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.

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Accretive vs. Disruptive Innovation in Health Care

Today’s Managing Health Care Costs Indicator is 4 (quadrants)

I've pointed out that the "action" in health care policy is not around increasing use of services that increase quality and decrease cost. Everyone agrees we should increase use of such services, but historically there have been few such services except for childhood vaccinations.  There is also not much "action" in decreasing services that increase cost while they decrease quality.  No one clinically thinks we should use antiinflammatory medications that are wildly expensive and increase the rate of heart attacks (Vioxx).

However, the "action" in health care policy should be around embracing some services that sacrifice an inconsequential amount of quality for a big price cut, or deciding at what price point we will reject a trivial improvement in quality because the cost is just too high.

Here's a post from late 2010 on the issue, and here is the graphic I showed then when I was thinking about a $93,000 prostate cancer vaccine that extends life by an average of 4 months. (By the way - I'm not saying that this is necessarily too high a price to pay for 4 months of life - but there is some price point at which we'll have to pass on small incremental benefits)

I've been thinking more about disruptive vs. accretive innovation - and this fits well in a similar related schematic.  Disruptive innovations are initially less functional than the incumbent good or service (think of tax return software compared to a certified public accountant, or an early personal computer compared to a mainframe.)  Yet, they improve more quickly than the incumbent over time, and often displace the incumbent.  Disruptive innovations are a key to increasing value delivered to consumers.  By now, few would buy a mainframe computer because a laptop (or even a cell phone or tablet) is "good enough" to meet most of our needs.  Disruptive innovations are in quadrant 2 - the top left.

Accretive innovations, which are much more common in American health care, offer at least a little more quality - but they increase cost. Accretive innovations usually don't displace existing goods or services.  That's good for providers who don't like to lose existing revenue, but it means that the value to the consumer/patient often goes up by only a small amount.  Accretive innovations can even decrease value to consumers/patients if the cost increases dramatically for a modest improvement in outcome.   Accretive innovations are in quadrant 4 - the bottom right. 

I'm working on a paper with a colleague describing how the confluence of increasing price sensitivity (and patient cost sharing) and the Affordable Care Act should lead to a real increase in demand for quadrant 2 services - aka disruptive innovation. That, I believe, will be an important key to increasing value in health care, and tamping down the rate of health care cost increases.

Here's the way I'm thinking about this schematic now:

Click image to enlarge

Comments or suggestions on this construct are welcome!

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$1 Office Visits

Today’s Managing Health Care Costs Indicator is $1

I’m a fan of Planet Money, an NPR project that includes podcasts, a blog, and co-reporting with This American Life and other journalistic endeavors.  The “Managing Health Care Costs Indicator” is clearly modeled on (or shamelessly stolen from) Planet Money.

Reporter Adam Davidson has an article in the January-February Atlantic Monthly (and some related reporting on Morning Edition last week) about Greenville, South Carolina. He investigates how manufacturing has changed in the US over the last 20 years.  It’s an amazing picture in terms of quality and cost – American manufacturers make exceptionally high quality goods, and make them at costs that are often not a lot more than the cost of manufacturing in China where wages are a tiny fraction of those here. 

The new American manufacturing is great for consumers (we get high quality American made replacement fuel injectors for cars for under $200 each), and it’s pretty good for highly skilled workers, who can make better than a living wage.   But it’s not a pretty picture for unskilled workers though, who will lose their jobs the moment that a robotic arm costs less than twice a worker’s annual income

American manufacturing companies watch every penny of resources they spend – because they know that the brutal market will insist on cost-effectiveness.   Standard Motor Products, the subject of Davidson’s reporting, must watch every penny, which means firing its unskilled workers when it becomes more cost effective to invest in a robotic arm, or when the work could be done in China or Mexico or Poland for much lower cost including transportation.  If Standard Auto Parts didn’t do this, it would be out of business.  Quickly.

From Davidson’s article:

Across America, many factory floors look radically different than they did 20 years ago: far fewer people, far more high-tech machines, and entirely different demands on the workers who remain. The still-unfolding story of manufacturing’s transformation is, in many respects, that of our economic age

…

A few decades ago, “turning machines” like these were operated by hand; a machinist would spin one dial to move the cutting tool large distances and another dial for smaller, more precise positioning. A good machinist didn’t need a lot of book smarts, just a steady, confident hand and lots of experience. Today, the computer moves the cutting tool and the operator needs to know how to talk to the computer

…

To keep the business of the giant auto-parts retailers, Standard has to constantly lower costs while maintaining quality. High quality is impossible without good raw materials, which Standard has to buy at market rates. The massive global conglomerates, like Bosch, might be able to command discounts when buying, say, specially formulated metals; but Standard has to pay the prevailing price, and for years now, that price has been rising. That places an even higher imperative on reducing the cost of labor. If Standard paid unskilled workers like Maddie more or hired more of them, Larry says, the company would have to charge its customers more or accept lower profits. Either way, Standard would collapse fairly soon

I keep on thinking about how this relates to health care.  At first I though that no one was thinking about health care like the CEO of Standard Motor Parts. 

But it turns out I’m wrong.  The NYTimes had a blog last week about the $1 office visit (often delivered virtually) in India.  We have little or no price sensitivity for the cost of health care in the US –so we deliver exceptionally expensive health care services.   In India, there is little insurance, income is low and most people have to pay out of pocket for health care. That’s a recipe for extreme price sensitivity – and that price sensitivity leads to innovation – and slashed prices -- in care delivery. 

The inexpensive and virtual visit in India represents much better care than the alternative.  In the US, though, such a visit would be profoundly disruptive.  We’ve had a hard time embracing disruptive innovation in the US with the current health care financing system.   There are no such barriers elsewhere in the world.

Office visits are a service – they are not a product like Standard Motors’ fuel injectors that can be manufactured and assembled anywhere in the world.  We won’t see those $1 office visits from India in Manhattan anytime soon.  But we are likely to see models that are far less physician-centric, and offer far better value to patients. 

We can continue to learn from the developing world about how to more effectively use resources.

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One Image: American Medicine Believes in Accretive, Not Disruptive, Innovation

Click to Enlarge  Source 

The current issue of Annals of Internal Medicine  has a great article on individualization of mammography recommendations -more on that in the next few days.

There is another article demonstrating that an inexpensive ultrasound machine that fits in a pocket is almost as good at certain measurements of heart anatomy as a conventional ultrasound machine - which would frequently generate a health care bill of $1500.

When I saw the abstract, I thought that Clay Christensen's predictions about disruptive innovation in health care were finally coming to pass - and we were going to use technology that was a little bit inferior to existing technology, but perfectly adequate for many indications - and save big bucks. This could be the cardiac imaging equivalent of the personal computer going up against mainframe computers!

Alas, this was not to be. The authors position the pocket echocardiograph to replace not the expensive conventional echocardiogram, but instead to replace the lowly stethoscope.  They don't want this to replace a $1500 scan, but instead to replace a low-tech device whose use is currently bundled into other cognitive services.  

While other industries produce more value with disruptive innovation, in medicine we use technology only to further escalate the medical arms race.  I think of this as accretive innovation.

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Provider Payment Reform is Key to Encourage Disruptive Innovation in Health Care

There is a lot of great innovation in health care – but not nearly as much disruptive innovation as we’d expect in an industry that represents a sixth of the American economy.  Disruptive innovation can bring huge social benefit – in terms of better good or services at lower prices available to more and more people.  However, disruptive innovation can be terrible for incumbents – and it’s only nurtured in environments where those making purchasing decisions are intensely price conscious. 

So – if we want more disruptive innovation, we need more price-consciousness in health care.

And we’re getting it, too.  As Drew Altman notes in his most recent Kaiser Family Foundation column, high deductible health plans are growing rapidly in the US – and it’s been almost under the radar.  Those with high deductible health plans use far less resources – sometimes skipping valuable care as well as discretionary care. 

Higher patient exposure to health care costs is likely to lead to more fertile territory for disruptive innovation.  For instance, if all office visits cost a $15 copayment at the point of service, patients would not flock to retail clinics, with their limited menu of services.  When patients are paying the first $2,000 or more for their care, and then 20% for care beyond the deductible, they’re much more likely to “shop” for better bargains – which is great for disruptive innovation.  Hospital emergency departments offer many services that most people with earaches don’t need, and higher member cost-share discourages overuse of expensive sites of care.

But patient cost share only works to encourage more prudent purchasing behavior if

-        The health care service is elective, where the patient has a choice. 

o       It’s pretty hard to convince an ambulance driver to take you to the most cost-effective hospital if you feel an elephant sitting on your chest, are out of breath, and are drenched with sweat!

-        The patient has some idea of the cost. 

o       Most physicians have no idea what various health care services cost, and even  health plans often aren’t sure of the actual cost of a service.  This is even worse because services are not bundled in ways patients find intuitive.  Even if I knew that my physician would charge $150 for a level 4 office visit, I’m not sure that she would bill that level of office visit, and she might order laboratory tests that would increase the cost dramatically

-        There is some signal available about quality

o       No one would recommend going for the cheapest angioplasty if the cardiologist had a history of bad outcomes.

-        There is choice

o       In many rural areas, there is a single hospital and often a single group in each specialty.

The biggest problem is that a small portion of patients represent the vast majority of health care costs (10% of patients represent about 60% of all costs). I recently saw data where those in the top 50% represented 93% of total costs (averaging over $3000 per person).  These patients will almost always exceed the annual deductible, so all this extra “skin in the game” might dishearten those with severe illness, but it’s not so likely to change their behavior.  If the extra member cost-share decreased utilization among this half of the population by a factor of half, it would only lower overall health care costs by 3.5% - less than the inflation rate for a single year! Much of the care received by the low cost half of the population is preventive, so we really don’t want to decrease that anyway!

In many instances, the purchaser of health care services is frankly not the patient – but is the health care provider. For example, patients are not generally shopping for the highest value hip prosthesis.  They “shop” for an orthopedist, and the orthopedist recommends what artificial hip should be implanted.  

That’s why I believe that bundled payments and provider risk are the real keys to increasing disruptive innovation in health care. 

Bundled payments have been very effective at increasing disruptive innovation in the provider community in the past.  For instance, when Medicare switched to the diagnosis related group (DRG) payment methodology, hospital stays got dramatically shorter, and total days in the hospital plummeted.  Essentially, the physicians who demanded longer hospital stays under a “cost plus” payment system figured out how to cut hospital stays when they were asked to be prudent purchasers of hospital services.  Independent practice associations and other provider organizations taking “risk” or capitation have put in place innovative programs to diminish hospital admissions and readmissions, and dramatically increase use of generic medications. 

Disruptive innovation is nourished by value-based purchasing, and government can do two things to increase value-based purchasing.

The first is to help us know what really works, and what doesn’t.  That’s why it’s critical to increase our investment in comparative effectiveness research – whatever we want to call it. We’re not talking about rationing or death panels – we’re talking about collecting the data we need to know what’s worth paying for.   

The second thing is, can we please allow the FDA to make determinations about approvals based on value rather than just effectiveness?  As long as we approve a new medication or medical device that is ten times as expensive as existing medicines, and is merely “noninferior,” pharmaceutical and medical device companies will focus their research efforts on innovations that will increase the cost of care, rather than those that could substantially increase value, and sometimes even lower costs.  

The Managing Health Care Costs Indicator will return next week

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Which innovations can lower health care costs, and why they are difficult to obtain

I’m on vacation with my family this week – it gives me a chance to read a lot of fiction (just finished The Tiger’s Wife  and The Beauty of Humanity Movement,  both of which transported me to exotic lands (Yugoslavia as it was collapsing and Vietnam of just a few years ago)   Vacation also gives me a chance to step away from the daily news a bit – and muse about health care policy.

A few thoughts on innovation today.

Bold new innovation isn’t going to solve the problem of health care costs going up.  

We read with great interest the front page story about the young man with quadriplegia who trained his brain to activate his lower extremities.   I pointed out that whatever this therapy and the associated hardware cost, it would be nearly impossible to fund this for even a small portion of quadriplegics.   Of course, we have no idea how much this would cost.  My wife pointed out that quadriplegics were at high risk of pneumonias and other complications, and this therapy could lower the costs of such complications.

Here’s why this type of innovation won’t lower the cost of health care, even if it prevents many grievous and expensive complications.   When this technology becomes more mature and is commercialized, the patent owners will do an economic study of the benefits and cost savings associated with the therapy.  That will include the benefits of this therapy to the individual, to his or her family, and to society overall, as well as any health care cost savings through prevented complications or substitution for more expensive care.  

Many of these benefits will be outside of the health care system – such as years or decades of company of a loved one, productivity at work, and ‘life years’ saved. Then, the patent owner will assign a price, grabbing a substantial portion of the value created by this new invention.  I’m not griping- that’s the way things should be under patent law.  This encourages life-saving and life-improving new inventions.  However, as long as the inventor is setting the price based on all the value created, and much of that value is not measured in saved future health care claims alone, bold new medical innovations will almost always raise, rather than lower the cost of health care.

Disruptive innovation, however, really can lower health care costs.

Disruptive innovations are a bit inferior to the current incumbent technology –but “good enough” initially for a narrow group of customers who are being overserved by the existing approach.  Disruptive innovations exert negative price pressure on incumbent technologies, and improve at rapid enough rates that they often displace the incumbent over time.

Clay Christensen of Harvard Business School has developed this theory, initially from the world of computer hardware,  and most recently applied it to health care.   His first book The Innovator’s Dilemma,  is a short, pithy, insightful business classic.  Everyone in health care policy should read it. 

What are examples of disruptive innovations in health care?

-        Retail clinics:  They can’t do nearly all that can be done in a physician’s office – at this point, 20 or so different diagnoses are the limit.  They often use nurse practitioners rather than physicians, and they don’t offer 24 hour coverage.  So, retail clinics are not as good as a physician’s office – but MUCH more accessible, and substantially less expensive.  Over time, they will increase their capabilities.

-        Low strength MRI scans and handheld ultrasound machines.  Japan has $100 MRI scans, which don’t have nearly the definition offered by 2+ Tesla machines available in the US.  Handheld ultrasounds also don’t give as good an image as currently available installed ultrasound machines.  But they’re good enough for many purposes. Right now in the US, we use MRIs that are good enough to give a roadmap for brain surgery –but the level of detail available is unnecessary for many orthopedic procedures.

-        Generic drugs.  You could argue, and I often do, that generic drugs are just as good as brand name drugs.  The FDA’s effective regulation of the generic drug manufacturers has meant that the generics are as likely as brand name medicines to have the stated potency.   But they are at least a bit inferior, because the pills are not all the same colors and shapes. This can lead to more difficulty with adherence, especially for older patients and those with cognitive difficulty.  They’re good enough, though, for many, and much less expensive.

Disruptive innovation isn’t easy to implement.   Physician advocacy groups vehemently opposed retail clinics in many states, and licensure rules meant to protect the public are often used as “guild” tools to protect those who have an existing monopoly.  You might know that the Toshiba MRI scanner that allows $100 MRI scans isn’t licensed for use in the United States.  It would be opposed by makers of the current expensive MRI scanners – much as the makers of mainframe computers weren’t thrilled about the idea of personal computers. A complex web of regulations in health care makes it almost impossible to get a license to import a scanner that is inferior (albeit much cheaper) than existing technology. Radiologists aren’t eager for a lower priced scanner, which could further erode their dominance in imaging as many other physicians purchased such scanners.  Hospitals that have invested millions in the current generation of MRIs with incredible capabilities also see how low-priced scanners could threaten their profit margins.

Generic drugs are readily available, and have been a major source of health care savings over the past half-decade. However, brand name pharmaceutical companies have used vigorous legal maneuvers to delay the introduction of generics. Big pharma companies in some instances have even paid generic manufacturers to delay generic launches to maintain their sole-source protection for extra months or years. 

So – bold new innovation can make our lives longer and better, but won’t save a lot of health care claims dollars.   Disruptive innovation can save money – but is forcefully opposed by those who profit from the current state, who are enabled by regulations meant to protect patients. 

We need to make our health care system more avid for disruptive innovation. 

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