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.

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.

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.

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.


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.
Click image to enlarge. Source 

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

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.

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.    

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.

The Continued Decline of Employer-Sponsored Health Insurance

Today’s Managing Health Care Cost Indicator is 53.5%

Click on image to enlarge. Source
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.

Proton Beam Therapy: Build it And They Will Come

Today’s Managing Health Care Costs Indicator is 550%
Click image to enlarge.  Source 

Austin Frakt at The Incidental Economist picked up a gem from last month’s Archives of Internal Medicine.

Proton Beam therapy has not been shown to be any more effective for prostate cancer than intensity modulated radiation therapy.  IMRT in turn has not been shown to be any more effective than conventional radiation therapy.   Both newer technologies should be better – they focus the cell-searing radiation more tightly on the tumor, and should preserve more normal surrounding tissue. However, while the costs are dramatically higher, the clinical evidence of benefit has not yet been demonstrated.

In California, where there was only a single proton beam accelerator  from 2003 to 2006, men were 5.5 times more likely to get this therapy. In 2007, researchers reported that the allowed amount for IMRT for prostate cancer was $58, 610 per person,  over twice as much as IMRT (which is substantially more expensive than conventional radiation therapy). Harvard Link.  Proton beam therapy centers cost at least $30 million to build, and as much as over $200 million if they have multiple rooms.

Modern Healthcare reported in 2010 that there were 13 more proton beam therapy centers on the drawing boards for the next few years.  (Gated.   Harvard Link )   If we invest this capital, it insures that our future costs will climb even higher.    Here’s where we really need comparative effectiveness research!

Who Should Administer Medications?

Today’s Managing Health Care Costs Indicator is $15,100
NPR and Kaiser Health News reported today on a dilemma facing the state of Connecticut. The state is facing huge budget deficits, and the governor has promised to send thousands of patients out of nursing homes (where the state funds half of the cost of Medicaid) to get care in their homes.  

The problem is that state law mandates that nurses administer any drugs to the homebound.  Drugs cannot be set up by nurses and administered by home health workers.  Some patients are visited by nurses as many as three times  a day.  The total cost is over $128 million for 8500 patients (or over $15,000 per patient per year).

These nursing visits are not bad.  The nurses say they assess the patient, build rapport, and can potentially prevent hospitalizations.   However, the mandate to have nurses administer medications drives up costs substantially.  Ironically, it might make it so that some patients have to stay in nursing homes rather than be cared for at home.

The requirement to use nurses for medication administration prevents “downshifting” to less-skilled workers.   This requirement also discourages innovation.  Innovative companies should be designing technology to promote high levels of medication adherence requiring no skilled professionals.   No need to do this when regulations will inhibit the market for such a machine.  Regulations that protect “professional turf” are always positioned as promoting patient safety.  This is a good example of how they can lead to lower-value health care delivery.

United Health Care’s Genetic Testing: Includes More Than You’d Think

Today’s Managing Health Care Costs Indicator is $25 billion

That’s the upper end of what a new white paper from United Health Care says genetic testing might cost in 2021.  The UHC data shows that the insurance giant spent $500 billion on genetic testing in 2010. 

I was pretty shocked when I saw that Medicaid beneficiaries had a higher rate of genetic testing than those with commercial (employer sponsored) insurance or those on Medicare.  Huh?   Does it make sense that an insurance plan focused on economically-disadvantaged young moms, the disabled who often suffer from major mental illness and long-time nursing home residents would have the highest rate of genetic testing? 

Only if the definition of genetic testing is expansive.  A genetic test here is defined as any test that uses genetics to get an answer. The overwhelming majority of tests are likely laboratory studies to rule out sexually transmitted disease (chlamydia, gonorrhea, and HIV).  Those tests aren’t nearly as expensive * as the tests of an individual’s genome to detect heritable diseases, or the tests of a cancer’s genome to determine susceptibility to a chemotherapy agent.  They often replace non-genetic tests that took longer, required more difficult sample-gathering, or were less accurate.  

I think it’s more valuable to focus on the more expensive genetic tests that are being used to personalize medicine – and consider the tests for sexually transmitted disease (not highly individualized) just as we treat other diagnostic tests.

Click images to enlarge. Source 

UHC’s recommendations on how to approach genetic testing from a policy perspective make sense to me. The recommendations are on pages 5 and 6; I’ve rephrased them

- Insure confidentiality
- Do comparative effectiveness research 
- Pay for the actual value of a test (rather than an inflated initial amount with upward adjustments) 
- Transparent coding and reporting
- Better regulation of lab companies doing genetic tests – especially “laboratory developed tests,” which right now the white paper says have “minimal oversight.” 
- Train doctors and health professionals so that they can give accurate (and good) advice

* Note you can purchase 20-pack tests for chlamydia for about $20 per test. 

Medicare Growth Slows

Today’s Managing Health Care Costs Indicator is $69 billion

Click on image to enlarge. Source 

The New England Journal of Medicine reported last week that the Congressional Budget Office lowered its estimate of Medicare costs over the next decade by $69 billion in January.   The trend rate for Medicare is estimated to be below changes in GDP per capita for the next decade – which is unprecedented since Medicare’s inception.


For starters, authors White and Ginsburg are using costs per capita – thereby adjusting for Medicare’s growth in enrollment with aging of the baby boomers.  That’s the only fair comparison –but there will still be some who will point to higher overall costs.  In fact, with a smaller base of workers paying for most of Medicare, the total cost is important, too.

There are some important forces which can help lower Medicare costs during this decade.

1)      Baby boomers are accustomed to (or perhaps resigned to) some elements of managed care, and are less likely to resent some restrictions on the care that they receive. It’s not as difficult to accept prior authorization for high cost imaging when you’ve been subject to this for over a decade!
2)      The PCORI ( Patient Centered Outcome Research Institute) has stated that it will focus on the triple aim:  better quality, better patient experience, and lower cost.  This can provide evidence that will increase the hurdle for incremental innovations with high costs and minimal clinical improvement.   3/14 ADDENDUM:  PCORI is prohibited from considering cost. It's the CMS Innovation Center that is focused on the triple aim.  See comment from Nathan Punwani below.  
3)      The Independent Payment Advisory Board (IPAB) will make recommendations about how to lower costs if spending targets are exceeded.  The IPAB will force Congress’ hand – it must vote up or down recommendations in their entirety, much like military base closings.  A bill to abolish the IPAB is close to House passage, though, and some of the Board’s 2012 funding was rescinded.
4)      Increasingly effective anti-fraud efforts, including better use of software to detect early fraud patterns before millions of dollars in claims are “out the door.” 
5)      Increasing out of pocket costs for those with employer-sponsored health insurance promotes disruptive innovation, which can lower the costs of health care for all, including those on Medicare.

It’s reassuring that as the Medicare growth rate has tumbled the rate of growth of spending in commercial (employer-sponsored) health plans has fallen as well.  Many worry that any dollar saved in Medicare or Medicare is “shifted” to nonpublic payers. That doesn’t seem to be true at the moment.

There are a series of market forces, however,  that threaten to make Medicare costs escalate beyond current projections
1)      Move toward increasingly individualized care.  While some advocates point out that genetic tests can prevent giving an expensive toxic medicine to a patient who won’t benefit, individualized medicine is bound to increase costs because the tests will be done on a large group of patients, including those who might have otherwise gotten little or no care.  Tests which can prevent the use of a drug that will cost tens of thousands of dollars will have a high market value.
2)      “The new 55.”  Aging baby boomers increasingly expect high levels of physical activity into their 70s, 80s, 90s and beyond. Stanford physician and author Walter Bortz continues to run marathons into his 80s, and has written that with the right diet and exercise humans can live to be 120.  We’ll need to be doing total joint replacements for people who a generation ago would have accepted loss of mobility (or even died).  This is a good thing – but it won’t be cheap!
3)      Market consolidation.  Hospitals increasingly “own” their physician staffs, and there has been huge consolidation in the health care market space.   Provider competition is more likely to lower overall costs, and that might be diminishing
4)      Decreasing undertreatment.   Most health care is at best cost –effective, not cost-saving.  Many interventions that are now underutilized (colonoscopies for instance) are likely to increase over the next decade, especially as electronic medical records with robust patient portals take hold.   Again, this is good, but these cost-effective interventions will give us extra quality-adjusted life years, but at a significant price.
5)      Increasing adherence to medications.   While some suggest that we can save billions if patients just listen to their physicians’ advice and take their medicines, most medicines are cost-effective, not cost-saving.  See note above. This is great – but we’ll get QALYs for a price.

It’s hard to predict the future, at least prospectively, and it’s heartening that experts see an end to the rapid cost spiral in Medicare.  I think achieving these projections will require substantial effort.  Sara Kliff of Wonkblog has pointed out that if these projections are right we won’t need the IPAB.  I wouldn’t bet on that.

Advocate and BCBS Illinois Claim Large Savings

Today’s Managing Health Care Costs Indicator is 6.1%

Advocate Health Care, a large integrated delivery network in Chicago, and Blue Cross Blue Shielf of Illinois (BCBSI), the largest health plan in that metro area by far, announced last week that their collaboration on an ‘accountable care organization’ framework where medical management was fully delegated to the delivery system yielded medical trends that were 6.1% lower than the rest of the market – based on data from the first six months of claims.

I’m optimistic that this kind of collaboration can yield significant cost savings, and I’m convinced that doing medical management at the provider entity, rather than at the health plan, will yield to better patient engagement and improved results.  I’ve seen in my experience that physician groups and physician hospital dyads which accept capitation are much more creative about how to improve care while lowering overall costs.   Advocate has also been forward-looking in its data collection, and has excellent dedicated physician leadership.  So – I’m happy to see this report.

However, it’s early –and the short Kaiser Health Network report leaves a lot of questions.
  1.   Was the ACO group comparable?   It appears that the Advocate ACO had a limited network –whereas the standard BCBSI product has a very wide network. This could discourage those with more illness (and more established relationships outside of Advocate) to stay out of the ACO product.   It would be nice to be sure that at least the demographics were not different for the Advocate group between the baseline year and the observed period.
  2.  Was there any change in benefit design? Was the evaluation adjusted for richness of benefit design (or change of benefit design.)  Companies that choose the limited network might have also trimmed benefits further – in which case an evaluation should include out-of-pocket costs.
  3.  How much of the claimed cost savings was utilization, and how much was cost per unit?It’s likely that Advocate agreed to steeper discounts to establish this limited network.  It would be nice to see a decrease in the resource cost of care – not just a decrease in trend due to lower stated prices. 
  4.   How will any ‘side payments’ or reconciliation affect the overall cost savings?Note that for BCBS Massachusetts evaluation of the first year of its Alternative Quality Contract, the cost of paid claims went down, but the total cost of care went up due to bonus payments to providers.  BCBSMA has done the right thing by hiring reputable independent researchers to review its data and publish the results.    
  5.  Were there any claims payment issues that could lead to differential ‘incurred but not received’  (IBNR) amounts?  It’s more likely that there would be some delay in payments in the ACO arrangement in the first few months, especially if there are any “subcapitations” or different contracts that help Advocate manage care.  If there is a different IBNR amount, that could eat into the stated savings.
It’s great to see early reports of success in lowering cost through collaborations between payers and providers.   However, early reports sometimes don’t tell the whole story, so we should look for future reports that answer the questions above before accepting claims of cost savings.

Dental Cavities in Preschoolers – Blame the Parents, or Use Fluoride?

Today’s Managing Health Care Costs Indicator is 70%

It’s hard not to connect these two New York Times  headlines: 
  1.        Preschoolers in Surgery for a Mouthful of Cavities (March 7)
  2.        In New Jersey, a Battle over Fluoride and the Facts (March 2)

Yesterday's article notes a rise in preschoolers with severe dental cavities – as many as 12 teeth needing filling, root canals, and extraction.  The children often need general anesthesia for lengthy procedures – and continue to get cavities afterward.  The dentists quoted note that parents don't brush their kids’ teeth – and allow too much sickly sweet snack food. 

What the dentists don't note is that the answer to this problem is not likely more dental visits or demonizing neglectful parents.   The answer is fluoridation of public water supplies, which leads to a 50-70% decline in dental caries.   A bit over 72% of Americans currently get water from fluoridated municipal sources – although that figure is only 14% if New Jersey.   A move to bottled water can also deprive kids of the trace amounts of fluoride that help prevent cavities.  

There have been many concerns raised about potential ill effects of fluoride in the water supply.  Opponents decry government overreach, or suggest loss of IQ or discolored teeth.  Many municipal utilities don't want to take on the extra expense, especially in an environment with huge barriers to obtaining new revenue.  But fluoridation has been endorsed by five consecutive Surgeons General, and is recognized by the Centers for Disease Control as one of the ten most important public health advances of the 20th century.  

Small children with extensive dental decay is a big problem.  Let’s approach this from a public health perspective.  (We could save money, too.)

Professional News

Today’s Managing Health Care Costs Indicator is 2006

The American College of Physicians produced a white paper in 2006 stating that primary care medicine in the United States was facing a ‘grave threat of collapse.’  It’s estimated that there might be 35,000 to 44,000 too few primary care physicians in the US by 2025, and primary care physicians already feel that their workload is overwhelming.   Primary care is a foundation for health care reform, but it’s badly broken.

Here are two anecdotes that I’ve heard recently that demonstrate some of what’s wrong with primary care.   A colleague complained to me that her primary care physician threatened to “cut off” her supply of an asthma preventive medicine because she had not been in to the office for over 12 months.    At almost the same time I heard from a Medicare-age relative that she called her primary care physician for severe abdominal pain on a Friday morning, and was offered an appointment on the following Wednesday afternoon.

The first example –a physician was gumming up her schedule with a value-destroying appointment for a highly motivated patient who was herself controlling her own chronic disease.  She was likely doing this because in a fee-for-service world there is no compensation for calling in prescriptions – and no good mechanism to track health care maintenance unless patients physically visit the office.   In the second example,  a non-clinical worker was performing triage.  The patient felt unvalued, her needs were not met, and she is likely to need emergency-setting that could have been avoided.

I’m happy to report that I’ve started a new professional chapter -- I’ve joined One Medical Group ( as the Chief Medical Officer as of March 1. 

One Medical is the brainchild of Dr. Tom X. Lee, a founder of Epocrates, the mobile medical and pharmaceutical reference tool used extensively by physicians around the world.  One Medical offers same day appointments and longer appointments, and is committed to sharing information with patients electronically.   The practice has built its own dedicated medical record which better supports the needs of primary care clinicians and patients – and promotes efficiency and higher quality. Patients can book their own appointments – no need to go through triage by a nonclinician. 

One Medical has an iPhone app that patients with acute illnesses can use to determine whether they can avoid an office visit.  A young woman with symptoms of a urinary tract infection can answer the app’s questions, and if appropriate a virtual medical team nurse practitioner or physician assistant can call an antibiotic in without an office visit.    The management team has extensive retail experience, and has focused on how to “delight customers,” not merely meet the minimum requirements to participate in health plans.  The practice has an annual membership fee of under $200, and currently has offices in San Francisco, Washington DC and New York, and is growing in its existing geography and coming to new cities in the future.

One Medical was featured in the New York Times last year.

I’m excited about this new role, and the team of clinicians and non-clinicians which I’ve joined.  You’ll probably see me focusing on some additional primary care issues, and of course I welcome your comments and thoughts. The blog continues to represent my personal point of view. 


Electronic Medical Records Don’t Lower Imaging Utilization

Today’s Managing Health Care Costs Indicator is 18%

Researchers from Cambridge Health Alliance reported yesterday in Health Affairs that physicians who had electronic access to the results of imaging tests were 30-70% more likely to order such tests as physicians who did not have access to electronic reports on the results of the imaging studies.    18% of visits to physicians with electronic access to results were associated with an imaging test, compared to 12.9% of visits to physicians without such access.  Note that it wasn’t the presence of an EMR or electronic ordering alone – it was presence of electronic access to the results. They studied a nationally representative database of physician office visits. 

By the way - more than one visit in 8 resulted in an imaging test without EMRs. This suggests rampant overutilization.  

The researchers did an exhaustive number of regression analyses – trying to see if characteristics of patients or physicians were more likely to be the cause.  Could it have been self referral? Or possibly physician specialty?  They came up dry – the overwhelming association was that access to electronic results yielded more testing. 

Many advocates of electronic medical records have overstated their likely cost savings, including duplicative tests.   Duplicated tests often have small marginal costs anyway –and this study suggests that if anything effective EMRs might be associated with more, rather than less imaging.

EMRs are adding value by preventing errors, facilitating coordination, helping encourage physicians to follow evidence-based guidelines, and  by allowing better benchmarking and reporting to physicians about their performance.  They’ll probably eventually save dollars by facilitating reporting on variation, and encouraging more evidence-based care.  There are many benefits to EMRs, even if we can’t claim that they will save billions of dollars through decreased imaging utilization.

United States and the World: Prices of Generic Drugs

Today’s Managing Health Care Costs Indicator is 2.4

I’ll be teaching a class on international provider payment this week – and there are two excellent resources recently published.

Ezra Klein has another commentary on the data from the International Federation of Health Plans, showing the vast differences in prices paid for health care services in the US compared to other countries in the Organization for Economic Cooperation and Development (OECD).   These data are adjusted for cost of living. The Washington Post staff created a killer interactive graphic.   

The Commonwealth Foundation has collected much of the OECD data into a small number of very accessible graphics, and these are available here.     

I was surprised to see that generic drugs are the one place where prices in the US are generally LOWER than in other OECD countries – sometimes by a factor of more than three.  I’ve averaged the factors for each country (nonweighted) and the other OECD countries pay 57% less for brand name drugs, but over 2.4 times as much for generics.    It makes sense to be willing to pay more for generics – and recent shortages have shown us the hazard of paying too low a price for generic medications.   It’s also cheaper to pay more for generics than to pay more for brand name drugs.  
Click on image to enlarge.  Source: Commonwealth Fund 

The US relies on market mechanisms –and once patent protection has expired, generic medications represent a much more effective “market” than brand name medications. (There is real competition, information is readily available, and there are low cost of entry and exit from the market.)  Therefore, the US approach genuinely lowers generic prices – while it doesn’t do the same for brand name prescription prices.  Other OECD countries generally use price setting – and for generic medications are paying more than the market alone would demand.

Quick facts:
  •           Generic drugs represent about 65% of prescriptions (Medicare Part D), but less than a quarter of costs
  •           The average price of a generic prescription in the US is under $40, while the average brand name prescription is over $155 (2009 data)