"Me Too" Drugs

Today’s Managing Health Care Costs Number is $121

The FDA approved a seventh statin, Pitavastatin (Livalo) – a 
“me-too” drug to lower cholesterol.  Newly approved drugs can increase competition and lower prices, and in some instances they can be downright better than existing drugs. The benefit to society of "me too" drugs tends to be very low in a class where generics are already in place, though.

The Medical Letter,  a non-profit, noncommercial organization that evaluates medicines, says:

Recommended doses of pitavastatin (Livalo) have not been shown to decrease LDL cholesterol more than recommended doses of other statins with longer safety records and, unlike other statins, no data are available on clinical outcomes with pitavastatin. In addition, pitavastatin has a worrisome potential for clinically significant drug interactions. There is no good reason to use it.

This new medication costs $121 per month, while generic statins cost under $30 per month. 

A commentary in JAMA last week suggests that the FDA should only approve “me too” drugs in classes with existing generics if those drugs are frankly superior to existing drugs, rather than non-inferior, which is required by the current regulations.

I think that’s a great idea. This could help us increase the value of pharmaceutical spending, and help the FDA focus its attention on meaningful innovation.     Alas, the likelihood of passing this kind of revision of the FDA’s role is very low.

My colleague Craig Shelley has pointed out that my last post suggesting that the FDA should consider cost-effectiveness when approving medical devices would also require new legislation. This is also very unlikely.

Dueling Headlines: Does the FDA Take Too Long to Approve Medical Devices?

Sometimes, reading the news from day to day makes my head spin.

The New York Times headline  on Sunday, February 10 was “Medical Treatment, Out of Reach.” The opening paragraph outlined a southern California biotech company which had packed up and moved to Europe, because the FDA process for approval of cardiac stents took too long.   The article goes on to describe Americans traveling to Europe to gain access to implantable spinal devices not yet approved by the FDA.  American venture capital investment in the medical device sector is reported to have plummeted since 2007.

A tough approval process can lead to life-saving technology not being available to Americans.  It can also lead to higher prices from established manufacturers, who don’t face the competition of new ‘disruptive innovators.’ 

But just four days later, the Archives of Internal Medicine  published a review of 113 medical devices recalled by the FDA from 2005 to 2009.  This was covered in the Times under the headline “Recalled Devices Mostly Untested, New Study Says.”  Under 1/5 of these recalled medical devices had been approved through the standard FDA process; a staggering 71% were approved through the expedited process.  The Government Accountability Office recommended that high risk devices no longer go through the expedited process in a report in early 2009,   but this is apparently still not in effect.  The authors suggest that the FDA should increase the rigor of its evaluation of new medical devices – the rigor that the earlier article had decried. 

What’s the truth?

Many new devices do not increase competition or lower cost.  If the device displaces other more invasive medical therapy, it usually will cost the same or even more.   The track record of spinal disk implants is especially troubled; they often do not help patients nearly as much as promised.   

On the other hand, miniaturization has been a real boon to patients, and medical devices keep people’s hearts beating and keep people on their bikes and on the tennis courts – others hold some promise to treat various neurologic conditions.

The FDA has continued to promised to streamline its review of medical devices. 

It seems to me that patient safety should be paramount, and we should revise regulations to allow the FDA to consider cost-effectiveness in its decisions about approval of new devices. 

And my head will continue to spin as I read the newspaper from day to day. 

Most Medicaid Expense is for Elderly and Disabled

Today’s Managing Health Care Costs Indicator is 70%

Governors all over the country are slashing Medicaid  – which represents a larger and larger portion of state budgets.  This is one of the largest challenges to the effectiveness of the Affordable Care Act.   Medicaid is supposed to cover an additional 16 million in 2014, and many states are going in the opposite direction.

Here’s the challenge.   Seventy percent of all Medicaid spending is on the elderly and disabled.  55% of all Medicaid spending is on long term care facilities, and Medicaid pays for almost half of all nursing home care in the country.  This information all comes from the Kaiser Family Foundation Medicaid Resource Book . Table of contents  Financing chapter 

SO – while 75% of the population on Medicaid is kids or nondisabled adults (often young parents), only 30% of the dollars are spent on this group of enrollees, even including costs of pregnancy and delivery.   Slashing Medicaid won’t save that much money if the target of the cuts are the nonelderly nondisabled.

A few charts to make the point.  (Numbers from KFF references above with some calculations by me)

Massachusetts’ Health Care Reform: Chapter 2

Today’s Managing Health Care Costs Indicator is 52

Governor Deval Patrick of Massachusetts announced the state’s plans to move from fee for service to bundled payments for accountable care organizations (ACOs) last week.   The initiative could be a bold reshaping of health care in the Commonwealth It could be the opening volley in a battle to reintroduce rate regulation.  Or it could be an interesting idea that doesn’t make any legislative headway. 

Here’s my outline of the 52 page proposed legislation

·      * The Attorney General is instructed to:
o   Evaluate potential provider mergers and accountable care organizations (ACOs) to be sure these are not anticompetitive
o   Help arrange necessary federal waivers
o   Develop an enforcement mechanism to prohibit providers from shifting costs from one payer to another.
·      * The Division of Insurance will
o   Collect data on provider contracts and determine if they are consistent with legislation, including increases below certain thresholds.
o   Disapprove rate hikes that are based on provider contracts inconsistent with this legislation
·      * The Executive Office of Health and Human Services will
o   Help arrange necessary waivers
o   Establish an ACO pilot with early-adopter provider organizations
o   Report on progress
·      * The Division of Health Care Finance and Policy (DHCFP) gets substantial new responsibilities:
o   Evaluate alternative payment methods
o   Determine how to share reporting on payments with the public
o   Examine terms of health plan contracts with providers, and require annual reporting on these, including an inventory of payment methods to be completed by March, 2012
o   Figure out how to apply the state’s preferred payment methodology to self-funded employers
o   Study best practices from other states and other countries
·      * Establishes a Health System and Payment Reform Coordinating Council with responsibilities including:
o   Collects data and report on quality and cost
o   Determines what entities qualify as an ACO
o   Monitors and reports on ACO performance
·      *Establishes a Health Care Information Technology Council and a Behavioral Health Task Force
·      *Mandates that primary care physicians participate in only a single ACO
·      *Establishes a mandatory self-funding reinsurance plan for ACOs 
·      *Standardizes and enforcesuniform risk adjustment so that ACOs and health plans will not “win” by failing to serve those with serious illness.
o   Risk adjustment is supposed to include socioeconomic status, which is notoriously difficult
·      *Malpractice reforms include
o   “Cooling off” period before malpractice claims can be filed, to allow for settlement talks.
o   Disallows apologies from being used against providers in malpractice claims.
o   Protects peer review privilege within ACOs

This is a big bill – and will be changed significantly as it winds its way through the legislative process.

Here are some key observations about factors which will determine this bill’s success.

  •  There are many new responsibilities, especially for DHCFP.   Will there be staff to complete these requirements? Will there be adequate budget to hire independent actuaries and analysts for what the department cannot do within its own staff?
  • Providers and health plans feel proprietary about their contractual arrangements, and have spent years developing the expertise to maximize returns.  The contracts are complex and often not easily comparable
  • It isn’t easy to compare provider prices
    • It’s easiest to compare cost using relative discount rates.  But the ‘chargemaster’ used by most providers is hopelessly irrational.
    • It’s also possible to compare charges for high volume units of service (such as medium intensity office visits.) 
    • However, it’s more appropriate to compare the cost of risk-adjusted episodes of care, so that the provider who uses more units of service doesn’t inappropriately appear to be offering a better “deal.” 
    • Risk adjusting episodes of care is doable- but it’s not for the faint of heart.
  •  The current bill appears to target rate of increase, which would not address existing disparities in allowable fee schedules.
  • A substantial portion of Massachusetts residents get coverage through ERISA eligible plans, where an employer self-funds the health insurance benefit.  These plans are not subject to Massachusetts regulations.   If these plans continue to be fully committed to fee for service, it might be hard to get traction with the provider community
    • On the other hand, Patrick has announced that he expects full participation of 1.7 million beneficiaries who have state-funded health care (state employees, many municipal employees, and Medicaid recipients).

This proposed legislation is ambitious and groundbreaking – a fitting followup to the health care reform that has led to insurance coverage for 98% of Massachusetts residents. 

Mass Cities and Towns Drowning in Future Health Care Liabilities for Retirees

Today’s Managing Health Care Costs Indicator is $18.7 billion

The Massachusetts Taxpayer’s Organization  released a report today documenting the future retiree health care liability for the 50 largest cities and towns in the Commonwealth.

It’s a depressing read.

Boston has underfunded its future retiree health care liability by over $4.5 billion – and to catch up through tax increases, each Boston household would have to pay almost $100,000 more in taxes over the next 30 years.   The current underfunding represents a liability of $10,000 for every Boston resident.

We’re finding out about this because of a new regulation, GASB 45 (Government Accounting Standards Board), which forces municipalities to calculate and disclose their future liabilities for retiree health care.  This is much like the FASB 106 – the 1990 regulation (by the financial accounting standard board) which required publicly traded companies to treat post-retirement health care costs as deferred compensation, which must be recognized when the obligation is incurred.   FASB 106 led to most employers moving away from generous post-retirement health benefits – as GASB 45 is likely to do with state and local governments.

The Mass Taxpayer Organization suggests that cities and towns:
·        Raise retirement ages
·        Raise service length for post-retiree health care coverage
·        Raise cost-sharing in post-retiree programs
·        Insist that eligible retirees transfer their primary insurance to Medicare
·        Not offer coverage for spouses of retirees

A number of cities and towns did not pay into the Medicare Trust Fund prior to 1984, so retirees from before that time are not eligible for Medicare.

All these approaches decrease coverage for government retirees – and many will need to be phased in over years or even decades.   The state has imposed many onerous requirements on cities and towns – historically municipalities have had little freedom to negotiate cost sharing. On the other hand, many have offered benefits even more generous than the generous benefits required by the state.

One suggestion that the Mass Taxpayer Organization has omitted:  we need to better manage the costs of health care. If health care inflation can be brought to a substantially lower level, the unfunded liabilities will look substantially less onerous.

Variation: Study Suggests Cost Based on Illness More than Delivery System

Today’s Managing Health Care Costs Quote:

Insurance is expensive because it's paying for medical care, and it won't be affordable unless the medical care it's paying for becomes affordable.”
Ezra Klein  , January 28, 2011

There’s another volley in the ongoing academic food fight about how much provider variation affects variation in health care costs, and how much of variation is about how sick patients are.

The Center for the Study of Health System Change  has just circularized an article published last week in Health Services Research  which looked at a year of claims data from 1.6 million Medicare beneficiaries in communities where the Community Tracking Survey collected independent information about providers.  High cost beneficiaries cost $48,000, while low cost beneficiaries (top and bottom quintile) cost $7000. 

The high cost beneficiaries were older, more likely to be eligible for both Medicare and Medicaid, and had more diseases.    They were more likely to get health care in multiple census districts, and more likely to have a specialist as their usual source of care.  However, they were not more likely to live in areas with higher hospital, physician or specialist supply.

This is a complicated study of Medicare beneficiaries only, and includes scads of statistical manipulation and adjustments.  It’s not proof that supply has no impact on resource cost. However, I believe this is another indication that we can’t expect to solve the health care cost crisis by profiling providers and controlling capital expense alone. 

We’ll need to make real and difficult change in the actual delivery of care to genuinely sick people to get the cost savings we need.    

Vermont Goes For Single Payer

Today’s Managing Health Care Costs Number is 6

click to enlarge image

While Washington continues the battle of sound bites about the Affordable Care Act, some of the most interesting experiments in providing increased health care coverage while controlling health care costs are happening in the states.   Today, Vermont is in the news for a plan to convert to a single payer government run health care system, even as Capitol Hill reverberates with opposition to the government regulations and standards in the ACA.

The Vermont Legislature passed a bill mandating study of implementation of universal health care in that state, and hired William Hsaio of Harvard School of Public Health to help with system design.  He and his team set forward six goals for health care reform

1.      Maximize federal funds for Vermont.
2.      No increase in overall health spending and therefore all funding for the options must derive from savings
3.      No increase of the overall health care cost burden faced by employees or employers
4.      No reduction in the overall net income received by physicians, hospitals, or other health care providers
5.      The implementation of any option must move Vermont toward an integrated health care delivery system that allows for a transition to global budgets and risk-adjusted capitated payments
6.      No changes for Medicare beneficiaries in Vermont

These are a tough series of goals that in many states are mutually exclusive. For instance, spending more on health care will usually cause a reduction of physician, hospital, and other health care income!  

Hsaio offers three options:

  • Single payer administered by a government agency, with either comprehensive or less generous benefits.  He says this could save as much as 24% of total health care expenditures.
  • Multipayer system with competition.   He estimates that this system would save “only” 16% of total costs.  It would also extend coverage to only a few thousand new enrollees – and is thus not recommended.
  • Single payer system administered by a private party, which he estimates could save 25% of total costs, because of the effectiveness of hiring a private party with the proper expertise to do the claims processing at the outset.   He recommends this option – with the less generous (and thus more affordable) benefits.  This would include full vision and dental benefits.

In an interview with Ezra Klein, Vermont Governor Peter Shumlin says that the reason providers won’t have accept lower income due to Vermont’s money-saving single payer system is

We don’t have a lot of high-paid physicians in Vermont. We have a lot of low-paid physicians. We have rural providers who’re making less than they did when they graduated from medical school. Our cost driver is not that we have a lot of physicians running around in Mercedes-Benzes. It’s waste in the system.

Where are these big savings coming from?

1.      Decreased administrative costs.  (However, providers will continue to have staff to bill out-of-state payers – so they won’t be able to utterly eliminate much of their overhead
2.      Less wasteful diagnostic and other spending
3.      Better care coordination
Healther Vermonters will need less expensive medical care

Of note, the researchers recommend that primary care physicians be paid risk-adjusted capitation and specialists be paid salary with quality rewards.   It appears that negotiation of physician rates would be left to Accountable Care Organizations, and this might require that physicians join such organizations.  Approaches that change physician reimbursement methods and require physicians to join organizations are usually opposed by the medical establishment. So far, the Vermont Medical Society says it is reviewing the legislation” and withholding comment.  Hsaio et al also recommend a single electronic health record system (EHR).  I’d expecdt provider organizations which have already invested in EHRs to oppose being forced to join a different system.

The Vermont plan will probably require multiple federal Medicare and other waivers to take effect. 

Health care reform isn’t easy – and a small progressive, community-oriented rural state might make it over the substantial hurdles required to make this a reality.  I’m skeptical of the promises of huge cost savings – but increasing access, moving toward better care integration, and lowering costs even just a little bit would be a huge accomplishment.  Stay tuned.

High Cost California Hospitals Have Lower Mortality

Today’s Managing Health Care Costs Indicator is 1831

There is so much to blog about.  Since my last post, a federal judge found the entire Affordable Care Act unconstitutional because of the individual mandate, and the federal government announced $4 billion in fraud recoveries in the last year.   Medicaid cuts in many states continue to pose a threat to meaningful coverage for the poor.   But more on those important issues over the coming days.

A brief post tonight. 

Today’s Annals of Internal Medicine  assigns California hospitals to quintiles based on Medicare cost of care (using Dartmouth Atlas methodology) , and then correlates  these costs with mortality for six conditions: heart attack, congestive heart failure, stroke, gastrointestinal bleeding, hip fracture and pneumonia. 

The results?  The most expensive hospitals had lower mortality rates – even though other researchers have found no correlation between hospital spending and various process measures that are proxies for quality, such as appropriate antibiotic therapy or discharge on appropriate cardiac medications. 

The researchers calculated that in California there would have been 1831 more deaths if patients were moved from the highest cost to the lowest cost hospitals.

The health policy implications of this are ambiguous, at best.  This research suggests that simple tiering based on quality process measures might encourage patients to get care at hospitals with higher mortality – a scary thought indeed.  On the other hand, this is an observational study  - it doesn’t prove that spending more is the reason for lower mortality.  The researchers did not calculate the cost per life saved – but provided enough information to do so.  My quick excel spreadsheet is here.   It appears to me that the cost to move all patients from the lowest to the highest cost quintile would over the four year period would be $3.8 billion, or $2.1 million per life saved (not per QALY).

These are difficult social choices with real tradeoffs; there are no simple answers.