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Cost Containment

One Way Other Countries Have Lowered Prescription Med Costs

What if we didn’t require insurance companies to cover all drugs? As this article suggests, companies are taking advantage of a mix of laws in the US that force insurers to include essentially all expensive drugs in their policies, and a philosophy that demands that every new health care product be available to everyone, no matter how little it helps or how much it costs.

Many European countries say “no” to a handful of drugs each year. For those of you who worry this would eliminate availability to crucial medications, of the 29 major cancer drugs included in the study that are available in the United States, about 97% and 86% are also available in Germany and France, respectively. As a consequence of the stand taken by those countries, prices in Europe for prescription drugs are 50 percent below what we pay in the US.

Because they can say no, “yes” is not a guarantee the drug will be covered, so drug companies are pushed to offer competitive pricing to ensure coverage.  A recent survey of cancer drug policies revealed you don’t have to say no very often to get discounts for saying yes, as demonstrated by Express Scripps and CVS Caremark. Read more…

 

New Year’s Resolution: Don’t Have an Annual Physical

It may sound a little odd to suggest not going to the doctor. But this editorial does just that. About 45 million American adults have a basic annual check-up. However, a study has indicated that those check-ups for adults — with no specific symptoms to discuss — are not particularly useful. In fact, the Canadian guidelines have recommended against these exams since 1979.

In 2012, the Cochrane Collaboration, an international group of medical researchers who systematically review the world’s biomedical research, analyzed 14 randomized controlled trials with over 182,000 people followed for a median of nine years. Their findings? Regardless of which screenings and tests were administered, studies of annual health exams dating from 1963 to 1999 show that the annual physicals did not reduce mortality overall or for specific causes of death from cancer or heart disease.

There are many reasons why the annual physical is not productive; it does little to avert death or disability from acute problems; it does little for chronic conditions without significantly useful interventions; and, sadly, an early diagnosis might extend the time patients know they have cancer but is unlikely to extend their lives.

This is not to suggest skipping doctor visits altogether: get your flu shots, stay up-to-date on vaccines, discuss symptoms with your doctor.

But consider this from Dr. Ezekiel J. Emanuel, oncologist and vice provost at U. Penn: Those who preach the gospel of the routine physical have to produce the data to show why these physician visits are beneficial. If they cannot, join me and make a new resolution: My medical routine won’t include an annual exam. That will free up countless hours of doctors’ time for patients who really do have a medical problem, helping to ensure there is no doctor shortage as more Americans get health insurance.

Rate of Health Spending Increases on the Decline

Much has been noted recently about a decrease in the growth of healthcare spending as announced by the Obama administration early this month.

“The pattern observed in recent years is not unique and is consistent with historical patterns,” Anne Martin of the Centers for Medicare & Medicaid Services said. The agency’s report noted: “The key question is whether health spending growth will accelerate once economic conditions improve significantly; historical evidence suggests that it will.”

Three recent pieces in The New York Times explore different aspects of what causes this decrease in growth rate and what it means for consumers and for the future (“Good News Inside the Health Spending Numbers,” “Health Spending Rises Only Modestly,” and “The Health-Cost Slowdown Isn’t Just About the Economy.”).

The medical system really is changing, which is why cost growth has been slow. But the changes aren’t guaranteed to continue. Some key points include:

  • Health spending in 2013 grew at the lowest rate since government officials started tracking it — back in 1960.
  • 2013 is the fourth consecutive year that health spending growth has kept pace with the growth in the overall domestic economy, suggesting something more durable than random.
  • The slowdown in health spending growth began in 2002 and has become more pronounced in recent years.
  • Spending by the federal Medicare program, private health insurance and people’s out-of-pocket expenditures all declined, suggesting that the savings were systemwide and not due to changes in just one kind of insurance.

 

Why Everything We Think We Know about Health Care Is Wrong

Catastrophic Care: Why Everything We Think We Know about Health Care Is Wrong – by David Goldhill

Review

By Brian L. Grant MD

MCN Talk regularly addresses — some would say obsesses about — the health care system in the US. David Goldhill in his book Catastrophic Care: Why Everything We Think We Know about Health Care Is Wrong has created a compelling and essential read for those who enjoy a sense of hopelessness and depression.

Affect and emotions aside, it is a must read for anyone who wishes to understand the scope of the irrational and out of control system of American health care and observe his views of how we may improve upon an out of control if not dire situation.

The book flowed from businessman, not health economist, Goldhill’s experiences with the death of his father in a hospital which he chronicled in an article in the Atlantic Monthly in September 2009. (Hint to those word-challenged readers: some Amazon reviewers suggest this lengthy article is a suitable surrogate to the much longer book).

Reading this with an open mind, it gives this writer pause and is tempering my enthusiasm for the ACA. Don’t get me wrong – I believe the ACA is superior to the system in place before, but that is saying very little. At core, Goldhill postulates and backs up with data and appropriate comparisons to the rest of world that health care, by our reliance on surrogates to pay for all aspects of care (insurance and government) has in place a series of perverse incentives, moral hazards and an absent marketplace that would work for much of the health care spend in improving quality, reducing utilization and curbing price.

He notes that unlike everything else in the economy, we rely upon insurance to pay for everything in health care, from the most routine to the most urgent. The surrogates are the customer and they are the problem, with primary customers – patients — being indifferent to cost and utilization, abrogating decision making and spending to others.

He illustrates that we conflate heath care with health, falsely and at our peril. When commenting on disparate health status of other countries he notes: “The reason Swedes, Japanese and Italians live so long isn’t their (very different) health care systems; it’s that they live like Swedes, Japanese and Italians…” Goldhill does not suggest that we do away with insurance, but that it be a true safety net for truly insurable and rare events, health crises that are “major, rare and unpredictable.” Vaccinations, routine exams, visits for the flu, contraception and the like, all affordable and predictable like a great deal of health care, would not fall under insurance but would be paid for by individuals of reasonable means.

He notes that the usual features of business and the marketplace, including competition, price comparison, and transparency, convenience and comfort, would quickly emerge when the surrogates are eliminated and buying decisions are made – in much the same way that we can dine out, vacation, obtain car repair or electronics – based upon providers who innovate and differentiate to receive our hard-earned dollars. He illustrates from his own experience the indecipherable nature of health care bills and the inefficiency of hospitals because there is no incentive to simplify and improve in the current system that is accountable to payers, not patients.

Goldhill demonstrates that the factors most impacting health are wealth, education and lifestyle, not access to health care. However, we focus on tests, procedures and other interventions that often do little and may harm, because that is where the money is. Most staggering is his illustration of how much the current system costs each of us in terms of real earnings in our lifetime.

He puts the lie to the concept that insurance is other people’s money. Thru payroll taxes both general and Medicare, employer spend, state taxes and other funds, our 18% of GDP currently spent on an inefficient health care system is money that is not going into paychecks and other more productive uses. When I was 13, we spent as a nation 5.8% of our GDP on health care. Today it is 17.6% and rising. Had health care only growth along with the GDP at the same rate over the past 45 years, we would each on average have more than $4,000 to spend annually each year, or $16,000 for a family of four.

Those who defend this increase on the basis of better technology and other factors should be reminded that the rules of economics and innovation generally work to reduce costs and increase quality at the same time. Witness the smartphone in our pockets that pack more computing power than those in the moon launches. We have seen a multi-thousand fold decrease in memory costs and gains in processing speeds and other features with major improvements in most technologies. Why not this same transformation in health care, which claims that technology and innovation is a driver for outsized cost increases?

Goldhill’s closing remarks in chapter 3 “The Disconnect” recaps his basic position: “Consumers don’t have enough information to be good consumers. But the agents we’ve designated to act on our behalf have proved to be worse. When it comes to regulating our health care system – providing real discipline on quality, excess, price and safety – there is no real surrogate. It’s a job that only we can do.”

The newer paperback version of the book is almost 400 annotated pages. Anyone in the business of providing care, overseeing, or paying for care – and perhaps the rest of us who receive care as patients would benefit from reading it.

Quick links:

Catastrophic Care: Why Everything We Think We Know about Health Care Is Wrong – by David Goldhill.

The New York Times Book Review: “Obamacare, How It Should Be Fixed.” David Goldhill’s response.

The Atlantic: “How American Health Care Killed My Father.”

The Private Practice Oncologist, a Vanishing Breed

In the northwest we are lucky indeed to be home to the Seattle Cancer Care Alliance; the SCCA is a world class center that unites doctors from Fred Hutchinson Research Center, UW Medicine, and Seattle Children’s Hospital. But what if someone wanted to seek treatment or even just an opinion elsewhere in Seattle? As it turns out, there’s only one independent oncology group in Western Washington now.

It’s not just in the Northwest where independent oncology groups are disappearing. The Community Oncology Alliance, an advocacy group for independent practices, said that since 2008, 544 of 1,447 such groups were purchased by or entered contractual relationships with hospitals; another 313 closed and 395 reported they were in tough financial straits.

This is tied to reimbursement schedules for chemotherapy drugs: cancer centers, as opposed to private groups, participate in a federal program that lets them purchase these drugs for about half what private practice doctors pay. When a doctor is affiliated with a hospital or research center, though, patients end up paying, out of pocket, an average $134 more per dose for the most commonly used cancer drugs, according to a report by IMS Health, a health care information company. So while cancer centers pay less, they charge more.

Thus far health care economists say they have little data on how the costs and profits from selling chemotherapy drugs are affecting patient care. The cost of chemotherapy drugs has increased tremendously in the past decade, however, resulting in more out-of-pocket expenses for those even with comprehensive insurance coverage and tremendous expenses for those without coverage. With drug manufacturers promoting individual drugs through aggressive marketing techniques (as an example in this New York Times article, Celgene, in a recent email about its drug Abraxane, told one doctor who had bought 50 vials that he could get a rebate of $647.51 by buying 68 vials. If he bought 175 vials he’d get $1,831.93), the effects of this combined set of circumstances — increased cost of drugs, tiered reimbursements, fewer private practice alternatives — the best treatment options may not be the prevailing care options for some cancer patients.

While individual oncologists deny choosing treatments that provide them with the greatest profit, Dr. Kanti Rai, a cancer specialist at North Shore-Long Island Jewish Cancer Center, said it would be foolish to believe financial considerations never influence doctors’ choices of drugs. “Sometimes hidden in such choices — and many times not so hidden — are considerations of what also might be financially more profitable,” he said.

Dr. Peter Eisenberg, in private practice in Marin County in Northern California, summed it up: “The disgrace is that we have to treat people differently depending on how much money they’ve got.”

Today’s high deductibles, tomorrow’s bad debt

Increasingly Americans are paying higher and higher co-pays and deductibles on their health insurance. According to the Kaiser Family Foundation,  41% of Americans who receive health care coverage through their work have deductibles of at least $1,000, up from 10 % in 2006. And for 7 million new enrollees in Obamacare plans, the average deductible in the most popular “silver” tier of coverage is $2,267.

Higher deductibles can be quite appealing to those with choices among health plans, as they generally have lower premiums than low-deductible plans. That’s fine when you don’t get sick or need coverage. However, with fewer than half of American households having three months worth of expenses in savings, these larger deductibles can quickly lead to financial crises.  The situation is compounded by the complicated nature of insurance language: Only 14 percent of insured adults correctly understand insurance jargon such as deductibles, coinsurance, copays, and out-of-pocket maximums, according to a 2013 study published in the Journal of Health Economics.

To deal with this, hospitals are more and more frequently asking patients for payment up front. The figures, as with any numbers related to US health care expense, are astronomical: hospitals’ total cost of uncompensated care reached $46 billion in 2012.

This can actually be good news for patients: some hospitals offer discounts for paying early. Making payment arrangements is not exactly foremost on someone’s mind as they are facing hospitalization, but pre-negotiating a payment schedule sometimes allows for a lower or no interest rate and allows patients to avoid sliding into debt. For hospitals, identifying those with payment challenges can help, says Richard Gundling of the Healthcare Financial Management Association. “For both the patient and the facility,” he says, “trying to collect a debt that can’t be paid just wastes everybody’s time.”

 

 

With a Choice, Parents Opt for Cheaper Surgery

A study offers a compelling case for price transparency in helping reel in the nation’s health costs. As this New York Times article notes, a recent study looked at parental choices when faced with selecting between two different methods of routine, uncomplicated appendectomies for their children.

In the study two groups of parents were shown informational videos on the two different appendectomy procedures – open surgery or using a laparoscope. Laparoscopic surgery is the less invasive of the two, and was priced at $2,000 more. The videos were identical except that one included the price of the two procedures; the other did not.

Interestingly, by nearly a 2/3 margin the parents chose the less expensive though more invasive option. 90% of parents commented that they appreciated having the choice, suggesting that people given price information are more likely to choose the cheaper option.

The surgeon who conducted the study said the information from the hospital could be surprisingly hard for even surgeons to obtain because hospitals consider their price lists proprietary. Where else is the consumer not allowed to know the price, either with or without such choices to make?

He added, “Medicine is often regarded as this magical part of our economy where patients can’t make any choices.” But they can, and that can help hold down costs, he said, noting, “With a bit of information, I can choose my cellphone even though I don’t understand how it works.”

 

A Surprise $117,000 Medical Bill

I dropped my jaw as I read this article in the Sunday New York Times, front page. On the one hand, it is above outrageous. On the other hand, this is not news. It is normal life in American health care. I did wonder if the $116,862 that Anthem Blue Cross Blue Shield paid to Dr. Mu had an extra digit added by accident. But I know that the New York Times would have corrected such an error. Even at $11,000 the amount would have been excessive.

There is so much to relish in terms of excesses in this article. Excesses in fees, excesses in treatment (note Dr. Deyo’s comments on the high rate of spinal surgery in the US compared to elsewhere), and excesses in bizarre and improper behavior by an insurance company (who paid this sort of bill and uses its “high costs” as a justification for future rate increases).

If this article does not suggest that the current system is more than broken, what is?

Medicare Spending Decreases

MCNTalk regularly addresses inequities and the strange world of medical pricing. To our surprise, this article would suggest that health care inflation with regards to Medicare is waning. And the numbers are considerable, with a reduction of about 11% per beneficiary since 2010. Those of us who pay into the private system have seen anything but a decrease in 4 years. This is a 95 BILLION dollar difference!

It would appear that a good portion of the decrease is behaviorally based, where consumption of costly items have declined in favor of less costly, lower utilization and other measures.

As always, the comments by readers are illuminating. Among the most amusing are those who decry Medicare and claim that surgeons under Medicare are paid “poverty wages.” Clearly the writer has never experienced poverty.

MCNTalk remains baffled by the inability for US citizens to focus on the facts that drive our system and the associated costs. As Daniel Patrick Moynihan said, “You are entitled to your opinion. But you are not entitled to your own facts.” A confusion between opinions and facts seems to drive the healthcare and cost debate.

There is nothing magic about the age of 65 or so as a trigger for Medicare. Fee schedules exist for all services and in fact many younger people with disabilities are covered by Medicare. Perhaps one day employers will be able to focus on their business and not selecting insurance for their staff, and relinquish health care to the public, like they do education and other universal goods.

The other side of the coin includes the challenge of containing costs when the consumer has no skin in the game, which insurance, whether private or public, does nothing to address.

We will continue to post on this topic.

Deaf to Moore’s Law: The $6800 Hearing Aid Set, or the $475 One?

This Forbes article describes the applicability of Moore’s Law to health innovation and pricing. The author needed a hearing aid. He cited a teacher who had paid $6,800.00 for a pair of hearing aids. The writer had his own hearing loss and with some shopping, found an innovative source that sold him a hearing aid online for 7% the cost — $474.50 — delivered in 2 days via FedEx.

To be fair, the author notes that he does not know how his condition compared to that of the teacher.

We have seen similar disruptive changes in eyewear with Warby Parker and others selling prescription glasses for $100.00 or so, less than the cost of lenses alone in most outlets.

Must a set of hearing aids really cost thousands of dollars? Setting aside our lack of full information, we do know that they are a solid state electronic device, sold by the thousands and mass produced at some level. They would appear to filter and amplify sound, and be quite small.

Should a set of glasses cost hundreds of dollars? One has a piece of colored plastic in the form of a frame, and a piece of plastic bent to refract light. Both made by machines in bulk. There is a fashion aspect of the frames that to many buyers matters a great deal. Eyeglasses, unlike hearing aids, are worn by many billions of users world-wide, a number of whom own multiple pairs.

Compare a hearing aid to a smart phone. A top of the line Iphone without a carrier subsidy can be bought for $750.00. This device, like similar Android phones, is remarkable. Unlike the $5,000+ hearing aid, it is a full-fledged computer that computes, locates, calls, transmits, schedules, messages, photographs, shops, informs, and performs hundreds of other functions depending upon apps installed. One might reasonably assume that these devices are far more complex than a top of the line hearing aid. The price difference likely has more to do with scale, competition, buyer motivation, and other market factors.

Those who shop for eyeglasses and hearing aids are often paying out-of-pocket, and have a motivation to shop. Those selling such devices have a motivation to attract buyers with innovative delivery and pricing models. Can and should similar innovation be applied to high priced pharmaceuticals, medical devices, and medical procedures?