Premium Freeze in Massachusetts?

Today’s Managing Health Care Costs Indicator is 0

Health Care for All, an advocacy group that played a substantive role in passing health care reform here in Massachusetts, has come out in favor of a health insurance premium freeze.    They cite the case of Sarah Higginbotham, who says her biweekly take-home pay for a part time job at a church used to be $900, but has dwindled to $164 since she now has a family plan and health insurance premiums have risen by double digits each year.

Premium increases are caused by a combination of increased unit prices, increased utilization, increased intensity of services, and increased burden of illness.  Price increases could be substantially decreased or eliminated quickly, although that might take price controls.   Lifestyle change can lower burden of illness, but not by 2012.  Increased utilization can be changed – but takes some time.  Increased intensity of service sometimes represents innovations that can save lives (such as today's New England Journal, which has an article showing that screening CT scans for those at high risk for lung cancer can save lives. More on that in a future post.)  

Most insurance funded by large insurers is “self insured,” so that the stated premium is irrelevant – as the employer pays the bills.  However, smaller employers need to purchase “fully funded” insurance –so the level of stated premium is the price paid by the employer and employee.   A premium freeze would be a big break for small employers and nonprofits.   But it won’t be easy to achieve, and lower premium increases will only be sustainable with genuine change in the health care delivery system.

Health insurers in Massachusetts could offer a premium freeze on fully-insured health plans by one of the following methods:


Lower Profits:

Some insurers have high profit margins, and could endure a year of a premium freeze just be accepting lower profits.  However, Massachusetts insurers generally have low profit margins.


Lower administrative costs:

Administrative costs for the nonprofit regional health plans here are also on the low side nationally.   Administrative costs represent less than 10% of total premium, and the claims must be paid – so that wouldn’t likely achieve enough savings to allow for a premium freeze.


Lower provider payments The Attorney General’s report documents that some providers receive higher unit payments, and also have higher risk-adjusted total medical expense costs.  However, each health plan would need to reopen negotiations with multiple providers to get lower prices.  The market has determined those prices – so it won’t be easy to change these quickly.  Remember also that we don’t have providers with huge profit margins. So, significant provider pay cuts will likely cause job loss and attempts to cost-shift to payers that have less leverage.


 Lower medical costs Health plans have been performing medical management for years – and these programs can make a difference, especially for high risk patients.  Health management programs aren’t cheap, though, and they take a substantial amount of time to pay off.   I don’t imagine that plans to increase medical management or to improve healthy lifestyles of Massachusetts residents will make huge difference in health care costs in 2012.


Cost-shifting Insurers could raise premiums elsewhere to cover the lost revenue from a premium freeze.  Again, the market wouldn’t make this easy – and some national insurers might leave the state.


Risk-shifting Insurers could avoid insuring the sickest patients – and could therefore avoid premium increases.  However, regulation of the small group market makes it difficult for health plans to selectively enroll healthy patients.

So, I’m not optimistic we’ll achieve a health insurance premium freeze in Massachusetts in 2012.  However, hats off to Health Care for All for humanizing the impact of health care premium increases.   I think this conversation can help push meaningful change in health care delivery that could lower future health care cost increases.

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Bring Back the Mystery Shopper Survey

Today’s Managing Health Care Cost Indicator is $8.76 billion

The Obama Administration announced yesterday that it would halt its “mystery shopper” survey,  which would have assessed potential primary care access problems.  Under the program, a survey company would have called physician offices three times – posing as a new patient with an urgent problem (coughing up blood) or a routine need (annual physical exam).   The mystery shopper survey would have sampled just under 5000 physicians in 9 states, and about 500 of them would have gotten a third call,  asking on behalf of the Department of Health and Human Services if the office accepted private insurance, public insurance, and self-pay patients. 

Physicians expressed anger at the proposed mystery shopper survey – likening it to “snooping” and “Big Brother.”  One physician said

Is this a good use of tax money? Probably not. Everybody with a brain knows we do not have enough doctors.

The survey was to have cost $347,370.  

Although there is a general sense that there is a shortage of primary care physicians, not everyone agrees that we have a physician shortage. 

The senior researchers of the Dartmouth Atlas,   for instance, point out that newly trained physicians often don’t choose primary care, and they mostly settle in areas that already appear to have adequate or excess supply.   Without question, training more physicians costs more federal dollars (Medicare paid $8.76 billion toward graduate medical education in 2008.)  Furthermore, new physicians will generate more bills for their own services, and will order tests and drugs and other physician referrals, leading to still more expenses.

I know it's hard to find a primary care physician in metro Boston, but I’m not sure of the right answer about whether we need more physicians.  I believe that we need a differential way to drive new physicians toward primary care rather than specialties.  Further, I believe we need to get physicians out of doing work that can be done by nonphysicians, and increase use and supply of nurse practitioners and physician assistants.

The mystery shopper survey appears to me to be a well-designed and much-needed study. How can we be sure we have the right diagnosis if we don’t collect the right information?  The Obama Administration should not have backed down.

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Biotech Firms Oppose the Independent Payment Advisory Board

Today’s Managing Health Cost Indicator is 3403

Today’s Boston Globe  highlights the full court press the Massachusetts biotechnology industry is making to convince Senator John Kerry to oppose the Independent Payment Advisory Board, Section 3403 of the Affordable Care Act.  The IPAB, which is opposed by drug companies, some physicians, and the biotechnology companies, would create an independent board which would make recommendations for lowering Medicare costs if those costs continued to increase.  Congress would have to vote these recommendations up or down without amendment – like military base closings. 

The current debt ceiling debate shows how hard it is for Congress to lower the cost of the federal government – and many of the necessary solutions to our escalating health care costs will be easily subject to demagoguery like claims of “death panels” and “bureaucratic government throttling private-sector innovation.”

Henry Aaron, in this week’s New England Journal, calls the IPAB “Congress’s Good Deed.”   He says

Among the most important attributes of legislative statesmanship is self-abnegation — the willingness of legislators to abstain from meddling in matters they are poorly equipped to manage.

If the IPAB is effective, it will lower potential profits in biotechnology.  It would be hard otherwise to control burgeoning health care costs.

Kerry’s spokeswoman said

If we’re going to protect taxpayers and control costs, it seems a little bonkers to eliminate something the experts say is our best hope of doing that before we even have a chance to evaluate it

I hope Senator Kerry will stand his ground. 

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RomneyCare Works.

Today’s Managing Health Care Costs Indicator is 98.1%

Click to enlarge image

There has been a lot in the national press about how health care reform in Massachusetts has worked.  There's a lot of blather on both sides of the political spectrum, and the Boston Globe had a comprehensive article today reviewing how “RomneyCare” is working here. 

Conclusions:

1) Far more people are insured than before health care reform, despite the disastrous recession (98.1%)

2) More employers (up from 70 to 76%) are offering insurance, again despite the recession

3) The exchanges work for individuals - they haven't worked well for small employers yet

4) The cost of the care of the uninsured has declined.

5) There is inadequate primary care access, and ED visits have gone up rather than down.

6) The cost has been manageable - but the state has relied on some payments from the feds (stimulus dollars and Medicaid add-on dollars) that will not continue. The federal government has paid a disproportionate share of the total cost (as it will under the Affordable Care Act).

7) Health care reform promised incremental provider Medicaid payments that have not been funded. Hospitals say they must pass these costs on to other payers, which worries employers greatly.

8) Health care reform is actually pretty popular in Massachusetts.  The last Harvard School of Public Health poll said that 63% of residents support health care reform. 

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Supreme Court Overturns VT Ban on Selling Physician Drug Data

Just a brief note.  The Supreme Court agreed with my post from a few months ago and will allow pharmaceutical companies to purchase data on physician drug prescribing practice. The vote was 6-3; Sonia Sotomayor joined Anthony Kennedy and the four pro-business conservatives.

I think having more of this data collected in a standard way will be good - and eventually will help us improve prescription practices.  I'd like to see this data available in patient-friendly ways.

In an era of high patient cost-sharing, patients will start wanting to know if their doctor is making cost-effective prescription choices.

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Massachusetts Attorney General Reports on Health Care Costs

Today’s Managing Health Care Costs Indicator is 10%

Martha Coakley, the Massachusetts Attorney General, just released her 2011 report on health care in the Commonwealth.

The AG’s office delivered civil investigative demands, the equivalent of a subpoena, to three major health plans and 16 different provider organizations.  They then reviewed payment rates among the plans and providers, and incorporated health plan risk adjustment in their analyses.  They also reviewed available quality data – which showed little correlation with cost.

There are 55 pages of gems here – and I’ll talk about the relation of wealth and health care costs in a future post. 

The news reports I’ve heard so far have concentrated on disparities of provider payments – with some providers getting payments as much as twice as high as others.  The AG’s office concludes that addressing price inequities was a prerequisite to lowering the cost of health care, and that moving to global or bundled payments alone will not solve our health care cost crisis.

I’m still digesting this document.  Here’s a link to the Boston Globe report  in today’s paper. 

I’d like to highlight a few of the report’s conclusions today.

1. There is substantial disparity in total medical expenditure, risk adjusted, from provider group to provider group. Here's an example from the AG report: 

 

2. The Children's Hospital provider organization is high cost in all three health plans, and there are a few other providers which appear in the top five most expensive in all three health plans.  However, there is a huge amount of scatter in which groups get paid more and which get paid less.  Market clout is similar for      provider groups with each payer – so it’s surprising to see such widespread differences. Here are the three relevant graphs - double click on each one to enlarge.

3. The BCBSMA Alternative Quality Contract, which includes a global budget, appears to increase the short-term total medical expenditure.  The non-AQC groups, which include Partners HealthCare, have lower costs in the first place and a lower trend rate than the AQC groups. The annual trend during 2009, the first year of the AQC, the trend for the nonAQC groups was 1.7%, while the trend for the AQC groups was 10%.  It’s striking that BCBSMA projects that the costs per member per month for the AQC groups will converge with the nonAQC groups in 2013 – and that costs which are now ~$375- $400 pmpm will be just under $550 pmpm

I’ll have more thoughts on this report in the coming days.

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The Tragedy of Underfunded Mental Health Care

Today’s Managing Health Care Costs Indicator is  19,900

The NY Times  on Friday had a deeply disturbing article on a murder that stunned the mental health community here in Massachusetts.   A long-term schizophrenic man, off his medicine and spiraling into incoherence, killed a young female counselor who was the sole worker at a group home in a Boston suburb. 

His mother, who works at a Boston teaching hospital, was frantic with worry as her adult son, who had been arrested for assault multiple times, was becoming more psychotic.   It was hard for her to get anyone’s attention.

The counselor was the first in her family to get a college degree, and had just decided to go to nursing school.   Now she’s dead – and her family had trouble scraping together the resources for a burial.  The schizophrenic will be imprisoned for the rest of his life – which ironically could be the best chance for him to get appropriate medical care.

Both families are thrown in to turmoil – many lives have been inexorably altered.  How did we get here?

The Massachusetts Department of Mental Health is responsible for 19,900 people with severe and persistent mental illness.  Massachusetts has closed 20,000 inpatient mental health beds over the last decades, and the state is debating closing a quarter of the remaining 626 long-term mental health beds.  Hospitals that offer inpatient mental health services are struggling to survive – and patients who need inpatient mental health admissions can languish in Emergency Departments while psychiatrists scurry to find scarce placements. 

It’s just as bad on the outpatient side.   Very few child psychiatrists, in short supply, take any kind of private insurance, and waiting lists are long.  Adult mental health services have diminished, and psychiatrists have largely transitioned to medication management, leaving cognitive therapy to nonphysicians.  Health plans have historically done aggressive utilization review on mental health services, so that patients are discharged from outpatient or inpatient therapy more quickly – and it’s hard to get back into the system with a relapse.  With major psychiatric disease, relapses are common.

It’s much better in Massachusetts than elsewhere in the country, where the budget crisis has hit harder, and where few politicians will advocate for the mentally ill.  After Jared Loughner killed 6 and wounded 13 including Congressman Gabrielle Giffords in January, there were a series of articles about mental health cuts in Arizona and elsewhere in the country. But that attention didn’t last.

When we underfund mental health care, we bear the costs outside of the medical budget.

Families bear the majority of these costs; parents leave their jobs to watch their deeply ill children even as they reach adulthood, and spouses struggle to be case managers for their loved ones. 

We send many of those with severe mental illness to jail – at a very high cost.  In Massachusetts, a quarter of the prison population now requires mental health services, up by 2/3 since 1998.  

Employers bear some cost, as well, with lost productivity from those with mental illness, as well as from family members who are struggling to themselves compensate for the failings of our system.

Managed behavioral health care has been wildly successful, though.  While the cost of most medical services has burgeoned, the cost of professional services for those with mental illness has been pretty much flat.  The cost of hospitalization has shrunken dramatically, and we’re severely underfunding outpatient mental health services.

Those with mental health needs have dramatically higher overall medical expenses – and are more frequently readmitted to the hospital.  

The only place we’re spending more money on mental health services is in pharmaceuticals, which rose from 7% of total mental health spending (1986) to 27% of spending (2005).   Mental health drugs represent a third of total Medicaid drug spending in many states.    More irony – many of the newer antipsychotics that replaced inexpensive generic medications appear to be no better! 

I often argue for decreased spending in many areas of health care.  I think there is opportunity to lower the cost of pharmacotherapy in mental health, too. But it feels like we’ve gone too far in trying to lower professional and inpatient behavioral health costs.  We’ve transferred these costs from society (largely Medicaid) and risk  pools (employers) to prisons and to the individuals and families haunted by mental illness. 

There must be a better way.  

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Unnecessary Double Chest CT Scans

Today’s Managing Health Care Costs Indicator is 75,000

Saturday’s New York Times had a great example of using variation to identify waste in the health care system

It’s almost never necessary to do two chest CT scans in a single day – one without contrast, the other with contrast.   The ordering physician should know in advance whether she is looking for disease that requires imaging of the vasculature system. 

It’s bad to do sequential chest CT scans of patients for at least three reasons.  Each chest CT scan is the equivalent of 350 chest x-rays – and we should avoid the extra radiation exposure, which does cause some cases of breast and lung cancer. The  cost of CT scans is high – CMS reports that these duplicate CT scans cost Medicare alone $25 million.  Doing extra tests poses the danger of finding “incidentalomas,” findings that are not relevant to health, but that require additional tests which pose new health risks and additional expenses.

Yet there are some hospitals that do double chest CT scans on almost nine of every ten patients who get a single chest CT.   Many hospitals are under 1% - yet the national average is 5.4%.  75,000 Americans had double chest CT scans in 2008.

I encourage you to look at the interactive geographic map showing excess utilization – it shows pockets of overutilization including Texas, Oklahoma, southern California, and the midsection of the country from Illinois to Mississippi. 

Fee for service payment is one of the culprits here – hospitals with high rates of repeat chest CT scans make more revenue – and for a high fixed cost item like CT scans, make even more margin on this service.   However, there is a straightforward fee for service fix.  We should simply bundle together any two chest CT scans done on the same person at the same facility within 48 hours of each other. 

By the way, CMS also announced on Friday that it will use predictive modeling to proactively identify fraud in health care bills.  CMS until now has paid all submitted bills, and chased any fraudsters retrospectively identified.  Many of those billing CMS fraudulently have disappeared long before Medicare could recoup money -- so this could help lower Medicare costs.

These are two good examples of studying variation to improve health care cost-effectiveness.

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Freezes and Clawbacks and Cliffs, Oh My!

Today’s Managing Health Care Costs Indicator is 29.4%

The Congressional Budget Office  just released  physician fee schedule that would be required in 2012 under current Medicare rules. The SGR short for sustainable growth rate, mandates that if the increase in total physician costs exceeds an index of practice cost inflation, unit prices will be decreased by up to 7% the following year. The SGR has generated steep physician fee schedule cuts each year since 2002, and Congress has stepped in on multiple occasions to “fix” the SGR and be sure that physician fees would be level, or go up slightly. 

But Congress hasn’t simply appropriated more money for Medicare to account for reversing these fee schedule decreases.  That would have been too transparent!

Instead, Congress has utilized a two accounting maneuvers to maintain a fiction that increased costs in the next year would be recouped at some point in the future.   These accounting maneuvers have been used through Democratic and Republican administrations and legislative majorities. They have allowed our representatives to kick the can forward.     

                                                                                                                                                                            The CBO explains these accounting maneuvers in yesterday’s briefing.

Clawback:   Congress pretends that costs will be decreased  in the ‘out’ years, so that when the CBO is scoring ten year impact, it appears that there is little or no cost to preserving the physician fee schedule.

Cliff: Congress eliminates the floor for payment, and pretends that in subsequent years the SGR could lower fees by more than the initial SGR would have allowed.  Again, the CBO would follow this fiction and project little or no cost to the SGR override over a ten year time horizon.

 

Congress has intermittently also chosen to freeze, rather than decrease physician fees.   A freeze keeps fees at current levels, offering no cost of living increase.  Freezes mean that overall Medicare costs continue to climb, as physicians deliver more and higher intensity services.  A freeze means that no one is happy – Medicare costs go up AND physicians see their office expenses increase without a corresponding increase in their reimbursement.

As I said at the top of the post, a 29.4% decrease in Medicare reimbursement of physicians would be catastrophic.  Most nonprocedural physicians have office expense that approaches or exceeds 50% of revenue – so losing a third of revenue could theoretically cut physician income by 2.3.  Physician access for senior citizens would be severely diminished, and the viability of many physician practices would be threatened.   I don’t think there are any responsible health policy experts who think that’s a good idea.

Click to enlarge. Note "baseline" assumes that SGR is reversed and there is no 29.4% physician fee decrease. 

As you can see in the CBO chart, every option leads to higher provider costs over the next 10 years.   The “baseline” case assumes that the 29.4% decrease is implemented this January.   We’ve had ten years of accounting tricks that obscure the real cost of Medicare.  We need to overturn this potentially devastating cut in physician payment. We also need to support fundamental reform, including bundling payments to limit fee-for-service and implementing  the Independent Payment Advisory Board, bundling payments to address the underlying causes of increasing Medicare costs.

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"Truthiness" and the Republican Presidential Debate

Today's Managing Health Care Costs Indicator is

 800,000

The Kaiser Family Foundation  has done us the favor of extracting the health questions from last night’s Republican presidential debate.

My take on the ‘truthiness’ of selected answers:

The Congressional Budget Office has said that Obamacare will kill 800,000 jobs.  -  Michele Bachman

The CBO estimated that the Affordable Care Act would slightly lower the overall cost of health care premiums for large employers, which could create new jobs.   It will be hard to create net new jobs in health care and lower health care costs.  Politifact  calls this “barely true” because the CBO noted that ½% of the workforce that works for health insurance only might choose not to work.

Obamacare….  took away $500 billion, a half-trillion dollars out of Medicare  - Michele Bachman

The Affordable Care Act cut future growth of Medicare by $500 billion over 10 years.  There is no way to cure the deficit without cutting Medicare’s future growth.  It’s not nearly the cut in future Medicare costs envisioned by the Paul Ryan budget plan.  It’s also not taking money from Medicare beneficiaries, but lowering future rate increases for providers.

We didn't raise taxes in Massachusetts. – Mitt Romney

We were lucky in Massachusetts to have over half a billion dollars in federal Medicaid waivers to help support health care reform.  We also did use additonal money from general tax revenue. There was no tax increase simply because the economy was in good shape and we had dollars available in the then-current tax base.

When you get into a mandate, it ultimately ends up with unconstitutional powers. –Newt Gingrich

The courts will ultimately decide.   The individual mandate was initially championed by conservatives.  It’s hard to avoid adverse selection and make insurance inexpensive for all without some penalty for not having insurance.  John McDonough has an excellent commentary reviewing this history.

If you're an average couple and you paid your entire amount into -- into Medicare, you would have put $140,000 into it. And in your lifetime, you will take out more than three times that much.  –Ron Paul

This is true.  Medicare is a good bargain because it costs less than commercial insurance, and a better bargain still for beneficiaries because there is a considerable subsidy.  Medicare is not fully funded by taxes directed to Medicare only.  Paul goes on to say that Medicare is “insolvent.”  It’s not really – it just will require decreasing costs or increasing tax subsidies.

We have to have more competition in medicine.  – Ron Paul

Michael Porter and others argue that we don’t need more competition – we need different competition.  We need competition among providers for meaningful bundles of services, rather than competition among health plans that don’t have enough impact on actual care delivery.

Why can't we opt out of the whole system and take care of ourselves?  - Ron Paul

Works when you’re healthy, can be deadly if you’re sick unless you have huge personal wealth!

My own plan… will feature performance pay rather than just volume pay to hospitals and clinics and providers.  –Tim Pawlenty  

Many agree that fee for service payment is a major problem leading to considerable provider-driven overutilization. This is a good idea, and I’ll await his plan eagerly.

[I] would allow… private contracting so those people who want to voluntarily could contract with their doctor or their hospital in addition to Medicare, and it would be outside the current system and it would relieve the pricing pressure on the current system.  –Newt Gingrich

Individuals contracting with their physician or hospital would have little leverage to lower prices, and the administrative costs of such a system would be hard to imagine.

 We think you can save $70 billion to $120 billion in Medicare and Medicaid annually by not paying crooks... –Newt Gingrich

Many suspect that fraud and abuse could be as much as 10% of medical costs.  Medicare and Medicaid together cost almost $900 billion, so this is possible.  However, it’s not as easy as it looks, and many who oppose regulation have a difficult time accepting the type of oversight that could be required.

I wholeheartedly support…a program that is identical to what seniors already have. It’s called Medicare Part D….[and it] is 41 percent under budget because seniors are involved in controlling costs – Rick Santorum

The Ryan Plan, which Santorum supports, is very different than Medicare Part D.  The Ryan plan would cap government expenditure, whereas Part D allows government costs to rise with medical inflation rate.  Medicare Part D is under budget not because of competition or seniors with “skin  in the game,” but because of generic drugs and much lower senior enrollment than projected.

The Independent Payment Advisory Board [is going to] ration care from top to bottom –Rick Santorum

There is a good thought article yesterday from the Concord Coalition , a center-right anti-deficit group, about why the IPAB is a critical part of health care reform.   We need to make tough decisions, and this approach is much like the way we deal with potential military base closings.  

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Changes Oncologists Could Make That Would Lower Costs

Today’s Managing Health Care Costs Indicator is $173 billion

Two courageous oncologists wrote in the May 26 New England Journal of Medicine (Free full text) that there were five changes in behavior and five changes in attitude that could lower overall health care costs.  They cite a projection that the cost of oncology care in the US will be $173 billion in 2020, and state that continued increases are unsustainable.   

The behavior changes (reworded by me):

1. Don’t do routine tests of cancer survivors looking for recurrence, except where there is evidence that this improves quality of life or survival
2. Give a single chemotherapy agent for most solid tumors –don’t use multiple agents except where there is good evidence to do so
3. Don’t give chemotherapy to patients who are so frail that they can’t walk
4. Don’t routinely use medicines to raise white blood cell counts. (This is for solid tumors – chemotherapy for leukemias and lymphomas does sometimes require these medications)
5. If patients fail three chemo regimens, limit further chemo to clinical trials.

The changes in attitudes (also reworded)

1. Recognize that costs are due to choices that oncologists make
2. Have realistic expectations
3. Pay more for cognitive services rather than chemo
4. Start palliative care earlier
5. Support comparative effectiveness research, and accept that there will be some limits on the care we can offer.

We’ve had over a generation of the “war on cancer,” and we’ve promised society that we can ‘cure’ cancer.   The authors suggest that we should acknowledge that palliation is often the best goal, and we should avoid costs for treatment that has not been shown to be valuable. 

This is rational – but could easily be misconstrued to be an endorsement of “death panels.”  I think this is an important addition to the dialog on how to lower health care costs. We will clearly need to bring patient advocates along for this approach, and sometimes it’s hard to tell patient advocates from parties interested in maintaining high health care costs (and company revenues). 

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Obesity: The Problem is Clearer than the Solution

Today’s Managing Health Care Costs Indicator is 42%

We all know America is getting more obese, and Ezra Klein had a post yesterday pointing out that while cigarettes kill, obesity often doesn’t kill –but causes disability, chronic disease, and expenses that are 42% higher than the nonobese.  

So – we could save a lot if obese people would lose a lot of weight.

However, moving from this conclusion to practical steps to skinny down the population isn’t easy.   It’s a challenge to figure out how to get people to lose weight. 

June’s Journal of Occupational and Environmental Medicine has a careful study from the Netherlands where construction workers at high risk for heart disease were randomized to either an intervention, an average of 5 visits with a health coach over 6 months, or a control group.   (Groeneveld, et al, JOEM 2011 53:610 .  I’ll post a link in the future – the article isn’t yet indexed in pubmed)

The good news – the construction workers lost weight.  On average, they lost 2 kg (4.4 lbs). 

The unsurprising bad news – the intervention wasn’t cheap, and the cost of the intervention group exceeded the cost for the control group. The cost for each pound of weight loss was 145 euros ($210). The cost over 12 months of the intervened workers, including all health care costs, work productivity, and any costs of lifestyle related expenses, was 254 euros more ($369) than the control group. 

There are a lot of programs out there promising to deliver lower weight and short-term decrease in health care costs.  Some of them give statistics on average weight loss of those who lost weight, utterly ignoring any participants who gain weight. Most assess weight loss over a very short period of time, ignoring the fact that many who initially lose weight gain it right back again.  Most programs impute savings based on the fact that skinnier people have lower health care costs.

However, those who were overweight don’t necessarily cost less immediately after successful weight loss.  Further, there are precious few programs that help patients lose weight and keep it off.  In fact, the evidence for bariatric surgery is good, and the evidence of sustained effectiveness for all other interventions is modest to nonexistent.  

Treating the obese is not the way to address this major public health and health care cost crisis. 

What we need is public health interventions to make it easier to exercise and easier to get filling, nutritious, and healthy food – even in the hurried lifestyle we lead.  Many efforts, like zoning laws to encourage dense housing in close proximity to public transit, could take more than a generation to bear fruit.   Bike lanes, bike racks, and walking paths can take years to plan and build.   Other initiatives, like posting of calories, or employers offering healthy frozen dinners to take home,  could have an impact much sooner. 

None of these interventions will save health care dollars today - they can decrease obesity and prevent health care expenses much later.   

Preventing obesity won’t be easy – but it’s more likely to be successful and affordable than merely treating those who are already obese.

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McKinsey Report Says Employers Will Abandon Health Insurance

Today’s Managing Health Care Costs Indicator is 30%

A report from the consulting firm McKinsey has been getting a lot of attention this week; it suggests that almost 1/3 of employers will exit health insurance following the implementation of the major elements of the Affordable Care Act in 2014.

The report provides conclusions, but shares little detail of the underlying assumptions and data.  McKinsey has evaluated the economic “best interest” for firms, and combined this with its own polling data.   Interestingly, the McKinsey survey concludes that employer sponsored insurance is not that highly valued by employees.  Most surveys show employees value health insurance second only to wages.

The McKinsey conclusion starkly differs from the Congressional Budget Office evaluation, which suggests that only a million   will be dropped from employer health insurance due to the Affordable Care Act.  RAND  and the Urban Institute  have also evaluated this question and concluded that the ACA will not lead to wholesale employer exit from the insurance market.

The McKinsey study is consistent with the Towers Watson NBGH 2011 survey , which shows that the percentage of responding employers who believe that they will continue to offer employees health insurance ten years from now has dropped by almost half since 2007.

  

McKinsey also suggests that employers will continue to sponsor wellness programs even if they exist employer-based health insurance.   The economic rationale for many wellness programs is that they will lower medical costs; if the employer is no longer responsible for those costs, wellness programs will be more difficult to justify in corporate budgets.

It’s hard to make predictions – especially about the future, as Mark Twain (and perhaps Yogi Bera) said.  Here are some circumstances that could make the McKinsey predictions more likely:

1. All or virtually all states have functional exchanges where employees could individually purchase good health insurance without fuss and without big bills for those with preexisting conditions.   The Washington Post http://www.washingtonpost.com/national/health%20care/states-slow-to-adopt-health-care-transition/2011/06/03/AGbZbjJH_story.html recently reported that exchange creation has been slow going in many states.
2. The federal government continues to fund generous subsidies for low and moderate income Americans, and these subsidies rise at the rate of medical inflation.   Paul Ryan’s plan to cap Medicare expenditures through a privatization program suggests that there will be limits to the willingness to provide funding for continued rises in health care costs.
3. Health care costs continue to rise at rates substantially above inflation, making more employers subject to the “Cadillac” tax, which increases the effective cost of providing employer sponsored insurance. However, I believe that if too many employers are subject to this tax, the rules themselves will be revised.
4. The penalty for not offering insurance remains low.   Most employers offering credible employee health insurance pay more than $2000 per employee for this coverage,  so many CFOs will see the benefit of exiting employer-sponsored insurance.  However, the Massachusetts experience http://voices.washingtonpost.com/ezra-klein/2010/10/what_massachusetts_tells_us_ab.html is that even with a substantially lower state penalty there have been few employers who exited the market.
5.  Employers are allowed to segment their populations, offering health insurance to some employees who are expensive to recruit, train and retain, and not offer insurance to low-skilled workers.  The ACA specifically prohibits companies from doing this, but companies might change their corporate structures to allow this.

Employers far prefer to know their future costs, and so prefer a defined contribution to a defined benefit plan.   The defined benefit plan carries an unknown future cost, which is hard to budget for, hard to account for, and in many cases, hard to pay for.  Employers rushed to the door to get out of defined benefit pension plans when an Accounting Board rule made them divulge future liabilities, and most Americans no longer have a fixed pension for retirement.  Employers have largely exited retiree health insurance at this point as well. So there is some reason to believe that they could do the same for active employee health insurance.

Employers pay about a third of the cost of health insurance in the US – over $700 billion.  Widespread employer abandonment of health insurance will require funding from alternate sources – and neither out-of-pocket payment nor increased taxes are getting high poll numbers right now.  I suspect that if employers do discontinue offering health insurance in large numbers there will be “tweaks” to the Affordable Care Act to encourage them to continue to offer or at least fund health insurance.  

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Hospitals Closing – Difficult Choices

Today’s Managing Health Care Costs Indicator is 850

Much of the potential to lower health care costs involves decreasing preventable hospital admissions.  Among those patients with high costs, inpatient care represents the bulk of all costs.  Hospitals are high fixed cost businesses – so saving real money in the system means we have to take fixed costs out of the hospital sector.  This usually means eliminating hospital beds and closing hospitals.

A story in yesterday’s New York Times  points out how painful this is.

Huron Hospital, in East Cleveland, Ohio, is owned by Cleveland Clinic, one of the most successful integrated delivery systems in the country.  Cleveland Clinic announced that it will close Huron Hospital, which it says will cost 850 jobs.    It’s simultaneously opening a new ambulatory center nearby – but the number of jobs in the community will diminish.  

The headline in the Times talks about the inexorable march from inpatient care to outpatient care.  It is more silent on the social cost of hospital closure on a low-income community.

New York state faced this problem in 2006, when the governor appointed a commission to identify and eliminate excess hospital capacity in the health care system to lower overall health care costs.   The Berger Commission identified substantial excess capacity, and in many instances a poor neighborhood was adjacent to a middle class neighborhood, and each had a hospital.  The hospital in the low income neighborhood often had lower quality scores –but was almost always a major source of good jobs with benefits in the community. 

Closure of the hospital in the poor community would mean people with heart attacks would take longer to get to a hospital, but would also decrease the economic standard of living in a community already on the edge.   That commission ultimately recommended eliminating 7% of hospital beds in New York – and most of the closures were in middle class communities rather than in impoverished communities.

Hospitals have a complex relationship to community health.  Expensive health care can make a community less attractive to business, which can cause economic stagnation.  Closure of a hospital can help lower health care costs. However, loss of hospital-related jobs, especially in an impoverished community, can worsen health both by decreasing access and by eliminating good jobs from that community.  

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Flawed measurement can suggest illusory savings

Today’s Managing Health Care Costs Indicator is 10

I gave a series of talks in 2003 about how poor measurement in the disease management industry generated misleading claims of cost savings.  

Fast forward to this decade, and we see promises from the wellness industry of “returns on investment” appear too good to be true.  If they seem too good to be true, they are probably false.

When employers, health plans, government or others reviewing claims of cost savings, here are a few things they should look for

What’s the comparison group?

We should insist on comparison groups that are really comparable.  It’s useless to compare refuseniks to those who voluntarily participate in an optional program.  Even propensity matching to control for differences between groups can only adjust for known cofounders – like age, gender and job class.  The differences that matter, like readiness to change, are often not adequately adjusted for.

What’s the participation in the intervention?

What if I offered an intervention, no one participated, but the results were good anyway?  Would you give me credit for my intervention?  I don’t think so.  This is a face validity issue- let’s be sure that enough members really participated to have the type of impact claimed by a medical or health management company.

Is it plausible that the intervention would lead to the promised cost savings?

Does it make sense that the intervention would have the impact claimed? Some wellness programs offer no intervention beyond serial health risk assessments, but infer huge claims savings from changes between the first and second HRA administration.  HRAs can be instructive – but they are not likely alone to lead to huge behavior change.

Are all costs of identification, enrollment, and intervention included in the evaluation?

There is a tendency to only include a limited portion of the total costs of a program when evaluating the results.  For a health plan which hires a medical management company, there are substantial interface costs, including data transfer, contracting, and supervision, that are easy to overlook.

Are any substitute claims costs included in the return on investment calculation?

If a hospitalization is averted through the appropriate use of home services, it’s important to look at the net savings, removing the incremental costs of home care. 

I suggested in 2003 that there were ten ways to “cook the books” and make an intervention seem more effective than it really was.  They were:

1. Overstate the savings
2. Understate the costs
3. Report only some of the data
4. Ignore effects of timing
5. Mistake “gross” for “net” savings
6. Inappropriately extrapolate from experience
7. Ignore risk of failure
8. Claim credit for savings realized by other parties
9. Overstate the inflation factor
10. Tell a story that is “too good to be true”

These observations appear as appropriate in 2011 as they did almost a decade ago.

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