Harvard Pilgrim-Tufts Health Plan Merger

Today’s Managing Health Care Costs Indicator is 2


Yesterday the big news in Boston was that Tufts Health Plan and Harvard Pilgrim Health Care were exploring a merger.  These are among the two best health plans in the country; each has a long and proud pedigree – and each has very deep roots in the community here.  Together, they are still just 2/3 the size of Blue Cross Blue Shield of Massachusetts (see below).

The Boston Globe reports that the two CEOs and Board Chairs have already agreed to positions, so it’s likely that this merger will indeed go through.

What does this mean for health care costs?

Some immediately imagine that a decrease in health plan competition is bad – and will raise costs for consumers.  We need to evaluate how health plans price their services, and how the merger will affect the acquisition costs for health care services.  I believe that decreased health plan competition in a market is likely to lower overall health care costs – and here’s why.

Jim Roosevelt (CEO of Tufts HP) and Eric Schultz (CEO of Harvard Pilgrim)  and said today that there would be administrative savings – and that’s absolutely true.  The two health plans will only need one set of senior executives, and will be able to have a single set of IT systems – so there are a bunch of fixed costs of having two health plans that will diminish when they merge.  They’ll  diminish, of course, after a brief period of increased costs associated with harmonizing different systems.  These lower administrative costs, though, aren’t how this merger can add social value by lowering health care costs.

There’s a lot of talk about high executive pay and administrative waste – but if you could dramatically lower administrative cost –that would not be the way to make health care (much) more affordable.  Health plans spend 85% in general on payments to physicians, hospitals, ancillary providers and others.  The “medical loss ratio” is closer to 90% for these regional nonprofits.  

The only way the merger will lower costs will be if it lowers the price paid by these health plans for medical care.  It can do this through larger discounts or different payment methodology – but the larger the health plan is, the more leverage it has to pressure the provider community.

One of our local NPR affiliates WBUR  had a series of health care experts talking about the impact of this merger on competition –and a number of them raised fears that health plan consolidation would lead to provider consolidation, and thus could raise prices.  Regina Herzlinger quoted this National Bureau of Economic Research working paper , which  does indeed express this fear. However, provider consolidation is subject to antitrust rules, and the Attorney General and the FTC can prevent provider consolidation that would lead to increased prices.  No surprise that the Mass Hospital Association expressed concern about the proposed merger.

It's a paradox that sometimes more competition can lead to higher prices if the fragmented intermediaries have to pay for higher 'ingredient' costs due to their lack of leverage.

My take - Tufts Health Plan and Harvard Pilgrim will fit well together culturally, will overcome the inevitable IT and ops integration challenges, and will after some period of time be more effective at procuring health care for a lower overall cost.  They will lower their total administrative costs, too (which means many of my friends and colleagues will be looking for new positions).   The AG hearings on this proposed merger will give us an interesting window into both health plans, and their strategy to increase value through the merger.  
Click on image to enlarge

Correction 1-27-11. HCHP changed to HPHC in first line of post. Thanks to an alert reader for pointing out my error 

Why Very Positive Results in Early Trials Fade to Mediocre Results Later

I briefly mentioned the Jonah Lehrer piece in the December 13 New Yorker on how initial studies tend to show large treatment effects, and subsequent studies show far less impact.  Harvard Link  NonHarvard Link 

The iPad version of this article had graphics from an obscure biology journal which demonstrate this concept especially well. 

Imagine a series of experiments with a very small number of experimental subjects in each one. These will have a large confidence interval – some of the experiments will look incredibly positive, and others will look impressively negative.  As researchers do experiments with more and more subjects, the confidence interval narrows –and even the most positive or negative experiment yields a result that is much closer to the ‘truth.’ 

BUT – and this is a very important but – what happens if we only find out about a small portion of the experiments that are completed? That’s not a surprise – the government established a registry of pharmaceutical trials for exactly that reason – the pharmas were only publishing articles that showed success, and were not publishing those which showed that drug didn’t work, or had unexpected side effects. 

Here’s the graphic that I found hugely helpful in explaining this phenomenon. This is called a funnel plot  and it’s a standard biostatistics tool to evaluate whether there is ‘publication bias,’ and to assess whether a ‘metaanalysis’ combining the results of multiple trials is valid.

The first graphic shows that as sample size increases (right on the horizontal axis), confidence interval decreases and results converge closer to the “truth”

The left side of this graphic represents small trials, and the right side represents trials with more subjects. 

The second graphic shows that we would expect that small (“underpowered”) studies with uninteresting results would not be published – hence we should have a funnel plot with a hollow core.

The final graphic shows what happens when there is publication bias. Results that initially look very positive look worse and worse over time, because the results looked so good in the early trials because of randomness alone, since neither the negative nor the neutral trials were not reported.

The implications of this are critical.  When you hear about early results showing that anything (new drug, new medical management program, new safety device for your automobile) is absolutely great - wait a while - and you'll often discover that it's not quite as good as it seemed at first.  If you see a meta-analysis combining data from many studies -- be sure that the authors have done a funnel plot to assess how severely publication bias might impact the results. 

The “Managing Health Care Costs Indicator” will return with the next post. Thanks for hanging with me on a wonky topic.

Here are links to the source article for these graphics:

Mental Health Cuts: Short-Sighted and Painful

Today’s Managing Health Care Costs Indicator is $2 billion

The quickest, easiest way to cut medical claims expenses is to insure fewer people or to eliminate benefits.   This is often not the way to maximize social utility, and sometimes these types of cuts actually increase societal costs.  

There have been dramatic cuts in the mental health safety net in light of the recession and the dramatic decrease in state revenue.  Most mental health care is underwritten by private insurance and states; there is little mental health care delivered by the federal government outside of the Veteran’s Administration. There’s been more focus on this problem in light of the tragic shooting of Representative Gabrielle Giffords and 18 others in Tucson by a mentally ill 22 year old man. 

Mental health care costs have not climbed in parallel to the costs of the rest of the health care system – mental health is often “carved out” from traditional insurance, and the mental health management companies have been very effective at shortening hospital stays and reducing the overall cost of care.  States have closed their inpatient mental health facilities across the country – deinstitutionalizing all but the most dreadfully incapacitated with mental illness. 

Care in the community has unfortunately not kept pace with needs. It’s virtually impossible to find an available child psychiatrist, for instance, and emergency departments dread the arrival of someone who needs a psychiatric hospitalization.  Such patients will spend many hours awaiting the frantic work of psychiatrists and social workers to find an available bed.

But it gets worse. The LA Times reports that states have cut $2 billion from mental health programs since 2009, and closed 4000 inpatient mental health beds.  The state of Arizona cut 50% from its Department of Health, and reduced services for 14,000 with mental illness.

The New York Times points out that the cuts are across the country, and they are being proposed by politicians across the political spectrum.
·        Washington State: $19 million midyear cuts, and loss of 46 inpatient mental health beds
·        Kansas: Proposed $15.2 million cuts
·        Mississippi: Funding 13% less than that required for level services, and closure of 200 beds

In some instances, mental health cuts lead to increased costs elsewhere in the system.  The Arizona shootings might be an extreme example (and it’s possible that a more vibrant mental health system would not have prevented this tragedy).   Those emergency department and medicine hospital beds occupied by people awaiting a mental health bed aren’t available for other patients, and most of us clinically have seen people with unmet mental health needs requiring additional medical care.  It’s expensive to institutionalize the mentally ill; it’s often even more expensive to incarcerate them.

The real tragedy of underfunding mental health systems has nothing to do with whether or not costs are saved – it’s the impact on those with mental illnesses and their families.   Caring for a mentally ill loved one is overwhelming for many loving families, and these cuts make caring for a mentally ill child or relative all the more difficult.

The Emperor of All Maladies

Today’s Managing Health Care Costs Indicator is $3.9 billion

I just finished reading The Emperor of All Maladies, a Biography of Cancer by Dana Farber oncologist Siddhartha Mukherjee.  It’s a great book – Mukherjee brings to life many of the great historical masters who I learned about in medical school.  He portrays Halsted, who developed the most radical of mastectomies, as a morphine and cocaine fiend. He describes a chicken virologist as “roosting quietly” in his laboratory.  He reminds me that Goodman and Gilman were not merely the authors of the Pharmacology book I struggled with in the second year of med school. They worked together to use the ingredient from mustard gas to treat lymphomas – one of the earliest forms of chemotherapy.  

The book hits its heights when Mukherjee describes his interactions with patients through his training, while I found some of the descriptions of (arcane) disease pathways less engaging.  I was also surprised to see no mention of Betsy Lehman, the Boston Globe health columnist who lost her life to a chemotherapy overdose in 1994.  Her death, and the surrounding outcry, helped make Dana Farber what it is – a patient-centered institution wholeheartedly committed to safety.

Emperor of All Maladies is a stirring reminder that health care has gotten dramatically better since I graduated from medical school.  The emergence of biopharmaceuticals which target the genes that regulate cancers means that many patients who would have died quickly now live normal lives.  Here’s an example.   Only a few thousand are diagnosed with Chronic Myelogenous Leukemia (CML) each year, and the disease was usually fatal within a few years.  This was a market so small that a researcher had to beg the drug giant Novartis to synthesize a few grams of a highly promising drug to do human tests.  The drug maker had already given up on the drug. The drug, Gleevec, apppears to keep CML quiescent for an estimated average of 30 years, and current estimates are that there will be a quarter million Americans living with CML in the next decade. Annual sales of Gleevec now are $3.9 billion

Which brings me to costs.

The newer biologic agents are hugely expensive. They’re often much less toxic to patients than conventional chemotherapy, so there are fewer humanistic reasons not to push hard with these medications – which are sometimes used in combination.  There are usually few choices, and there are no meaningful controls on the unit price for these life-saving medications. 

The problem is straightforward.   Avastin, at $100,000 per year, just lost its FDA indication for breast cancer because in most subgroups it did not increase survival.  Herceptin is a miracle drug for many with the Her2 receptor. The cost?  $70,000

The answer isn’t simple at all, and many of the techniques that have helped to control costs of other medications look like they’ll be useless in dealing with the biopharmaceuticals and genetic-targeted medications.
·        There is not going to be a “market” to help control the costs of these medications, because there will be no competition for each medication.  
·        Benefit design changes, like increased coinsurance or deductibles, won’t change demand for these medications – since anyone needing them will always be beyond any reasonable out of pocket maximum. 
·        Health plans might try to avoid coverage by saying that they are experimental -- but it’s hard to withhold a drug when there is nothing else that would offer any hope at all.
·        The Affordable Care Act offers a route to biologic generics – but realistically it will take many years before biogenerics take off, and continued innovation in the biopharmaceutical area is likely to continue to raise the overall costs.

We have an embarrassment of riches in medicine – drugs that bring a normal and comfortable lifespan to those who would have died just a few years ago.  But we increasingly we risk impoverishing the sick –and all of us.

Repeal vs. No Repeal

I strongly recommend Ezra Klein's "Repeal vs No Repeal" post at the Washington Post earlier today.

Prevalence of Preexisting Illnesses

Today’s Managing Health Care Costs Indicator is 86%

A new Health and Human Services Department study, released today on the eve of the House vote on a bill to repeal the Affordable Care Act, shows that a vast majority of Americans 56-65 have a preexisting condition, which could make it difficult to obtain insurance in the individual market.

This is no big surprise.  Hypertension, depression, hyperlipidemia and diabetes are prevalent in the American adult population, and these chronic conditions increase with age.   Those who have these chronic diseases have higher costs.  Therefore, insurers have every reason to try to avoid offering insurance to those with these conditions in an environment where healthy people can choose not to pay premiums into the insurance pool.

There is some new evidence from Massachusetts in this week’s NEJM  showing that the individual mandate in Massachusetts appears to be working very well.  The heavy subsidies for those of modest means combined with the individual mandate has meant that those without chronic illnesses are indeed signing up.  Getting the healthy to join the insurance pool is critical to making insurance affordable to all.

 California had to shutter its health exchange a few years ago when it failed to attract a significant number of healthy enrollees, and cost escalation was uncontrollable.  

Genetic Testing: Another Reason Why It's Not Likely To Lower Costs

Today’s Managing Health Care Costs Number is $299

A number of genetic testing companies suggest that doing genetic testing on individuals or an employee workforce could lower overall health care costs.  The cost of these tests ranges from $299 to $999.

Here’s how this works in theory.   Some people will be found to have genetic predisposition to react badly to some medications, or to need higher or lower doses of these medications.  Doing genetic tests would help individual employees get the best drug for their personal genetic traits in categories including antidepressants and blood thinners.   Further, genetic test could motivate behavior change when some people discover they are at higher genetic risk for certain diseases, including diabetes or heart disease.

The savings claims seem highly unlikely.

The General Accountability Office sent DNA samples from its own employees to multiple genetic testing companies, using both real and fictitious demographic and medical information. The GAO found that there were wild inconsistencies among the companies, and the genetic counseling advice offered was deeply flawed or worse. 

I’m especially interested in the “scared skinny” argument.  This argument goes that when shown evidence that she is at higher risk of diabetes, a test subject will go out and increase exercise and lose weight.    I’m skeptical, of course, since many people already see their parents suffer the complications of diabetes –and that would seem to me to have far more impact than a genetic test report!

The New England Journal of Medicine  published an article on its website this week reporting on 3600 people who personally paid for the Navigenics genetic testing package.   The article focuses on over 2000 people who had the genetic test and then completed 3 month followup surveys. The researchers looked at lifestyle behavior change subsequent to getting the results of the genetic tests, and compared those at high vs. low risk for various conditions.

The good news is that few people had test related distress or anxiety (9.3%) or clinically significant test related anxiety (2.8%) when they got their results.

The bad news (and you have to read the supplementary appendix to see the actual results) is that people found to be at increased genetic risk for obesity increased their intake of fatty foods after receiving the test results.  The only other significant findings related to risk conditions were those at higher risk of breast cancer had decreased exercise and increased their fat intake.  Those found to be at risk for  aneurisms, heart attacks, strokes, and diabetes did not make any significant changes in their lifestyles based on the result of these tests.

Genetic testing is likely to play an important future role in ascertaining the best medical care for each of us as individuals.  This study undermines one of the arguments to do widespread genetic testing right now.   There is no reason to encourage an unselected low risk population to get genetic testing at this point.

By the way, here's a link to a post from two years ago pointing out that genetic testing was promised to save money for those on blood thinners, but rigorous studies showed increased cost.

Senators Try to Undermine Bioequivalent Generics

Today’s Managing Health Care Cost Indicator is $5 billion

Everyone is in favor of controlling health care costs, and almost everyone wants to be sure that less expensive bioequivalent generic biologic medications are available.   However, don’t tell that to a group of Senators (including Orrin Hatch R-UT and Kay Hagan, D NC) who sent a letter to the FDA asking that brand name biologics be given an extra twelve years of exclusivity for improving their potency or safety.   The story is reported in today's Wall Street Journal.  This might not sound like a good idea, but it’s a recipe for permanent exclusivity, because at the eleventh year the biotechnology firms would make small changes in the medicine to maintain their patent protection.

There is a lot at stake here.

Here are some of the costs of top biopharmaceuticals as of 2010 (Source: Medical Letter, subscription required):

Multiple sclerosis
Beta Interferon (Avonex, Rebif, Betaseron, Extavia)
$35-$36,000 per year

$43,000 per year

$40,000 per year
Rheumatoid Arthritis
Humira, Enbrel, Remicaid, Cimzia, Simponi
$18,000-$24,000 per year

These drugs are woefully expensive, and one of the places where the Affordable Care Act lives up to its name is the provision to allow generic biopharmaceuticals.  The Congressional Budget Office believes that allowing a pathway to generic biosimilar medications could lower the overall cost of all drugs by 2% by 2019.  We spent $250 billion on drugs in 2009; 2% of this would be $5 billion.  This alone won’t solve the health care cost crisis, but it isn’t chump change.

These Senators are asking the FDA to make a decision that would be very good indeed for the biopharmas – but would increase the future cost of health care.  This kind of decision would likely also diminish innovation, as firms tasked their scientists to protect expiring patents, rather than to develop novel treatments.

If we’re serious about controlling health care costs, we shouldn’t undermine the elements of the Affordable Care Act that would save money down the road.  

A Bad Bill - Whatever the Name

Today’s Managing Health Care Costs Indicator is $145 billion

What if there was a proposed bill that would raise the federal deficit by $145 billion over the next ten years, would increase the projected number of uninsured in the country by 32 million (from 6% to 17%), and would raise premiums for those purchasing insurance both in the employer and in the individual market? Source: Congressional Budget Office. Further, what if this proposed bill would destroy 250,000 to 400,000 jobs annually over the next decade and reduce the number of workers who start new businesses, move to new jobs, or otherwise invest in themselves and the economy?  Source: David Cutler white paper. 

That bill would be pretty unpopular, right?

Actually, that bill would be HR 2, the ill-titled “Repealing the Job-Killing Health Care Law Act,” introduced with great fanfare by the new Republican majority in the House of Representatives.  The bill got 236 votes to pass its first procedural hurdle last week, and was expected to pass this coming week. (It will be delayed as the House suspends substantive activity following the tragic shooting of Representative Gabrielle Giffords and 18 others). The House leadership has announced it will prohibit amendments to the bill, and strictly limit debate.

The bill is symbolic, with no chance of passing the Senate or being signed into law.  However, it’s interesting to see that even apparent winners would be losers with this repeal bill.

è Insurers would not suffer the cuts in Medicare Advantage payments, a total of $145 billion over 10 years.  They would also not be subject to new regulations making it more difficult to withdraw insurance coverage after premiums had been paid, and would be able to continue to offer policies that limited total payments, including lifetime maximums and “mini-med” plans.   However, insurers would also not have millions of additional beneficiaries.  Even during the recession, small businesses have been adding employees to the insurance rolls due to a tax break incorporated into the Affordable Care Act.

è Providers including physicians and hospitals would not be subject to lower rates of Medicare increases over the next decade.  However, they would face a high level of uninsured Americans, which would likely cause increased pressure to lower prices. Further, the Medicare Trust Fund would “run out” much sooner, and it’s not clear that providers won’t have to accept cuts at some point anyway.  The Republican plan could include transition of Medicare to a series of vouchers, which would likely lead to further disruptions of revenue.

è Drug Companies and medical device companies could avoid explicit taxes or fees that would be levied under the affordable care act.  But both would face more uninsured individuals ill-equipped to pay premium prices for drugs or medical devices.  For the pharmaceutical companies, giving discounts to enlarge their market has always led to higher income and higher profits, as I’m sure will be the case with the 50% discount to Medicare beneficiaries within the ‘donut hole’

è Patients deeply desire many of the protections built into the Affordable Care Act, including guarantee issue, full coverage of preventive care, and protections against “recission,” or withdrawing health insurance when it is already in place due to minor errors on the original application.  Parents are relived able to let their adult children remain on their health insurance policies in these terrible economic times.  The big gain from repeal would be that people would be free to opt out of purchasing insurance at all.   This is sensible for rich people (who wouldn’t lose all their possessions if they got sick), but has worked poorly for those less fortunate – who get the most benefit from the community-wide risk sharing of health insurance. 

HR 2, whatever its title, is bad policy.  It’s good that it will be heading for the scrap heap.

What's the Matter with Miami?

Today’s Managing Health Care Costs Indicator is $5318

Medpac released a study of geographic variation within the Medicare program today.  The report reminds us that the variation in units of service is much lower than the variation in total spending. The difference in utilization between the 10th and the 90th percentile is 30%, while the difference in spending is 55%.  The report also noted that the variations in post acute services (like durable medical equipment or home health care) dwarf the variation in hospital or physician services.

So – how could the cost for home health care be $5318 per beneficiary in Miami-Dade County?  This is ten times the national average, and twice as much as two years earlier.  It’s hard to imagine this without fraud. Note the large decrease in Miami-Dade durable medical equipment during that time period.  The Medicare Inspector General notes that fraud migrates. “...As law enforcement cracks down on a particular scheme, the criminals may shift the scheme.”

2010 Annual Roundup

Today’s Managing Health Care Costs Indicator is 313

Happy New Year – although it appears that we’ll be revisiting much of 2010 over the coming 12 months.  This is the 313th post, and I figured I would revisit some of my posts from 2010 as we start the new year.

In January, I recapped the final lecture of my 2009 public health school class on managing health care costs.   I also linked to a NY Times article on Baumol’s Law,  which suggests  that health care costs will always increase at a rate faster than inflation.

In February, I had a two part blog on the cost of “doing nothing” – why the status quo in terms of health care costs and financing is untenable.  Part One   Part Two  

I spent a few posts in early March considering how likely  it was that a for-profit takeover of the Caritas Christi hospital system in Massachusetts would lower health care costs.  Part One  Part Two  Part Three  

In the wee hours of a morning in late March, I was sitting in a coffee shop in Luang Prabang, Laos.  I had a spotty wifi connection, and was watching the New York Times play by play of the debate in the House of Representatives that led to approval of the reconciliation bill that made health care reform law.   3 AM in Washington DC is mid-afternoon in Laos– I probably knew that the Patient Protection and Affordable Care Act had passed before my Boston colleagues.    I did a blog of my bike trip to Vietnam and Laos.  I ignored most health care issues for the two week trip. Here’s a link to some thoughts on my plane ride back about health care in developing countries;  Laos spends $85 per year per person on health care, compared to over $7000 per person in the US. 

In April, I pointed out a trillion dollar question was whether or not health care providers would shift the costs of lower Medicare and Medicaid payments on to other payers.  

In May, I evaluated claims that more osteoporosis screening would lower future health care costs.   I wasn’t impressed.   I also reviewed an ingenious study from Mass General demonstrating the physician office administrative costs of multiple different insurance rules.  A later post quotes a figure of $7 billion a year in such waste.

In June, I looked at the potential savings from lowering variation.  There are dollars to be saved, but not as many as advocates suggest. 

I started using the Managing Health Care Cost Indicator in July; one of the indicators was a hospital that saved $180 million by implementing Toyota “lean” techniques.  

In early August, as I was setting out on the Pan Mass Challenge, I wrote a post on end of life care.    We need to respect people’s wishes better to improve care.  It might save money too –but that’s not the main reason for reform of end of life care. 

September brought an excellent Health Affairs with a quartet of articles on malpractice reform.   September also brought a column by Peter Orszag suggesting that the increases in the cost of Medicaid have led to $30b of underfunding of public colleges around the country.

In October, I embedded the first Youtube video in this blog.     I also pointed out that getting discounts on drugs can be very costly  

November brought another report of low prices being bad rather than good – we spend less per dialysis session than most developed countries – but get even less value for our investment.  

The Wall Street Journal did a great series on fraud and data mining during December.  Here’s a link to my blog on one of these articles, and here is a link to the series.   December also brought the first death panel –and it was not part of “Obamacare.” 

All in – 2010 was a big year for health care policy. Here’s hoping we’ll make some real progress in 2011.  Some things to watch this year:

  •         What will states do about Medicaid? It’s a challenge even in traditionally liberal northeastern states.  Governor Cuomo has pledged billions of dollars in Medicaid cuts, and Massachusetts is challenged by increases in Medicaid costs.
  •         What will states do about implementation of the health care exchanges?  As of mid-fall, many states were making great progress.
  •        What will the Supreme Court say about the individual mandate?  If it’s overturned, it will be hard to get to near-full coverage without a large refundable tax en lieu of the penalty,  and the House is highly unlikely to pass such a tax.
  •        Will Massachusetts find a path from fee for service to bundled payments? 
  •         How many health care lobbying dollars will flow into Washington?   Prediction – a LOT!

Happy New Year.