Another Vaccine Success Story

Today’s Managing Health Care Costs Indicator is 

$200 million

The October Journal of Infectious Diseases reports that rotavirus vaccine, administered to prevent early childhood diarrhea, decreased the number of hospitalizations for diarrhea by 66,000.  This represented a decrease of 69% for discharges coded as rotavirus, and 36% for all hospital discharges with diarrhea of unspecified cause. 

Between 15-20% of this decrease was due to ‘herd immunity,’ where even the 43% of infants that had not gotten a single dose got some protection because there was less rotavirus in the community due to those who did get vaccinated.  Huge decreases in hospitalizations were seen in children ages 5-14, who had not received the vaccine.  This is similar to findings with influenza vaccine, where immunizing young children might be an especially effective way to prevent flu deaths among the elderly.

The total savings from hospitalizations prevented by the rotavirus vaccine was estimated to be over $200 million.

Immunizations remain one of the few medical interventions that are not merely cost-effective, but which are frankly cost saving.  The newer childhood vaccines, which are quite expensive, probably won’t be nearly as cost saving as the older vaccines, such as the measles-mumps- rubella (MMR) vaccine.  Rotavirus vaccine costs between $60 and $70 per dose. We should we consider the prevention of disease in those who themselves are not vaccinated when we calculate the overall cost impact of these vaccines.

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Device Company Payments to Orthopedists

  

Today’s Managing Health Care Costs Indicator is $228 million

The Department of Justice settled lawsuits with 5 major artificial joint manufacturers in 2007.  The lawsuit required each to stop improper compensation to practicing physicians, to accept heightened oversight, and to divulge future payments to orthopedists.  The firms did not acknowledge any guilt.  These firms disclosed $198 million in payments to 939 orthopedist in 2007, and $228 million to 526 orthopedists in 2008.

Researchers have poured through the filings to compile a list of which physicians received how much compensation as consultants (published in Archives of Internal Medicine on October 24  Harvard Link)   Here’s what they found:

• 4% of practicing orthopedists received payments
• Payments averaged $190,331 in 2007, and $401,951 in 2008. (The 2008 number is inflated because of a large contract buyout by one orthopedic device manufacturer)
• 43 Orthopedists received more than $1million in both 2007 and 2008. Over a third of these each year (16 and 17) had no academic affiliation.
• Over a quarter of those orthopedists receiving payment as consultants had  one or fewer published papers

Orthopedists make important decisions about which implantable artificial joints to use, and these decisions are worth hundreds of millions to each of these companies.  These payments are large – and would represent a substantial portion of each of these physicians’ income.  Most or all of them deeply believe that these payments have no impact on their clinical decisions.  But that’s just not credible. 

Tools to diminish this kind of payment include

• Transparency.   Putting this data in searchable databases will make physicians less likely to accept these dollars
• Disclosure.  Physicians who recommend one course of treatment when they are getting payment from a manufacturer should fully disclose this to their patients. 
• Professional ethics.   Many medical schools have implemented guidelines to diminish this type of unseemly influence. (On the other hand, collaborations between practicing orthopedists and research universities is should be continued)

We all want some sense of assurance that we’re getting a physician’s honest recommendation. We don't want our operating rooms to be full of product placements.

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Insurance Companies Betting on Government Health Plans

Today's Managing Health Care Costs Indicator is
$3.8 billion

 

Source (click image to enlarge)

Cigna agreed last week to purchase HealthSpring, a Medicare and Medicaid health plan based in Tennessee, for $3.8 billion.  This prompted Wall Street analysts to increase the valuation of Medicare and Medicaid health plans --which it says are now worth $6000 per enrollee (Medicare) and $1200 per enrollee (Medicaid.)

This is a big bet - the insurers are wagering that the Medicare HMOs will continue to be paid a hefty amount (12-13%) more than traditional Medicare on a risk-adjusted basis, leaving a nice profit margin even after accounting for costs of marketing, enrollment, and network contracting that indemnity Medicare doesn't have to worry about.

The Affordable Care Act lowers Medicare Advantage plan reimbursement by $130 billion over 10 years, and past deficit reduction bills had additional cuts, although no one is sure what the "supercommittee" will suggest, if it suggests anything at all.

Medicaid plans are being cut by all 50 states, but many of them hope to wring out some savings through sending more members into managed care, leaving this an area of potential growth.  Medicaid should also enroll an extra 16 million members as a result of health care reform - although that's been in some jeopardy due to state cuts as well. Most states intend to move more Medicaid beneficiaries into managed care - which means plans with a track record of good Medicaid management should be especially valuable.

Wall Street financiers have an incentive to project hefty insurance plan profits from government health plans in the future.  This helps convince the big four (or five) health plans to open up their wallets (reserves) and pay high valuations for other companies, which leads to higher transaction fees.  The Affordable Care Act offers some tax advantages to nonprofit health plans, but that is also apparently not making investers any less skittish about putting their dollars into health plan stock.  Government cannot keep paying more and more for health care, though, and I think fee cuts for these health plans are highly likely in the coming years.

I believe that we're likely close to the top of this market, and health plans will have to show a genuine ability to lower health care costs while satisfying their members to justify such high valuations in the future.

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