More Good News from Massachusetts

Today’s Managing Health Care Costs Indicator is $453 Million

The blogosphere has focused a lot of attention on Massachusetts, where almost everyone (97+%) has health insurance as a result of health care reform that looks almost exactly like the Affordable Care Act.  Our costs in this state are exceptionally high – although they are rising more slowly than costs in other states.

A study released last week by the Massachusetts Taxpayer Foundation  – a nonpartisan group that advocates for good government (including promoting prudence in spending) – shows that it cost the state an additional $453 million, or  an incremental $91 million on the average for each of the last five years to extend coverage to another 7.6% of the population.   The total cost was a bit over $900 million –the additional amount was spent by the federal government for Medicaid and waivers,  employers who increased the portion of the population insured during this time period despite the recession, and individuals who purchased insurance and who would have otherwise gone “naked.”

It’s not perfect for states to go this alone.  Massachusetts hospitals on the New Hampshire border are already seeing higher rates of bad debt due to the difficulty of obtaining affordable insurance to the north.

And the total dollars being spent are not inconsequential.    However, incremental spending to support expanded coverage is equivalent to 1.4% of the total state budget. Seems like a good deal.

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When Health Care Employment Rises, Health Care Costs Will Go Up

Today’s Managing Health Care Cost Indicator is 2.8 million

Click image to enlarge 

Research from the Center for Health Workforce Studies (Albany)   shows that between 2000-2010 the health care workforce represented more than 100% of the increase in employment for the entire country.  Overall number of jobs decreased by 2%, while health care jobs increased by 25%.  The non-HC sector lost 6 million jobs from 2000-2010, while the health care sector gained 2.8 million jobs.  

Health care jobs are well-paying, good jobs. That’s why health care can represent 18% of the GDP but less than 10% of total employment.  Low skilled jobs (janitorial and food service) were the only place where there were fewer jobs in health care in 2010 compared to 2000.

The calculations, derived from Department of Labor/ Bureau of Labor Statistics, suggest that we will create net new jobs over this decade –but again health care will represent a disproportionate share of these jobs.   Health care represented 9.8% of jobs in 2010, and is projected to represent 11.2% of jobs in 2020.

Click Image to Enlarge

These are only projections, and there are some good reasons for increased employment in health care.  Our population is aging, which leads to higher health care costs.  Projections are also usually wrong;  few projected in 2002 that the last decade would have concluded with fewer jobs.    The Bureau of Labor clearly doesn’t see technology leading to displacement of labor in health care.    I’d guess that there will be more savings due to increased use of technology than these estimates suggest.

There is a straightforward relationship between health care job creation and health care inflation.  As long as we are predicting more jobs in health care, we have to conclude that health care costs will continue to rise.  

Previous posts on this subject here and here 

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Misleading Reporting

Today’s Managing Health Care Costs Indicator is $6,058

Here’s the first paragraph of an article from the Boston Herald   abstracted by Commonhealth   yesterday:

The nation’s anemic economic recovery could suffer a brutal blow at the hands of Obamacare, critics say, as a new study shows mandated health care in Massachusetts cut $6,000 from some Bay State residents’ annual pay.


Here’s the conclusion from the actual paper.


Our results suggest that mandate-based reform has the potential to be a very efficient approach
for expanding health insurance coverage nationally.

The same researchers previously reported that health care reform in Massachusetts decreased the number of uninsured, and


Using new measures of preventive care, we find some evidence that hospitalizations for preventable conditions were reduced. The reform affected nearly all age, gender, income, and race categories. We also examine costs on the hospital level and find that hospital cost growth did not increase after the reform in Massachusetts

So – the researchers conclude that there is less “dead weight loss” from a mandate than from a broad-based tax to cover health care costs.  Further, Massachusetts is covering more people and not spending appreciably more.  The Connector Authority (our health insurance exchange) is set to announce a second year of premium decreases.  

Health Care Reform in Massachusetts is working – the Herald headline notwithstanding.

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Infographic: How We Spend Our GDP

Today's Managing Health Care Costs Indicator is 13%

This month's Atlantic Monthly has two interesting infographics about how we spend our GDP in the United States.  We spent 4.8% on health care in 1947, 8.1% in 1967, and it's up to 18% as of 2007.  It's also striking how much less of the GDP we spent in 2007 on government services. In fairness, this has gone up through the Great Recession with increases in government services for those who faced financial hardship.

This doesn't all represent 'crowd out.'  Far fewer Americans grow or process food - so no surprise we're spending less on this.  The decrease in percentage of GDP going to education is especially scary, though. 

Click image to enlarge.  Source

Click image to enlarge.  Source 

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The Cautionary Tale of Fenofibrate

Today's Managing Health Care Costs Indicator is $700 million 

Source. Click image to enlarge 

The Archives of Internal Medicine has an illuminating narrative today about how Abbott Pharmaceuticals managed to maintain effective brand name pricing for this questionably-effective lipid medication for over TEN YEARS after its patent expiry.   The authors had an earlier paper showing the striking different use of fenofibrate in Canada compared to the US  - which I linked to in 2011. The annual cost to health care consumers and purchasers: $700 million!

Abbott’s plan, called “a novel and especially clever approach” in the accompanying editorial:

1) Sue potential generic manufacturers for patent infringement. This netted Abbott 30 additional months without generic competition
2) During this 30 month window, Abbott filed for a new formulation – with a slightly different number of milligrams per pill. The drugmaker did no new studies to show clinical efficacy –but rather simply showing that the new formulation was equivalent to the older formulation
3) Before the generic came out – Abbott moved 97% of all patients off the drug that would be substitutable, and to the “new” drug for which a generic had not yet been approved.  

Although the new drug was equivalent to the old one, generics could not be substituted.

4) When a generic was just about to come out for the second formulation – voila – Abbott introduced a third formulation – again showing only equivalency to the old formulation, and again preventing generic substitution.   The company only convinced 96% of patients to switch to the new, equivalent, nonsubstitutable brand name medication this time.

During this time, large studies failed to show survival or cardiac benefit to treatment with fenofibrate, which nonetheless was aggressively marketed.  Rates of use of this medication continued to rise!

The authors suggest a number of solutions to this problem – which could have been addressed by better regulatory efforts, a mandate to allow substitution for equivalent drugs, or prescribing physician unwillingness to go along with this decade-long charade.  

H/T to Marilyn Mann for pointing out this article.

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Medical Claims: Don’t Always Believe the Numbers

Today’s Managing Health Care Cost Indicator is 17,000

Click on image to enlarge.  Source: 

Two articles that have caught my attention over the last few days demonstrate that claims data doesn’t always tell the truth.

A report in the April 4 JAMA shows that while claims data suggests that there has been a dramatic decline in hospital admissions for pneumonia – much of that decline is accounted for by a coding change  More hospitals are billing sepsis with pneumonia. There’s still a decline –it’s just not nearly as impressive.    The implication – the accuracy of claims data over sequential time periods can be undermined by changing coding incentives. I’m sure you can imagine which of these diagnoses has a higher associated payment!

Sarah Kliff of the Washington Post’s WonkBlog picked up a letter to the editor from BMJ  which pointed out a series of absurd conclusions one could draw from billing statistics. The NHS data set suggests that there were 1700 MEN in the UK who received services associated with…. Pregnancy.

Claims data is critical for health services research and policy.  The advantages of claims data over chart review include:
- Well structured with agreed-upon definitions
- Includes all billed services, regardless of where these services are delivered.
- Inexpensive to obtain and to analyze

Here’s why claims data doesn’t always give us the right answer, though

- Plain carelessness.
o A number of years ago I saw a contention that claims for vaginal births for women who had a Caesarian section represented fraud.  Not really – just careless billing practices.

- Gaming.
o Remember – providers bill to get paid. They tend to adapt their billing practices to maximize the amount they will get paid.  If sepsis with pneumonia pays more than pneumonia with sepsis – well, you know what happens.  
o It’s likely that full coverage for preventive care will convert many previous problem-oriented visits to preventive visits. The content of care will not necessarily change – but the way it’s covered will.

- Local area variation
o In Eastern Massachusetts, pediatricians historically didn’t bill for vaccinations, since the serum was supplied by the state.  The state usually had one of the highest rates of childhood vaccination in the country according to the CDC, but you couldn’t have guessed this from reviewing claims data!

Claims data will continue to play a critical role in helping us evaluate the impact health care policy.  When the data doesn't make sense, though, we'll have to question it.

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Hepatitis C: A Growing Threat, and a Missed Opportunity

Today's Managing Health Care Costs Indicator is 3.2 million

Imagine that there is an infection which can be detected through screening.   There is an effective but expensive treatment, and many of those who suffer from the disease will die prematurely without detection and treatment.  Further, imagine that those who don’t know they have the disease will transmit the infection through sex or through shared needles – leading to preventable deaths and disabilities of hundreds of thousands more. 

This sounds like South Africa under Thabo Mbeke in the late 1990s  - where the government denied that HIV was the cause of AIDS, and refused to fund screening or treatment.  Researchers believe that 365,000 died due to the inaction of the South African government.

An article in JAMA last month reminds me that we don’t have to look very far to see a similar avoidable tragedy unfolding.   

In the United States, Hepatis C is a scourge.   About three quarters of those infected get chronic hepatitis.  Two thirds of these have active liver disease and a quarter of those get cirrhosis. The viral infection causes liver cancer, and is the largest cause of liver failure (and transplantation) in the US.    There is no vaccine, but a handful of (expensive) antiviral medications have recently been shown to be effective in lowering viral count, reducing new infections. There are recent reports that antiviral therapy has led to actual cures – a result we still haven’t achieved with highly active antiretroviral therapy for HIV infection. 

There are 3.2 million Americans with Hepatitis C – and most of them (66-75%) don’t know they have it.  About a million of those with Hepatitis C  pass through the US correctional system each year – so we could diagnose many of these cases through voluntary testing.  We could also treat newly-found cases of Hepatitis C – which could prevent future liver failure and prevent infection of others. It wouldn’t be easy, of course. The current drugs cost $30-60,000 for a 12 week course of treatment – it’s hard to imagine coming up with that kind of money in the prison system.   Just like high drug prices make it hard to imagine South Africa treating all of its HIV-infected individuals with expensive HIV drugs in the days before generics were available.  

We should  start diagnosing and treating prisoners who have Hepatitis C.   We also need to negotiate aggressively with the pharmaceutical industry to lower the prices of these lifesaving medications when they are purchased in bulk.  Hepatitis C killed more Americans than HIV last year!   We should not stand by and watch a public health failure like that of South Africa in the late 1990s. 

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Affordable Care Act Insurance Company Rebates

Today’s Managing Health Care Costs Indicator is $1.93 billion

The Commonwealth Fund released a study today estimating that insurers would have had to refund almost $2 billion to employers and consumers in 2010 if the Affordable Care Act provisions requiring “medical loss ratios” of at least 80-85% were in place.    

The paper reviews MLR methodology  -and points out that the Affordable Care Act has a broader definition of medical cost than that traditionally used by actuaries – including quality and antifraud programs, excluding tax payments from consideration, and allowing for additional administrative cost for plans with very few members.  A number of states have received waivers – and the decreased rebates due to waivers is modeled in the calculations.

The rebates would have been highest in the individual market (53%; an average of $183 per policy), but lower for small group (24%; $85 per policy) and lowest for large group (15%; $72 per policy).  This is not necessarily because health insurance plans are fleecing individuals.  The MLR includes everything besides for claims costs paid to providers, and the marketing and administration costs are much higher for policies sold to individuals compared to policies where a single signature arranges insurance for hundreds or thousands of policyholders.

Some states already regulate MLR – and no insurers would have owed rebates for individual insurance in Hawaii, Rhode Island and Vermont, while 98% of the market would be owed rebates in Kentucky, and 95% in Arizona. Insurers representing 12% of the Minnesota market would have owed rebates, even though that state prohibits for-profit insurers. 

I wouldn’t expect that health care costs would have been $2 billion lower if the ACA had been in place in 2010.   There is considerable judgment in determining what is a medical cost and what is a nonmedical cost.  When insurer stock price soared with low MLRs, health plans were more likely to count slightly clinical services as nonmedical.  With regulations to prevent low MLRs, health plans will do all they can to move arguably nonclinical costs into the medical loss ratio.  

While the MLR ratio requirements won’t save as much money as suggested in this white paper – it does put pressure on health plans to reduce nonmedical costs.  That pressure will force tiny plans to consolidate, which will help them increase efficiency. It discourages health plan arms races that lead to inordinate investments in expensive marketing.  It is likely to put downward pressure on brokers’ fees– and lead to health plan products that are simpler to administer and need fewer explanations. This regulation pressures the individual health insurance market to deliver health care products that have far more value to health care consumers (aka patients.) 

That seems like a great idea to me.

Click on image to enlarge. Source 

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Medical Societies Identify Unnecessary Tests and Procedures

Today’s Managing Health Care Cost Indicator is 45

The American Board of Internal Medicine Foundation published its compendium of five tests that each of nine specialty societies have agreed don’t usually offer any value to patients, and that we should not routinely order.  Each list can be accessed at this link.

I’ve mentioned the oncologist and internal medicine recommendations in past posts.  Some of my colleagues feel that the recommendations are not enough – but I think they’re a GREAT first step.  Once we have agreement about what tests and procedures aren’t worth doing, we can start measuring how often we’re doing them.  We can improve what we measure – and it’s terribly hard to decrease variation and decrease waste when we can’t measure it because we don’t agree about definitions.

There are things missing in this set of unnecessary tests.  For instance the otolaryngologists didn’t finger the inappropriate and highly remunerative upper respiratory endoscopies. Still, most of us know some gastroenterologists who recommend followup colonoscopies at too short an  interval – and having the American Gastroenterologic Association explicitly say that this is inappropriate can save money, can save time, and can save potential iatrogenic harm.

Social norms are important, and the ABIM Foundation has made it tough for specialty societies NOT to participate.  Eight more specialty societies will come up with their “top five” list of tests and procedures that physicians and patients should question this fall.

Public transparency is also important, and the ABIM Foundation is collaborating with a group of consumer organizations including Consumer Union (publisher of Consumer Reports) to let our patients know about these recommendations.  It’s nice to see providers taking on the critical issue of overutilization of tests and procedures with little or no incremental value.

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Diabetes Care: The Spectrum of Success

Today’s Managing Health Care Costs Indicator is  8.3%

Diabetes is a major killer in the US – the disease strikes about one in twelve  Americans ( 8.3% in the entire population; one in four over age 65), is responsible for over 70,000 deaths, and is the leading cause of blindness and kidney failure.   The Centers for Disease Control and Prevention estimates that the annual cost of diabetes in the US is $168 billion in medical treatment, and $58 billion in lost productivity.

I’m struck by two studies published in the last week that use diametrically opposed approaches –and both appear to work.  (Both studies are small, though , so it’s possible that the results will not be sustained in larger samples).

The NEJM  published two studies showing that intensive surgical intervention helps.   Italian researchers showed that bariatric surgery (the most invasive surgical treatments) could “cure” diabetes in 75-95% of those treated, compared to NO cures in the medically treated group.  American researchers showed that those who had less-invasive surgical treatments were three times as likely to have an excellent diabetes control (Hemoglobin AIC of <6).   The conclusion –for diabetics with morbid obesity, surgical treatment is strikingly effective.  Other  studies have shown that bariatric surgery can pay off in a few years in the general population – this set of studies provides further evidence that we should cover this expensive ($11-$26,000) procedure for those with morbid obesity.

The Annals of Internal Medicine published an elegant study  which randomized 118 African American veterans with diabetes to usual care, financial rewards ($100-$200), and peer mentoring.  The financial reward for better HbAIC led to a 0.4% average decrease in HbAIC, while the peer mentoring led to a 1.1% decrease in HbAIC.

There are often many roads that lead to the right outcome in health care – and these studies are all small and did not include similar groups – so shouldn’t be compared.   It’s nice to know that both high tech and low tech solutions can have a substantial impact, and have the potential to decrease diabetic complications in our increasingly-obese population.

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A Tough Week

Today’s Managing Health Care Costs Indicator is Five

It’s been a tough week for health care wonks of my persuasion.  

The Supremes – or at least the all-important Anthony Kennedy – suggested that the individual mandate could be toast, which would mean that the Affordable Care Act would insure millions fewer Americans.  Scalia et al suggested that if the mandate fell, the Court should invalidate the entire law, which would mean years or decades before we start trying the many good ideas embodied in this bill – including a path to generic biologic drugs, more comparative effectiveness research, and pilots to bundle payment.   The ACA is imperfect – but is chock full of good ideas for how to improve value in health care.  Many of these ideas won’t work as well as we would hope – but if we aren’t experimenting responsibly, our health care cost crisis will just continue to get worse and worse.

We need five justices to uphold the mandate, or at least to fail to declare the entire ACA unconstitutional. 

Two studies that came out this week also heightened my sense of malaise.  

The Premier Medicare Pay for Performance pilot – in which a group of 252 hospitals could earn bonus payments for improving certain quality metrics – showed no effectiveness whatsoever in lowering 30 day mortality.  NOW- this project wasn’t aiming to lower mortality. The bonuses were to encourage higher scores in certain evidence-based quality metrics – such as use of beta blockers and aspirin for heart attacks  and rapid antibiotics for pneumonias.   The reasoning was that this could improve quality and lower costs.

 Click Image to Enlarge. Source 

There are a lot of reasons why the Premier Medicare project might not have worked

·      The quality metrics might not actually be associated with lower mortality (good ideas –but not effective at diminishing death rates)

·      30 day mortality might be a bad metric itself – perhaps the hospital has more control over 15 day mortality, or 45 day mortality

·      The risk adjustment could have been flawed

·      The incentive might not have been large enough. The incentive was distant from the action, and although there was a potential penalty, hospitals could drop out if they faced a penalty.

·      The communication with the thousands of medical staff of these hospitals might have been ineffective

But all of this is whining.  Bottom line – this is  a deeply disappointing study.    Kudos to CMS, Premier, and Jha et al for publishing these negative results.  The only way to move forward effectively is to publish both positive AND negative results.

Ashish Jha had a double header in the NEJM last week – he also had an editorial suggesting that the emphasis on preventing hospital readmissions might be misdirected.  Hospital readmissions are staggering in the US Medicare population (almost one in five in 30 days).  However, readmissions are much lower in those under 65.   Further, Jha points to a literature review from the Canadian Medical Association Journal (The JAMA of the North) that showed that with clinical record review less than 12% of readmissions were judged to be preventable.  Overall only 2.2% of discharges led to a preventable readmission in this literature review.  Jha points out that penalties for high readmission rates could inadvertently penalize hospitals with lower mortality rates (who discharge patients who are by definition sicker).  Emphasizing the “wrong” measure draws our attention from other areas that may lead to better outcomes or more cost savings.

Now that we see coherent arguments against focusing too much attention on the “core measures” in the Premier demonstration and readmission rates, we just have to identify  on which metrics we SHOULD focus our attention.

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Blue Cross Blue Shield of Massachusetts Annual Report: Conversations on Health Care Costs

The Blue Cross Blue Shield of Massachusetts Foundation has a different format for its 2011 Annual Report - six health care experts ask and answer questions.  The six are MA Governor Deval Patrick, recent CMS Chief Don Berwick, Neighborhood Health Plan chief Deb Enos, Boston Medical Center CEO Kate Walsh, Associated Industries of MA President Rick Lord, and me.  

Here's the link.

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The Supremes Strike a Blow for Health Care Affordability

Today’s Managing Health Care Costs Indicator is $3000

All eyes are on the Supreme Court’s six hours of oral arguments on the Affordable Care Act this week – but we shouldn’t lose sight of a hugely important decision last week to limit the ability of biotechnology companies to patent “natural laws.”

The Supreme Court last week ruled that Prometheus Pharmaceuticals could not patent a test that suggests medication dose changes based on amount of metabolites in the patient’s blood.  Mayo Clinic had developed a similar test – with its own validated normal range, but Prometheus sued to stop Mayo from marketing its test.   Now there can be competition in this field, which is likely to lead to more innovation and lower price.  

This has led the Supreme Court to ask an appeals court to review its earlier finding that Myriad Pharmaceuticals and the University of Utah could continue to be the sole owners of a patent  for BRCA 1 and 2 – the genes that are associated with heightened risk of breast and ovarian cancer, especially among Ashkenazi Jews.  The  genetic test for these genes now costs $3000 – and many insurers are reluctant to provide coverage.

Advocates periodically assert that “personalized medicine” can improve quality and outcomes while lowering overall resource costs, and point to tests that can protect patients from drugs that would offer them no benefits, and help determine the best dose based on genes rather than trial and error.  There is no question that genetic testing is already saving and improving lives.   The current high expense of genetic tests makes it unlikely we can achieve the goal of cost savings  - and single source manufacturers would fight hard to maintain high “brand name” prices.  These Supreme Court decisions can inject competition in the biotechnology market,  offering the prospect of price relief in the all-important market of genetic tests and gene therapies.

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The Perils of Low Cost Medicine

Today’s Managing Health Care Costs Indicator is  128,000

I’ve often posted about “accretive innovation,” new medical technologies that cost a lot, and offer only a small portion of patients what is often only a tiny benefit.  I've talked less about the consequences of when prices are too low - which means we'll not obtain the potential societal benefits of a new drug. 

First, an example of accretive innovation.

In 2001, Xigris (human activated protein C, Lilly) was approved for use in severe sepsis based on a small study.   The drug was heavily marketed by Lilly – including hiring a PR firm and secretly funding an ethics task force which came up with guidelines that promoted Xigris use.  Subsequent studies showed that the drug was associated with a higher risk of brain bleeding and did not improve survival rates. The drug was withdrawn from the market last fall.  The result of all of this marketing is that a wildly expensive drug ($8000 per dose) gained high market acceptance; sales were $200 million per year. 

I’m reminded of the Xigris story by the New York Times last week, which reported that tranxemic acid, a dirt-cheap generic medication, could save up to 128,000 lives a year, 4000 of them in the US.

From the Times report:

For months, a simple generic drug has been saving lives on America’s battlefields by slowing the bleeding of even gravely wounded soldiers.

Even better, it is cheap. But its very inexpensiveness has slowed its entry into American emergency rooms, where it might save the lives of bleeding victims of car crashes, shootings and stabbings — up to 4,000 Americans a year, according to a recent study.

Because there is so little profit in it, the companies that make it do not champion it.   

This isn’t the first time we’re seeing the ugly side to drugs costing too little.  We have serious shortages of generic oncology medications and generic attention deficit disorder medications right now.  We need effective drug company marketing to bring pharmaceutical innovations to physicians – but disseminating knowledge about drugs is difficult if there is no one with a profit motive to do so.    

I was aghast at the FDA approval of brand name colchicine,  a drug that cost pennies, was well-accepted for gout and other indications, and which skyrocketed in price to over $5.    I felt rage when the Wall Street Journal reported that a pharmaceutical would charge $1500 for a previously-generic $20 progesterone injection to prevent premature deliveries.  But perhaps my anger is at least partially misdirected. 

It’s obvious that we can’t afford ridiculously high prices for drugs.  It's a bit less obvious but no less true that we need high enough prices for effective drugs that their makers will manufacture them and market them for appropriate use.

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Doc Dude Gives in to High Tech Medicine

The triumph of high-tech health care
by: costguy

Be sure to read a blog about GE’s effort to position ahandheld cardiac ultrasound to displace the stethoscope, rather than to disrupt the expensive fixed ultrasound machine.

H/T Healthcaresavvy.wbur.org

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We’re Number One

Today’s Managing Health Care Costs Indicator is One

Click on image to enlarge.   Source 

 The eyes of the nation have been focused on Massachusetts, as the Affordable Care Act is modeled on health care reform in Massachusetts.  When it comes to cost, We’re Number One!

The Blue Cross Blue Shield of Massachusetts Foundation just published a great 50-slide deck of graphics comparing  health care cost and utilization in Massachusetts with the rest of the country.  Massachusetts has the highest cost of health care in the country, and the largest number of physicians per capita.   Our physicians are more likely to be specialists than in the rest of the country.   Our hospitals are more than twice as likely to be academic medical centers.   Our health insurance designs are among the richest around, with low average deductibles.

Most of the increased cost of care since Massachusetts’s health care reform has been cost per unit, not increased utilization.   The rate of cost increase in Massachusetts has been lower than the rest of the country since we passed our health care reform, although of course we started at a much higher base.

Implications of Massachusetts experience for the post-ACA American health care system:

·      Increasing access doesn’t lead to an instant onslaught of new utilization

·      Health care is regional –and structural issues (not health care reform) make health care in Massachusetts spectacularly expensive

·      We need to keep our eyes on price – not just utilization – if we want to control the rate of health care inflation

*  Health care inflation crowds out other important societal priorities (see graphic at the bottom of this post.   That's why health care reform, and control of health care costs are so important. 

The  Blue Cross Blue Shield Foundation conclusions:

• Massachusetts spends more on health care than any other state.
• Higher costs were not caused or markedly accelerated by health reform, as Massachusetts has been a high spending state for years.
• The underlying difference in spending between Massachusetts and the U.S. overall is rooted in the state’s demographics, insurance coverage, and health care market structure, which includes disproportionately many specialists and teaching hospitals and some very large and powerful hospital systems.
• Though the amount of most services used increases every year, the majority of the growth in health spending comes from increased prices.
• There is enormous variation in total health care spending across the state, stemming from variations in both price and utilization.
• However, neither higher prices nor higher utilization of services is associated with higher quality or better health outcomes, suggesting that there is a significant amount of waste in the Massachusetts health care system. It also suggests that costs can be lowered without decreasing overall quality or health outcomes.

Source: Blue Cross Blue Shield of Massachusetts Foundation

Click image to enlarge. Source 

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Commonwealth Fund Sees Medicare Savings From PCP Fee Increases

Today’s Managing Health Care Costs Indicator is 2%

                     

The Commonwealth Fund  projects that Medicare investing through maintaining the Affordable Care Act’s 10% primary care physician increase beyond expiration in 2016, Medicare could save almost two percent of total costs.  In this simulation, primary care costs would go up by $89 per person per year (about equally distributed between increased unit costs and increased utilization), while total costs would decrease by $539 – a whopping 6:1 return on investment.

The authors posit that savings would come from hospitals and outpatient hospital facility fees and specialist care. Imaging and diagnostic costs increase in this simulation, which seems unlikely, as specialists seem as happy to order tests as primary care physicians. Outpatient medications and other Part B services also increase.

The authors make a powerful case to make more investments in primary care. The savings could presumably increase further if the primary method of payment was not fee for service.

Click on image to enlarge. Source link above

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CBO Weighs In: Insurance Costs Up and Coverage Down Without Individual Mandate

Today’s Managing Health Care Costs Indicator is 16 milllion

The CBO put forward its estimates of the impact of eliminating the individual mandate – the slides are at this URL

The CBO estimates that 16 million fewer people would have health care coverage in 2021 if the individual mandate is eliminated .  The deficit would be $282 billion lower over the decade (the net of $149 billion less Medicaid spending, business and exchange subsidies, loss of penalties, and higher tax revenue as there are fewer claiming health care deductions.

However, the cost of purchasing insurance in the nongroup pool would go up a whopping 15-20% - largely because those likely to opt out of health insurance are likely to be the healthiest.

Two observations.  Some have suggested that the cost of health care reform has gone up substantially (as much as doubled) since the last estimates.  Ezra KIein shows that this is false - the only increased cost is higher subsidies due to just how bad the Great Recession has been. Beware comparisons of different years, especially when the earlier estimate included pre-implementation years!

The second observation is that government expenditures of  $282 billion to have 16 million additional insured Americans at the end of 10 years is a good deal. (I’d like to calculate how much this is per person insured per year, but I can’t find the year-by-year information among the CBO publications.)  Some of those who will be insured under the mandate but would go “naked” absent the penalty will be healthy. But remember that health insurance is wealth transfer from the healthy to those with illnesses – so we NEED to get healthy people to participate in health insurance.   Health insurance cannot be affordable if only the sick participate.

The mandate is associated with very low opt-out rates in Massachusetts, despite a very small penalty.   Supreme Court has oral arguments in just a few days.

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New England Journal at 200, and Disruptive vs. Accretive Innovation

Today’s Managing Health Care Costs Indicator is 200

The New England Journal is celebrating its 200th birthday, and the New York Times  has a touching article about two former editors, Arnold Relman and Marcia Angell, who have been tireless advocates against for-profit health care, and have become a couple late in life.

From the Times:

In [Relman’s] ideal health care system, doctors would be salaried and organized into large multispecialty group practices similar to the Mayo Clinic and other private clinics; care would be delivered by a single-payer nonprofit system, financed by the taxpayers. “You’d save an enormous amount of money,” he said, much of it by eliminating the private insurance industry, “a parasite on the health care system.”

There is more nuance to the role of profit in health care than Relman and Angell would allow.   The pharmaceutical industry might have many profiteers – and the return on capital for the pharmas has historically been high.  Further, it often seems that the pharmaceutical industry spends more energy on marketing “me too” drugs and promoting new medications that are much more expensive but only a tiny bit more effective than existing generics.  BUT – and it’s a big but – most of the major improvements in medical care in my professional lifetime have come from pharmas. This includes highly active antiretroviral therapy (HAART) for HIV, gleevec for chronic myelocytic leukemia, and drugs that aim at specific genetic targets for breast and lung cancer.    For-profit companies have led the way in accretive innovation – the innovation that layers on new technology or new approaches to increase quality (often just a little), and also to increase revenue and cost (often a lot).

Can for-profit companies play a meaningful role in disruptive innovation, where there are large increases in value – often associated with small initial sacrifices in quality?  I’d suggest the answer is unequivocally “yes,” as long as the market will reward disruptive innovation.   Toshiba (a for-profit company) created the MRI machine that profitably performs $100 MRI scans  for the Japanese market where price regulation didn’t allow for $1000 scans.  General Electric   has developed in its labs (in India) inexpensive PC-based EKG machines and a low-cost hand-held cardiac ultrasound.   Ironically, of course, in the US  GE would like to position the handheld cardiac ultrasound to replace the stethoscope (thus increasing cost) rather than the fixed ultrasound.  In the US, where higher payment is possible for improvements in quality that often have little or no clinical value, even potentially disruptive innovation is transformed into accretive innovation. See this post  for more ruminations on this example.  

I’m not convinced that the profit status of a company alone determines how effective it will be at delivering value in health care.   There are plenty of high-priced not-for-profit hospital systems and there are plenty of high value physician-owned offices.   I do think that how the company is paid – including the price-sensitivity of purchasers and public knowledge of quality – plays a substantial role in determining whether companies increase value, or merely increase revenue.    I think we need to focus on effective payment reform to increase value in health care, and then encourage competition of both for-profits and not-for-profits.

I blogged about Arnold Relman’s complaints about the Affordable Care Act last fall.

There’s more about the  NEJM’s 200th anniversary.  For the skeptical, check out On the Media’s interview with Jeffrey Drazen, the current editor, who talks about the many nostrums that were at one time promoted in its pages.  The Journal at one point supported eugenics, pathologized homosexuality, and editorialized against women in medicine. It was published for almost a half century before the germ theory of disease became popular.  Drazen notes

The key thing is to recognize you made a mistake and try to make progress. 


The New England Journal has also been a market leader in making its articles available for no cost to those logging in from developing countries, and making articles with important clinical or public policy implications free immediately to all.  Happy Birthday.    

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CDC Chief and Graphic Antismoking Ads

Today’s Managing Health Care Costs Indicator is $200 billion

Thomas Frieden, the Director of the Centers for Disease Control and Prevention (CDC)  is interviewed in this weekend’s On The Media, where he talks about the federal government’s upcoming graphic anticigarette ad campaign.   He quotes freely from the most recent Surgeon General’s Report on Smoking, which focuses on preventing smoking among youth.

Smoking continues to be the leading cause of preventable death in the US – almost a half-century after the first Surgeon General’s report.  Still – the rate of adult cigarette smoking in the US has plummeted by half, and the huge drop in death from heart disease is likely largely due to smoking cessation (rather than cholesterol medications or heart surgery or angioplasty).

A few facts mentioned by Dr. Frieden:
- For each person who dies of a smoking-related disease, 20 are disabled or made ill from smoking
- The annual cost of smoking to the national economy is estimated to be $200 billion. (This is loss of productivity – not only health care claims costs)
- 2/3 of smokers want to quit
- Most people who ever smoked have already quit
- Most smokers try to quit each year.

He hopes the ad campaign will help convince 50,000 smokers to quit.

Here’s what this campaign is up against (From the 2012 Surgeon General’s Report, p10)


In 2008, tobacco companies spent $9.94 billion on the marketing of cigarettes and $547 million on the marketing of smokeless tobacco. Spending on cigarette marketing is 48% higher than in 1998, the year of the Master Settlement Agreement. Expenditures for marketing smokeless tobacco are 277% higher than in 1998.

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The Continued Decline of Employer-Sponsored Health Insurance

Today’s Managing Health Care Cost Indicator is 53.5%

Click on image to enlarge. Source http://hschange.org/CONTENT/1280/

A report from the National Institute for Health Care Reform this week reports that 53.5% of Americans under 65 were covered by employer-sponsored health insurance in 2010 – a startling 10 point drop over only four years.  This continues a long term trend – almost 70% of Americans were covered by employer-sponsored health insurance in 2001. 

Employer-sponsored health insurance can decline for three reasons

1.      Fewer people have been employed.
2.      Fewer employers might offer health insurance.
3.      More employees might decline employer-sponsored insurance, usually due to high employee premiums.

The Great Recession has reshaped all three elements of the employer health insurance market.  It will take us years (or decades) of growth to get back to employment levels that would have been predicted pre-Recession – and fewer jobs for applicants has meant a labor market where employees have more readily accepted poorer benefits – grateful just to have a job.   

More employees are working as independent contractors rather than full employees – and therefore ineligible for employer benefits.  Further, employers have felt enormous pressure to lower their costs –and with benefits (largely health insurance) often running an additional 30% of payroll, many employers have offered plans with lower benefits and higher employer premiums.  The higher premiums mean that more employees will opt-out –and be uninsured.

Government-sponsored insurance has picked up a substantial portion of the slack. Medicaid has increased from 9.5% of the population to 17.6% from 2001-2010, and even Medicare coverage has increased from 1.6% to 3% of the population (presumably more Americans who qualify for disability).    Still, the uninsured went from 14.1% to 19.5% of the population. (The 15% usually cited includes the elderly, who are nearly universally covered by Medicare).

Employers are advantaged purchasers of health insurance. They have a ready-made and stable group (sothey can spread risk across the population, and  it’s easier for actuaries to estimate future costs.)  They can enroll employees and families easily – lowering transactional costs compared to health plans enrolling individuals and small groups.

But employer-sponsored health insurance also causes “job lock,” where those with serious illness in their family are unwilling to change jobs for fear of insurance interruption.  This decreases labor flexibility – lowering overall growth and productivity. 

The decline in employer-sponsored health insurance illustrates the importance of establishing other ways to obtain health insurance.  These alternative means should have low transactional costs, and should allow substantial spreading of risk over the population.  That’s why we need health insurance exchanges to maintain access to health insurance and health care, and an individual mandate (or something close) to discourage the healthy from opting out.  

The nature of employment in the US has changed substantially, and the ACA allows the insurance market to effectively respond to these changes.  We’ll see what happens this week during Supreme Court arguments over the constitutionality of the Affordable Care Act.

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