Specter's Party Change and Health Care Reform

Some have concluded that Arlen Specter’s party change means smooth sailing for the Obama administration’s proposed health care reform.  I’m more skeptical – Specter got only a one page mention in The System, Johnson and Broder’s excellent book cataloging the failure of the Clinton Health plan in 1993-4. There were a half dozen Republican Senators eager to work with the Democrats to craft a bipartisan bill, and Specter was not among them.

 

Images matter, and there were two images influential in sinking the proposed Clinton health care plan.  One is the “Harry and Louise” television commercial made by the health insurance industry, where two “ordinary Americans” worried that the new health plan would take away their choices and put health care under government control.

 

The second image that helped sink “Hillarycare”  was a complicated, Rube Goldberg-esque diagram of the interactions among dozens of government agencies required to administer the Clinton health plan, as imagined in the 1342 page proposed legislation.  (Ironically, I can't find the image of this to attach to this post.  Please let me know if you find it and I will revise this post)

 

This diagram was attributed to Arlen Specter.

(Ironically, I can't find the image of this diagram to attach to this post.  Please let me know if you find it and I will revise this post)

 

 

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Physician Shortage and Doctor Income

Today’s New York Times front page trumpets  “Shortage of Doctors an Obstacle to Obama Goals.” 

 

The article recounts the concern that there are not enough primary care physicians to meet our future needs – nothing new there.    There is an alternative point of view – David Goodman and Elliot Fisher of Dartmouth look at variation data and suggest that if we could treat the urban population with the same physician-patient ratio in rural areas, the shortage would vanish. 

 

Here’s a quote I really enjoyed from today’s Times article:

Dr. Peter J. Mandell, a spokesman for the American Association of Orthopaedic Surgeons, said: “We have no problem with financial incentives for primary care. We do have a problem with doing it in a budget neutral way. If there’s less money for hip and knee replacements, fewer of them will be done for people who need them”

 

Really?

The evidence suggests that lowering prices actually causes an increase in utilization – not a decrease.  So – if there are too few knee and hip replacements, decreasing the price in a fee for service environment might actually help!

 

Seriously, there is a lot in the news about the high income of bankers and other financial wizards – Paul Krugman  today suggests that they are adding no value at all.  Doctors are clearly providing a valuable service, and should be paid well.  But physician income in the US is very high compared to the rest of the world.  Primary care might look a lot more attractive to some medical students if the income of many specialists wasn’t so high.

 

Of course, physicians will not accept decreases in their incomes without a substantial political fight.

 

 

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Pay for Performance Comes to Ambulatory Pharmaceuticals

The New York Times reports today that two pharmaceutical companies are entering the “pay for performance” market to preserve lower patient copayments for their expensive brand name medicines and maintain or grow market share. This is modeled after a Johnson and Johnson deal with the British NHS to offer refunds for an expensive oncology medicine if it did not shrink an individual patients’ tumor(s). See an earlier blog on how the British comparative effectiveness program led to this discount offer.

Merck will give discounts to the insurer Cigna on its diabetes medicine Januvia (and combination pill Janumet) if Cigna patients in the aggregate have lower blood sugars, and the makers of Actonel, an osteoporosis medication, will give a small insurer cash payments for adherent patients on this medication who have osteoporosis-related fractures. There are alternative far cheaper generic medications that can readily substitute for Actonel and Januvia/Janumet.

The Times does not mention that drug companies are subject to a “most favored nation” clause which guarantees Medicaid programs the lowest price – so that any price concession to even a small insurer can lead to large rebate checks for every state Medicaid programs. In general (and counterintuitively), this most favored nation arrangement keeps prices unnecessarily high – since it enforces price discipline among the pharmaceutical companies. My sense is that a refund for nonperformance would not “count” as a discount, and therefore this approach allows the pharmas to offer lower rates to the most price-sensitive health plans without jeopardizing Medicaid rates.

On one hand, this is a good move. Pharmaceutical companies are selling a result (lower blood sugars and fewer nonspine fractures) rather than selling a pill.

Will this lead to lower health care costs? My guess is “no,” since these are very expensive drugs, and even discounts or refunds are not likely to bring them down to the true cost of generic alternatives. There is a better argument that Januvia represents a real advance over other oral diabetes medicines. However, I doubt that the incremental value of Januvia, even with the discounts Cigna will obtain, will be cost-saving, as opposed to cost-effective. This also leads to some opacity in the pharmaceutical market, which will allow for more price discrimination and likely yield higher pharma margins. Even if this yields higher overall costs and higher pharma margins, though, it might lead to increased value in the health care delivery system.

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