives the EPA calculates will be saved in 2010 by the Clean Air Act of 1990.  The costs of the Act ware around $65 billion, and the financial benefits are calculated to be $2 trillion – an ROI of 90:1. In fairness, these are all the economic benefits - not just health care claims cost savings. 

I bring this up in a blog on health care costs to emphasize the point that public health efforts really work –and they cost very little compared to medical interventions. 

Another happy note – the CDC  reports that 25 states have outlawed smoking in restaurants, bars and workplaces since 2000 -  and predicts that smoking could be banned in restaurants, bars and workplaces in all 50 states by 2020.  This is another no-brainer public health move that can continue to lower health care costs, prevent premature death, and improve overall societal health.   Total cost: close to zero.

Finally, Meredith Rosenthal has an article on the NEJM website comparing the Ryan and the Obama approaches to lowering Medicare costs.  My summary: The Ryan plan shifts costs and counts on patients facing larger bills to lower their utilization, and the Obama plan lowers provider payments.  The Obama plan better addresses the underlying causes of high health care costs, as we have high cost per unit and low utilization compared to most of the developed world. Her summary is below:

Image from NEJM.org.  Click to enlarge 

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Contraception and Medical Costs

Today’s Managing Health Care Costs Indicator is 3.68

Today the NEJM  published on the web an article likely to incite a political argument.  Researchers from Princeton point out that the medical claims cost associated with unwanted pregnancies far exceed the medical claims costs for voluntary contraception.

In fact, they say that the public sector’s family planning costs are $1.9 billion annually, and medical savings (not including savings from other social programs) are $7 billion. That’s a return of investment of 3.68!

The authors argue that the Institute of Medicine should declare contraceptives to be part of the comprehensive range of preventive health services available to women at no charge under the Affordable Care Act.  The financial argument isn’t their only argument; they note that many women don’t use some of the most effective long-acting reversible contraceptives such as implantable devices and intrauterine devices, because they are expensive up front, even though they are very effective and cost less over time.  As a result, many women seeking to avoid pregnancy will choose either condoms, which are less reliable for pregnancy prevention, or oral contraceptives, which cost less up front but more over five years, and have more potential medical complications.

We should provide coverage for the full range of women’s health needs, and we should decrease barriers to the safest and most effective forms of contraception. This can prevent unwanted births, as well as prevent abortions.  The financial savings in medical claims are real – but they’re not the main reason to provide this coverage. 

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Off Label Use: One More Reason for Comparative Effectiveness Research

Today’s Managing Health Care Costs Indicator is 97%

This week’s Annals of Internal Medicine  has two articles about NovoSeven, a bioengineered medication to replace the missing blood factor that leads hemophiliacs to have bleeding problems.

First of all – NovoSeven is a miracle drug.   About a fifth of hemophiliacs develop antibodies  against clotting factor concentrate.  These hemophiliacs need progressively higher doses of factor concentrate, and sometimes continue to bleed anyway.  NovoSeven. The drug takes a year to make, and most of that time is spent checking to be sure that it’s pure. 

Of course, you won’t be surprised the drug is expensive!  It costs $10,000 a dose – largely because it is priced as an orphan drug.  There are only 20,000 hemophiliacs in the US – so it’s a small market.  

But not SO small.   In 1999, a case report from the Israeli military showed that NovoSeven could arrest life-threatening bleeding from trauma.   Since then, the drug has been used off-label for brain surgery in those that are on anticoagulants, as well as for trauma surgery and even coronary bypass surgery (CABG).    In fact, 97% of the NovoSeven used in an inpatient setting are for reasons other than hemophilia.  It’s used off-label more outside of academic medical centers (but it’s more likely that hemophiliacs get cared for at major teaching hospitals).

This is not on the radar screen for most health plans, since this cost is bundled into DRG or per diem hospital payment. 

 

The Agency for Health Research and Quality (AHRQ) funded this study, and a companion literature review that shows no benefit from clinical trials using NovoSeven for these indications, and some incremental blood clotting danger.  Patients exanguinating in the operating room are more likely to make it back to the ICU – but not more likely to live to hospital discharge.

The off-label use of NovoSeven is why we need a robust investment in comparative effectiveness research.  There’s no evidence that Novo Nordisk promotes this off-label use, and there are no greedy providers throwing in a high-margin drug.  Everyone deeply believed that this drug which made bleeding vanish would save lives.

There was no reason for Novo Nordisk to study this – and the cost of NovoSeven for these off-label uses skyrocketed.   The drug needed to be studied – and it made sense for government to sponsor this research. The “return on investment” for this comparative effectiveness research will be huge.  

Here’s a link to a recent NEJM article showing positive ROI for comparative effectiveness research into cement for spinal surgery. 

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Concierge Medical Practices Expand

Today’s Managing Health Care Costs Indicator is $1800

Two high volume, well-respected medical leaders at one of the excellent community hospitals in Boston, Newton Wellesley Hospital, have announced that they are converting to a ‘concierge’ practice  affiliated with MDVIP, and they will start charging patients $1500- $1800 annually for continued access to their care.  Their practice says it will recruit new physicians to take care of the estimated 2/3 of their patients who will not be able to continue under their care.

Concierge practices make excellent economic sense for top flight primary care physicians.  In general, PCPs have 55-60% overhead, so a PCP might have to gross $450,000 in revenue to have $200,000 in take-home income.  Most PCPs do this by having practice panels of 1800 or so patients.  That means a revenue yield of as little as $250 per enrolled patient.  That’s because many patients are not seen the entire year, and cognitive services are relatively poorly paid.

MDVIP practices charge $1800 per person for a panel of merely 600 patients – which leads to a revenue yield of over $1 million.  The practices also bill insurers for actual services delivered – so the total gross revenue is substantially higher.

Concierge practices, however, increase the total cost of health care but increasing out of pocket payment from those who enroll in the practices.   They are elitist by definition – a limited group can afford to pay for health insurance, copayments and coinsurance, as well as an additional concierge practice fee.

I think there are some very good things about concierge practices.  We need innovation in primary care, which could come from these high end practices much as airbags were initially developed for Lexus and Mercedes.  Concierge practices are an ideal testing ground for such innovations as truly patient-centered (and accessible) medical records and real-time physician access via web portals.

But there is an obvious dark side to concierge practices.  Many are already suggesting that the influx of new patients into the health care system will tax the primary care system beyond its capabilities.   Senior, highly-competent physicians shedding two thirds of their panels to provide concierge care will make the actual shortage substantially worse.

Primary care is badly broken, and we need new models that allow physicians to practice at the “top of their license.”  My belief is that these models will use a lot of non-physicians, including physician assistants and nurse practitioners.  These clinicians are able to prescribe medicines, have a long history of building and sustaining excellent patient relationships, and are more likely to follow evidence-based medicine guidelines and algorithms than physicians.  We need ways to allow physicians to provide excellent care for more patients, not fewer. 

There is a role for boutique medicine – but it solves the problems for individual primary care physicians and their well-to-do patients without providing additional access to more patients, which is a pressing social need.

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Health Advocacy Organizations: A Lot of Undisclosed Pharmaceutical Cash

Today’s Managing Health Care Costs Indicator is $3,211,144

This month’s American Journal of Public Health  has an article by researchers at Columbia University reviewing disclosure practices of health advocacy organizations.

In 2007, Eli Lilly gave grants totaling over $3.2 million to 161 health advocacy organizations across the country.  Many of these do educational programs and advocacy which encourage use of medications, and Lilly’s donations parallel the clinical areas of the pharmaceutical company’s sales.   

The biggest health advocacy organizations are household names, like American Lung Association, American Cancer Society, American Heart Association, and American Diabetes Association.  Many health advocacy organizations have state and local chapters, so that Lilly ultimately donated to a total of 161 organizations, 40% of which acknowledged the donation on their website, in their annual report, or elsewhere. That number was a mere 20% for the 114 neuroscience health advocacy organizations, while it was 59% for endocrinology organizations and 67% for oncology.    

The researchers looked at Eli Lilly’s 2007 calendar year disclosures because they were the first available, and they felt that there would be little sentinel effect from the disclosures.           

Should we care?  The amount of dollars here are small – it’s nothing like the huge influence that unnamed donors can have on political races since the Supreme Court’s Citizen’s United decision.  When I looked at the Lilly registry for 2010, I couldn’t locate “astroturf” organizations that looked like their entire reason for existence was to promote (Lilly) medications.

I think this is another area where transparency is better than opacity, and I suspect that drug company sponsorships will be better disclosed going forward as a result of this research.   The National Care Foundation, a league of health advocacy organizations, changed its policies prior to this article to encourage full reporting.

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Portland Neurosurgeon Continues To Be Poster Boy for Misaligned Incentives

Today’s Managing Health Care Cost Indicator is $519,674.35

Yesterday’s Wall Street Journal  had another chapter in the sad saga of Vishal Makker, a neurosurgeon in Portland, Oregon  identified by WSJ as having the highest rate of multiple spinal surgeries on individual patients in the entire country. His rate of repeat surgery is 10 times the national average. He has performed as many as seven spinal fusions on a single person.  

Here’s the update

-        He’s been booted off the local hospital's medical staff.   (One more victory for transparency!)

-        The state medical board has launched an investigation, apparently with the FBI

-        He received over a half million dollars from a spinal implant supplier (Omega) over a 16 month period. This apparently represents 25% of the revenues from supplies for his surgeries with the company’s products.

-        The Omega product representative in Portland is allegedly Dr. Makker’s girlfriend

The WSJ has also posted a letter from a consultant from Omega, promising not only these payments, which are highly likely to be viewed as illegal kickbacks, but also promising to refer workers compensation patients to physicians participating with him.   

Physician self-referrals are an ongoing cause of increased cost, potential patient harm, and downright embarrassment to the medical community.   It's time the American Medical Association implements meaningful ethics rules - and if they don't, government will.  It's also a tangible reason why the Medicare claims database should be made available to researchers and journalists with physician identifiers. In this instance, identifying the physician is likely to lower medical cost and improve the public's health. 

Here are a few other posts on the issue of physician self-referral:

Medical device payments to cardiologists  

Urologists earning extra dollars from radiation therapy 

Orthopedists do more surgery if they own ambulatory care centers 

Literature Review 

My list of three solutions

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The Great Cost Shift -- The Ryan Medicare Plan

Today’s Managing Health Care Costs Indicator is 68%

 

Paul Ryan (R-WI) released his Medicare and Medicaid reform plan last week, and it represents a sea change in approach to these rapidly growing entitlement programs.  I'm going to focus only on Medicare today.

Ryan would convert Medicare into a voucher program (he calls it "premium support," but it's really a voucher).  Seniors would get a federal subsidy that varied based on income or wealth, and would be on their own to purchase insurance in the "free market."  The vouchers would increase in value at the rate of the consumer price index, while health care expenses have historically increased at 3-4% or more greater than the CPI increase.  Therefore, seniors would go from personally paying 25% of the cost of Medicare under the current plan to paying 68% out of pocket under the Ryan plan.

Medicare as we know it would persist for those already on the program, and those 55 and over.   For those under 55, the requirement to save for post-retirement medical expenses would grow massively -- a special problem for a generation already without adequate savings for their projected expenses.

Government's worries about Medicare would diminish over time, as the "risk" for medical inflation would be passed directly on to the next generation of senior citizens.

There is a lot of talk about consumerism - and how Sadie will shop smarter and avoid unnecessary care when her dollars are at risk.   That's true - higher patient cost share leads to less utilization.  However, utilization of services in Medicare is not exceptionally high compared to other industrialized countries.  The problem we have is a problem of cost per unit.  The Ryan plan does..... nothing about this at all.

Further, we know already from US experience through the early 1960s that health insurers will not be eager to sell insurance to sick elderly people - just like they property insurers don't sell home insurance to those with houses on fire.  The exchanges envisioned in the Affordable Care Act (which Ryan opposes) could provide a way for elderly to purchase insurance - but without an individual mandate, such insurance would either require underwriting (excluding the sickest) or be so expensive that few could afford it.

Medicare is a behemoth designed by committee.  At its best, it has offered guaranteed access and dramatically decreased impoverishment of the elderly.  Its administrative fees are low, and it has driven quality reporting, quality improvement, and dramatic decreases in hospital length of stay through its payment policies.  At its worst, Medicare can be bureaucratic, is inept at fighting fraud, and has a payment system that encourages procedures and technology and disheartens primary care providers.

Ryan's plan is a potential game changer - in that it does threaten to take away guaranteed Medicare benefits, albeit for people who are only now reaching middle age.  It's gotten plaudits for making us think about the unsustainable cost of Medicare.

As a debating point, this is very helpful.  As public policy, the Ryan plan would lead to a substantial diminution of health, wealth, and happiness of the next generation of senior citizens.

And by the way - it would add more layers of administrative expense, and not save a penny in the health care system!

A few other takes on the Ryan Plan:
Ezra Klein
Alec Vachon (Former GOP Staffer via Kaiser Health News)
Robert Pear, NYT Analysis today

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Overturn Ban on Divulging Provider Medicare Billing

Today’s Managing Health Care Costs Indicator is 1979

It was 32 years ago that a federal court ruled that Medicare could not publicly release the payments to individual providers.  The American Medical Association http://www.ama-assn.org/amednews/2011/04/04/gvl10404.htm fought hard against transparency of Medicare payments, and has aggressively defended this decision in court, in the legislature, and in public opinion. 

However, a recent Wall Street Journal expose using the Medicare 5% claims file has shown how private parties can “mine” the Medicare data to ferret out potential fraud.  Legislation to overturn this ban was recently filed by Ron Wyden (D-OR) and Charles Grassley (R-IA). 

Medicare providers, including me, are federal contractors.    Medicare represents 20% of total health care spending and about 23% of total  federal spending now, and this will increase as the baby boomers age in to Medicare.  It’s no longer reasonable to maintain the cloak of secrecy around provider payment.  We seek sunshine in federal procurement –and expect to learn how much military contractors are being paid for toilet seats.  It makes sense for physician and hospital Medicare payments to be a matter of public record.

My take on arguments against this transparency:

1. Patient privacy might be inadvertently compromised. It could be easy to “break” the scrambling of patient identifiers, especially as large bills were disclosed that included claims for unusual illnesses.  We should seek physician-level disclosure first, and add disclosure of deidentified patient-level data only once we are certain that patient confidentiality can be maintained.  HIPAA provides robust protection against disclosure of data that can be tracked to individual patients.
2. Providers might raise their prices when they see how much others are being paid for similar work.   Medicare has uniform fee schedules for most physician and hospital procedures.  Hospitals invest heavily in legislative and lobbying efforts to enhance fees, and I don’t see why this would increase if the rates were transparent
3. Activists could use claims payment data to target specific physicians.  For instance, Senator Rand Paul caught some flak in last year’s campaign for opposing government programs while accepting Medicare payment for his ophthalmology practice.    I think this is a concern – which is likely shared by the record number of physicians in the current Congress,   Transparency in fee schedules could “shame” physicians into being more discrete in their billing practices, which would be a social benefit.
4. Marketers could use this information to target physicians for promotional efforts.  Again, this is probably a reasonable concern.  However, information about physician economic status is readily available to marketers already, so consumer marketing isn’t likely to increase.   This information could help tailor the marketing efforts of those selling ancillary medical services (like implantable durable medical equipment.)   These manufacturers already have a clear idea of high utilizing physicians.

We underfund the administrative function of Medicare, and as a result it’s hard to police against fraud and abuse.  Full transparency in claims payment to providers can help “crowdsource” anti-fraud efforts, and thus ultimately lower health care costs. 

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Medical Errors: Price Tag is Lower Than Expected

Today’s Managing Health Care Costs Indicator is $17.1 billion

To most of us, $17.1 billion is real dollars. Heck, it’s almost half of the amount of federal budget cuts negotiated to prevent the federal government shutdown this weekend.

But in the healthcare world, $17.1 billion is, well, almost nothing. In fact, it is 0.7% of each year’s health care budget. 

Consultants from Milliman reported in this month’s Health Affairs  [Harvard Link] that the total cost of preventable medical errors in hospitals is $17.1 billion.   This number is orders of magnitude lower than previous estimates – which have generally included all costs those patients who suffered from medical errors - not just the excess cost associated with the errors.   

The researchers used a huge claims database, and calculated the difference between the costs of those with similar procedures and diagnoses who did and didn’t have a medical complication.  Then, they used expert opinion to specify the likelihood that any given medical error was preventable.   The $17.1 billion is the excess cost of medical errors discounted by the likelihood of preventing them. 

We should do everything we can to prevent medical errors, and the real cost of medical errors in terms of patients and their loved ones is enormous – far more than excess medical claims!

Most medical errors result from inadequate systems (not bad people).   Further, it’s not usually especially expensive to improve the system to prevent medical errors.  Sure, sometimes we want to put in a complex IT system – but in many instances medical errors can be fixed with something as basic as a checklist.

BUT – don’t believe it when experts suggest that eliminating medical errors is all we need to do to address medical inflation.  There is no pro-error constituency, so we can all get behind eradicating medical errors.   We’ll have to do more than prevent medical errors, though, to cure rampant medical inflation.

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Accountable Care Regulations: “Shared Savings” Means Return to Risk

Today’s Managing Health Care Costs Indicator is 429

The Affordable Care Act (ACA) specifies that Medicare will contract with accountable care organizations (ACOs) – groups of primary care and specialty physicians and hospitals that voluntarily coalesce and agree to take financial and clinical responsibility for all care of a population.  The ACA also states that these groups will be paid fee for service, but be able to “share savings” to the extent they are able to deliver care to Medicare beneficiaries for a lower price than expected. I’ll look at these proposed regulations through the lens of behavioral economics (see chart at the bottom of this post).

The regulations are 429 pages long.

“Shared savings” is a conundrum.  It’s hard to get providers to agree to “symmetrical risk,” where they would gain a profit if they deliver care below budget, but they would lose income if they spent more than the budget on a population of patients.  Frankly, we all really hate the potential for loss.  The “stick” of downside risk much more effectively motivates us to act differently because we so hate the possibility of losing. Therefore, downside risk is much more likely to fundamentally alter medical practice and lower resource cost.

In fact, if Medicare merely “shared savings,” this would likely increase costs because by randomness alone some groups would have apparent savings, but those groups with costs above budget due to randomness would be held harmless. Therefore, bonuses would be paid, and would not be offset by penalties.   As noted above, providers who are at risk for losing money are likely to be far more motivated to implement efficiencies in care delivery.

The regulations announced on Friday  use shared savings as a bridge to providers accepting some ‘downside’ risk as well as the potential for upside reward.  The draft regulations envision two shared savings model.

Model One:

Providers would obtain up to 60% of any savings beyond 2% of budget, and would face the potential downside risk if their actual costs exceed the projected expenses by 2%. Providers would have to provide proof they could repay up to 1% of total costs – which I think is the maximum potential provider exposure to loss, although I’m not certain.

Model Two:

Providers would obtain only 50% of savings beyond 2-3.9% of budget depending on size, and would transition to upside and downside risk as of year three. 

Contracts for ACOs require a minimum of 5000 Medicare beneficiaries, and the risk corridor gets smaller as membership increases.   CMS will require ACOs to report on 65 quality measures (domains are patient experience, care coordination, patient safety, preventive health, health of high risk populations).   Shared savings will be predicated on adequate quality performance, and might scale upward with better quality metrics.  Use of electronic records would be mandatory for at least half of the physicians. 

Some quality advocates will be disappointed that the proposed quality measures do not include outcome measures, such as mortality or complications.  However, outcome measures require sophisticated risk adjustment, and often require very large volumes to be statistically reliable. Many providers feel they have less control over outcomes than over processes.  Further, if providers effectively implement processes shown to improve outcomes, the better outcomes are likely to follow.  One problem with Pay for Perfomance was that with only a small number of goals providers were able to “teach to the test” and create workarounds rather than actually improving overall quality. The sheer number of measures makes this less likely in the CMS ACO proposed regulations.

I think that the ACO regulations have dodged a bullet in the initial legislation, which specified that savings would be shared. Instituting a corridor to account for randomness and requiring all groups to have downside risk by year three in exchange for participation will help be sure that groups are not getting a windfall just for being lucky, and will minimize taxpayer cost. Of course, elements that make this a better deal for taxpayers might decrease ACO uptake in the provider community.  I expect an avalanche of provider comment opposing downside risk.

One troublesome area where the ACO regulations stuck close to the legislative script is regarding patient attribution - which ACO will bear responsibility for each patient.  Patients will be retrospectively assigned to an ACO based on having the majority of their primary care at ACO-participating PCPs, who will not be able to join multiple ACOs.  This means that there is no limit to the free choice that traditional Medicare has offered, which is just what patient advocates want. 

However, provider groups won’t be certain for which patients they actually bear responsibility.  This will lower physician confidence that their own performance will have a large impact on the ultimate costs, which could also dampen provider enthusiasm.   Retrospective assignment is also bad news for ACOs that hoped to do aggressive management of the sickest of their ACO members.  They won’t be certain these members are their responsibility until after the end of the year!

My analysis of these critical ACO decisions through a behavioral economics lens:

	Impact on Provider Acceptability of Proposed Regs	Likelihood Providers will Improve Their Practices
Require providers to take downside risk by year three	--	+++	Supercharges provider motivation to change, but gives providers some time to develop infrastructure.  Providers really hate downside risk, though
Risk corridor so that neither first dollar losses or gains are transmitted to the provider	+/-	++	Shields providers from financial losses due to randomness alone, while preventing most unearned windfalls.
Maximum upside for providers is specified	-	+	Decreases the potential for a big win;  this is probably a good idea, but could dampen provider enthusiasm for ACO
Upside is dependent on meeting quality goals	--	+	Might be necessary to be sure providers don’t provide too little care, or their quality.  Providers will complain of the expense of reporting on so many measures. Decreases certainty of “winning,” so could dampen provider enthusiasm for ACO.
Process – not outcome quality goals	++	+	Providers are likely to feel more in control of whether they achieve incentive, and are thus more likely to improve their processes
Retrospective attribution	--	-	Providers will feel like result is less in their control

Three other references of note:

·        WSJ had a nice piece on Atrius Health, the nonprofit parent of Harvard Vanguard, and its ACO efforts 

·        Don Berwick’s introduction of the ACO rules is in the NEJM 

·        Ezra Klein published his rules on addressing health care costs yesterday   I highly recommend them.

 By the way, if you're interested in an ongoing set of links to articles that have interested me (not all of which I blog about), go to this Tumblr site.

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Some Little-Noticed Health Care Cost Triumphs

Today’s Managing Health Care Costs Indicator is $230,000

Some weeks, it seems like this blog is about nothing but waste, greed and misaligned incentives.   In contrast, I wanted to point out two optimistic news items from last week.

The first is that the number of dollars retirees need to put away to pay  for their post-retirement health care went down this year – for the first year in ten years that this indicator has declined, according to Fidelity Investments.  The required savings are still $230,000 per person - which is substantially more than the average retiree has socked away - so many near elderly are likely to be pauperized by their medical expenses. 

The second is that that the epidemic of lung cancer among women is finally receding (a little bit).  According to a report in the Washington Post.      The rate of lung cancer in women peaked in 2002, and has been decreasing since 2007, although this is the first year that decline reached statistical significance. 

The decrease in retiree health care costs is because of the Affordable Care Act, which is gradually removing the “donut hole” which forced retirees had to pay 100% of costs of prescriptions between about $900 and $4300.   Care isn’t getting less expensive – it’s just being paid for by the government rather than retirees.  Still - good news is good news.

The decline in lung cancer among women is unabashed good news.  Public health measures work – and when it comes to saving lives, prevention and decreasing risks are as important as miracle treatment breakthroughs.

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Why Nonprofits Can’t Pay Their Executives As Much as For Profit Companies

Today’s Managing Health Care Costs Indicator is $11 million

 There has been a lot of angst, and frankly pretty awful press, about executive compensation at nonprofit health care organizations over the past month.

In Massachusetts, this started with reports of the $11million severance and final year package for Cleve Killingsworth, the deposed CEO of Blue Cross Blue Shield of Massachusetts.   This was only a few years after the previous long-term CEO had cashed out with a $16.4 million package.  BCBSMA board compensation quickly came under the glare of the public spotlight; one board member received compensation of almost $90,000.  

The New York Times expanded the scrutiny to the Bronx, where the CEO of Bronx Lebanon Hospital earned  $4.8 million in 2007 and $3.6 million in 2008.   In Manhattan, the CEO of the much larger New York Presbyterian earned $9.2 million in 2007 and $2.8 million in 2008.

These compensation numbers, of course, aren’t what drives health care to be increasingly unaffordable.    Killingsworth’s entire exit package would be 30 cents per BCBSMA member per month, a very tiny fraction of the amount of premium inflation each year.  Much of this package was compensation for services in previous years that Killingsworth deferred at the time. 

Nonprofits live in a world where they have to compete for talent at all levels with for-profit organizations.   Hospitals and health plans are complicated organizations – and getting the best executives to run them is critical to achieving their important public missions.

Still, payouts like this from organizations receiving the tax subsidization through not-for-profit status feel wrong.   I think there is a good reason high compensation seems disreputable in a health care nonprofit –while it doesn’t feel wrong in a for-profit company.

A nonprofit hospital must pay its executive salaries from revenue – that’s fees paid by health plans, patients, and the government.  If an executive is paid more, the revenue must cover this.   Nonprofits are making resource allocations all the time; Bronx Lebanon has been cutting its money-losing home services even while it pays a stratospheric salary to its top executive.

When for-profits offer especially generous pay, that pay is usually a combination of salary and stock options.  So – a CEO of a for-profit hospital chain might make $10 million in a year – but usually a small minority of that is salary which comes from operations.  If a CEO gets an $8 million stock grant, the shareholders of the for-profit company are essentially giving her an ownership stake in the company - thus diluting their own investment.  If shareholders of a for-profit publicly-traded company want to give a CEO some shares of the company they own – well – it’s their business! 

This is very different than a nonprofit Board of Directors granting a CEO a very high salary, where the organization will have to charge patients (or health plans or the government) more money to support this high pay.  There is no financial tool for nonprofits to transfer wealth to their top executives without raising their prices (or selling some of their valuables, or failing to make appropriate investments in improving their facilities).

I’ve worked at nonprofits and for-profit organizations, and each can do important work in financing or delivering health care.   Nonprofits are granted a substantial competitive advantage by not having to pay taxes, and some are able to receive charitable donations as well.   With those advantages comes a potential competitive disadvantage – nonprofits cannot use their stock to inflate the salaries of their top executives.  

Health care nonprofits can attract business-savvy, mission-driven chief executives without paying the all-in compensation numbers offered by some for-profit companies.  The damage to public trust with high executive payouts is much larger than the impact on health care costs.  

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Medical Device Company Payments to Cardiologists

Today’s Managing Health Care Costs Indicator is 95%

That’s the portion of patients at University Medical Center in Las Vegas who received pacemakers made by Biotronik, a small German firm that has only 5% of the market nationally.   The New York Times reported yesterday that a Biotronik salesman who had left Boston Scientific began hiring physicians from UMC as consultants, and pretty soon a leading cardiologist was pushing the CEO to junk an existing group purchasing contract and to purchase cardiac implantable devices independently.

The price?  One cardiologist who was paid “up to $5000 per month” implanted a quarter million dollars of Biotronik devices in patients each month.  Some of the cardiologists were paid $2000 per month – which couldn’t have had much impact on their income.  Still, the UMC cardiologists moved in lockstep from the top brands of pacemakers to Biotronik’s offerings.

This isn’t the first we’ve heard of this problem with high-margin medical devices.  Every major orthopedic medical device manufacturer entered into a consent decree with the FDA prohibiting future inappropriate marketing to orthopedists. New York Times       Academic Reference 

The factors that make this kind of inappropriate ‘consulting’ payment likely include

-        High margin devices

-        Nontransparency about industry payment

-        Physicians who make choices on behalf of their patients

-        Lack of incentive for anyone in the supply chain to try to lower overall resource cost

What can we do about this going forward?

Making industry payment to physicians public is a first step.  In general, these payments drop dramatically when they are made public. There are some legitimate payments from the medical device industry to practicing physicians who help the industry innovate – but patients should know if their physician has taken such payments.  Making payments public in fully-identifiable searchable databases is the best approach.  The Wall Street Journal has been doing a great job using data mining to identify likely fraud in Medicare, but has needed to sue using the Freedom of Information Act, and is only able to mention physicians by name if they are foolish enough to consent to being interviewed.  

Payment reform can make hospitals responsible for overall cost of a procedure. This means that there would be an agent who cared about overall resource cost use, which would push down the price (and margin) of these implantable devices.

Increased Medicare scrutiny and pursuit of kickback allegations against participating physicians and pharmaceutical and medical device companies can help – but don’t address the underlying problem.  These payments and the resultant changes in device purchase are result in higher cost to Medicare and to other purchasers.  They are not an exception – they are an expectable result of the current payment system.

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