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Cost Containment

Spike in Harm to Liver Is Tied to Dietary Aids

This past November we blogged about herbal/dietary supplements and asked, “and is it a problem?” The answer to this question is clearly a resounding “yes.” According to this recent article in The New York Times, dietary supplements now account for nearly 20 percent of drug-related liver injuries that turn up in hospitals, up from just 7 percent a decade ago.

Americans spend an estimated $32 billion on dietary supplements every year, attracted by unproven claims that various pills and powders will help them lose weight, build muscle and fight off everything from colds to chronic illnesses. About half of Americans use dietary supplements, and most of them take more than one product at a time. Read more…

Is There a Doctor Shortage?

The authors of this article argue that technology and change in regulations will effectively address concerns about a looming doctor shortage. Underscoring their assumptions is the novel concept that medicine ought not be immune from innovation at the system and delivery level, in much the same way that other businesses have changed and adapted.

As interesting as the article is, the comments by readers are even more so, both in their content and in the defensive fears that underscore many, accompanied by a cry to preserve the basic status quo while raising reimbursement. The devil of Medicaid is raised by more than one, claiming that treating such patients is simply unaffordable, thus diverting doctors to lucrative concierge practices.

So called mid-level practitioners including PAs (physicians assistants) and nurse practitioners are alternately praised or criticized, based more upon feelings and anecdotes than data.

The basic theme of the naysayers is leave the system alone, increase reimbursement, continue with fee-for-service excesses and basically make an unviable system even worse as a result. The clear lack of consensus based largely upon one’s personal interests or politics underscores virtually every aspect of the health care debate.

Health care in the US is belatedly being thrust into the real world of economics, where those paying get say in what they are willing to buy and willing to spend. This concept is simple in most things, where we open our own wallets. But when it comes to the wallet of employers, fellow citizens and government – those who pay for our healthcare, we have a medical equivalent of  “the tragedy of the commons,” an economics theory by Garrett Hardin, according to which “the depletion of a shared resource by individuals, acting independently and rationally according to each one’s self-interest, despite their understanding that depleting the common resource is contrary to the group’s long-term best interests.”

In this case, we individuals are depleting the shared resource of the health care system by acting in our own self-interests to the detriment of all.

Adventures in Healthcare – a Short Chapter

I opened the mail to find a medical bill for some lab studies on a family member. Total billings from “Laboratory Corporation of America” for 8 line items of services was $568.50. The adjustments by our insurance carrier, United Healthcare, were a total of $495.56, leaving a remaining balance of $72.94 on which the carrier paid $58.35, leaving a balance payable by us of $14.49.

What does this mean to those who don’t spend much time thinking about this? It is quite simple. The lab, a large national company, billed $568.50, the retail price that they decided to charge, which had we lacked insurance, we would have been expected to pay. The discount was 87% of charges, which means that the carrier used some sort of fee schedule, which is acceptable to the lab as a member of their network, to determine what was likely “usual and customary.” I sampled one of the line items that was charged at $219.00, and while my carrier permitted $21.71, the maximum that Medicare would permit was $16.99. So my carrier is generous compared to Medicare, paying about 27% more.

Why does the lab charge so much relative to what they get from carriers? Because they can. They can make up any number they wish, but clearly are thriving and surviving on actual payments that are 15% or less of what they charge. The small number of uninsured or underinsured, those least able to pay, are getting billed six times or more what their insured neighbors or retired relatives on Medicare are expected to pay.

What if the person in the check-out line buying the same basket of groceries was asked to pay 6 times more than the person in the next aisle because of where they work, or because they are younger, older, or for any other reason? Would we stand for this? Why do we permit this?

That the real prices differ from billed is a given in health care. I am accustomed to seeing discounts of 40% or so. But 87% is a new one that reflects, to my view, flagrant behavior that must be called out and must be stopped.

Hidden Profits in Rare Diseases

As the parent of two small children, this is the kind of article that haunts me—a child with an incurable disease, a photo of that child, hopeful, bald due to medical treatment. Now deceased. I’m tempted to skip stories like this, but then again if nobody had the stomach to hear about the situations which are hard to face, solutions to problems would never be reached.

The gist of the situation is that thirty years ago, Congress passed the Orphan Drug Act as a way to lure pharmaceutical companies to develop drugs for rare diseases that had been “orphaned” — abandoned or ignored because they were unprofitable. The hope was that drugmakers would break even or post modest profits.

The act paid off, with hundreds of new drugs. But over the years, its good intentions have been subverted by the pharmaceutical industry, which has increasingly found ways to exploit this once-obscure health-care niche, transforming it into a multibillion-dollar enterprise. Read more…

Transporting Drugs Across The Border

No, this is not a story about recreational drug use and the US-Mexican border. As this article in The New York Times highlights, moving pharmaceutical across the US-Canadian — and many other — border(s) is big business. The Canadian International Pharmacy Association, a 10-year-old group, said its members fill prescriptions for one million Americans each year.

Per the Centers for Disease Control, about 2%  of adults — about 5% of the uninsured —said they had bought prescription drugs from other countries. The Food and Drug Administration says on its Web site that “in most circumstances it is illegal to import drugs into the U.S. for personal use” because the agency cannot guarantee they are safe and effective. The government also prohibits “reimportation” of drugs made in the United States because it cannot guarantee the medications were not tampered with or stored improperly.

The agency said it does not track the volume of such imports. However, it “typically does not object” to people buying imported medicine for personal use “under certain circumstances,” the agency said. Often the medications are available in other countries at a fraction of the cost here in the United States, even for those with health care insurance.

Personally, I’ve purchased prescription medications — with no prescription — in Spain, France, and Hungary. (I drew the line at Niger though it would have been interesting to see what the pills actually were. In 1999 in Niamey it was not uncommon in public places to be approached by a man with a foot-tall spinning rack of colorful pills in home packaging balanced on his head that he was eager to sell. None was in any sort of original packaging or had any directions included, much less was the name of the drug stated anywhere. Given the 20% literacy rate and the fact that cheap pink toilet paper for foreigners imported from China was about the only paper available in the country, this was probably reasonable in its way. There were of course dispensairs where you could be treated by a nurse if necessary, and given the country’s 47-year life expectancy at the time finding humor in the system is hardly the point. In Hungary in 2003 I paid $20 cash for a house call and some quite effective anti-nausea pills that lasted me a couple of years; in France in 1985 it was $5 and a couple of jokes at my father’s expense for the blood pressure medication he had forgotten to packet. He was traveling around Europe before settling into Spain for an extended stay and we left the pharmacy with enough medication to last a year.) Aside from the quirky cultural interactions, the situation itself is again a reminder of the ineffectiveness of how health care availability and costs are managed in the United States. The Times article is full of examples of purchasing medications on a regular basis from overseas as the only affordable way for many, including the insured, to manage their health. The title sums it up well: “As Drug Costs Rise, Bending the Law Is One Remedy.”

The (shocking) cost of asthma

What consumer items in the US are priced at such a massive differential to Europe and elsewhere besides medications? Lobbying pays nicely it would appear. This is not just a problem for those with asthma or other illnesses requiring increasingly costly drugs. This is a problem for every patient, every insured, every taxpayer, and every employer who pays for insurance. This is of course due to the risk sharing inherent in any insurance system, where the healthier pay for the sicker. This means higher premiums, copays, deductibles, lower business profits, and lower pay due to business costs being shifted to higher benefits.

It is also a problem for caring physicians who are faced with the dilemma of helping their patients who may have to pay all or some medication costs out of pocket due to no, or limited, insurance coverage.

We are currently in a government shut-down, in part due to a small number of politicians who want to preserve this status quo – or at least it appears they do. The rhetoric attacks reform and change. The corollary of these attacks is that we leave things largely alone, including these windfall abuses of regulation.

In the free market that most believe in theoretically, safe drugs like those sold in Europe would be available in the US, unimpeded by protective and restrictive regulations that protect certain companies and products from competition. We currently have a system that is a far cry from free, rational, or equitable.

Innovation is not always comfortable. Change when it takes place will be disruptive, and it will be resisted. But it is necessary.

Social Security Disability Fraud Revealed

Senator Tom Coburn of Oklahoma chaired a hearing of the Homeland Security & Governmental Affairs Committee on the topic of Disability Fraud. The hearing was revealing, as are these articles (CBS News/60 Minutes, ABAJournal, C-Span). Coburn, a physician himself, detailed one fraud scheme.

As he details the boilerplate employed by those named in the current scheme, including attorneys and physicians, one can’t help but wonder if those involved in the system were not aware of the abuse as it took place, only to ignore the sham claims that were being approved by the thousands.

Perhaps the tide is shifting against the tolerance for misuse of the system. Unclear in this matter is what will take place with the claimants who have received millions if not billions of dollars as a result of fraud.

When there’s no incentive to control costs – a personal anecdote

MCNTalk enjoys hitting its head against a wall; a wall of ignorance, flippant political soundbites, and denial. This article is banal in its lack of new information and its reaffirming what is well known by all – that our system lacks transparency, consumer engagement, and other features that generally help to self-regulate economic behaviors including pricing.

The article does have an additional piece of insight not usually pointed out – that insurance companies have little motivation to control costs, since they are adroit at passing the costs on in the form of premium increases. And perhaps there is an unstated desire on the part of management of these companies to have higher revenues resulting from higher costs, driving higher compensation, higher profits and corporate bragging rights. Who would not prefer to be a 20 billion dollar company than a 10 billion dollar company, if costs double for the same basket of services?

This writer had a recent experience that drove our out of control system home. A family member had a run-in with a raccoon, resulting in a bite one evening. In an abundance of caution, a local ER was visited to assess potential danger and she drove herself there to be seen. The main attention was the cleaning of the wound, as well as rabies immune globulin administration and a dose of rabies vaccine.

Before reading the next paragraph, the reader is invited to guess what the hospital charge was for the visit. Write it down on a piece of paper before proceeding.

The answer is $8,887,75. The “discount” negotiated by the insurance carrier was $4,375.65  or 49%. The doctor service was separate and billed at an undiscounted $235.40. This extraordinary number for the ER visit both before and after the discount was presented to the patient for review and comment. It went straight to the carrier who apparently was unconcerned and sees it as quite normal.

Out of concern and curiosity the itemized bill was requested. Upon receipt and review, I noted that the visit was upcoded by a level to level 4. It should have been a level 2 or level 3.

It was also interesting that one of the medications which should have by weight resulted in 9 units at $629.00 per unit was sold at 10 units for another $629.00. One billed unit was excessive and not clinically appropriate at the weight-based dose guidelines. And the charges for the medications were about 2.5 times that which was paid for subsequent doses bought at a pharmacy ($692.49 vs. about $250.00 for the rabies vaccine dose, of which 3 more were administered after discharge).

Had we not called and requested a copy of the bill from the hospital we would not have known any of these details. The carrier processed an inflated bill without questioning. How many other bills have significant errors and how often are patients or their doctors actually presented with the hospital bills they generate? Was the upcoding an innocent mistake or a deliberate action undertaken based upon the belief that it would slide through without question?

This unfortunate event was not extraordinary in any way other than the massive bill. The medical care provided was not highly intense, and the resources used were basically what one would find in any physician’s office. Unfortunately it took place at night and the patient was advised to not wait. While an after-hours premium is not unreasonable, what should this be? As one can see from the relatively modest physician charge, the hospital did quite well. What would Medicare or Medicaid pay for these services compared to the list price, which we would have been expected to pay at 100% if we did not have insurance and could least afford it.

Heart Surgery at 2% of the Cost in the US?

Say what you will, when competent surgery can be proposed and completed at 2% of the cost in the US, this is inherently disruptive.

Some differential can be explained by salaries, but this level of difference, unless there is a significant outcome difference, should get the attention of all.

There used to be a clothing and shoe industry in the US. Not any more. They are virtually all off-shore and many a mill town in the Northeast has seen an economic decline as a result of the loss of industry and jobs.

Of course, there are many more barriers to obtaining health care from other countries than purchasing goods, which only need to be loaded onto a container or the hold of a plane and purchased in a local store. Health care requires a personal interaction, and in this case would mean that patients go to India. And licensing restrictions curtail the ability for health professionals to cross state lines and work, let alone international borders.

Any student of business can’t read this article without thinking about ways to take advantage of this remarkable cost spread. Just as insurance carriers make it more expensive for patients to buy drugs that are not generic or in an approved formulary, there are any number of ways to create alliances with foreign facilities, and design incentives for patients to get on an airplane and obtain services in these less costly settings. Whether medical tourism will be a one-up situation for those lacking coverage and possessing a sense of adventure, or it will become a common option for non-emergent procedures remains to be seen. Read more…

Moral Hazards – an Economist Weighs in on Health Policy

Scholarly articles that test behaviors in the real world are fascinating and of potential value if their findings are acted or, or studied further.

This article sites such a study where the impact of co-pays on compliance and on the general issue of compliance when the symptoms of a significant disease are silent or delayed.

We are of mixed mind in considering the implications of social engineering on people’s behavior. On the one hand, adults should take responsibility for doing the right thing, or pay the price when they don’t. On the other hand, paying the price in real terms with respect to poor health decisions, often means that society at large, as well as innocent family members, pay the price of individual ignorance and/or stupidity.

The larger point in this article is that incentives and skin in the game matter with respect to both taking appropriate health measures, as well as avoidance of waste in terms of treatment or diagnostics.