Health Business Blog

When I was growing up in the 1970s I complained to my mother that I didn’t like cigarette smoke. She told me to get used to it because the major decisions were made in smoke-filled rooms and I wouldn’t want to be left out. Cigarette packs already had the Surgeon General’s warning on them, but we never would have anticipated the extent to which smoking would come under pressure in the ensuing 30 or 40 years. In retrospect it seems obvious that smoking doesn’t belong in offices, classrooms, or airplanes. Once the dangers (and not just the nuisance factor) of secondhand smoke became clearer, it was also easy to understand why cigarettes could be banned from restaurants and even bars.

Now things are going a bit further as at least 500 colleges nationwide forbid smoking anywhere on campus. The University of Massachusetts Amherst and Salem State are the latest to join this trend in Massachusetts. Overall I think it’s a good idea and one that most people –including smokers– will eventually come around to supporting. In addition to curbing the hazards of secondhand smoke it helps smokers quit and avoid relapse and also prevents new smokers from taking up the habit. Still I’m not completely comfortable with the idea of banning something that’s legal. And considering how much societal norms toward smoking have shifted over the decades I do think there’s something to the argument that this move may lead to more and more top-down regulation of behaviors, leading to an overall loss of freedom and decline of personal responsibility.

Another area where change has been dramatic over time is the acceptance and mainstreaming of people with illnesses and disabilities. The latest to push the envelope is University of Tennessee basketball coach Pat Summitt, who plans to continue working despite a diagnosis of Alzheimer’s disease. She’ll have plenty of support from her assistants and is uniquely positioned because of her winning record. Still it’s an exciting change from what one would typically expect.

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For quite a while –especially in the 1990s and early 2000s– rising drug costs were a major driver of medical inflation. Big pharma was rolling out lots of “me too” products in existing drug classes –such as statins (e.g., Lipitor) and COX-2 inhibitors (e.g., Vioxx)– that could be prescribed widely. In a normal market, having lots of competition might drive prices down. But not in health care, where third party reimbursement and the need to obtain a doctor’s prescription subvert the usual supply and demand relationship. What we saw was doctors writing more and more prescriptions for patients who could easily have done without, and health plans reimbursing for the drugs to the tune of high hundreds to low thousands of dollars per patient per year. Those blockbuster products –like Lipitor and Vioxx– now have generic competition or have been discredited due to safety concerns and are no longer placing a serious strain on health plan budgets.

But in the past decade specialty drugs –especially biotech products– have become hot. Companies like Genzyme have proved that health plans will reimburse to the tune of $100,000 or more per patient per year for rare but serious diseases like Gaucher’s, which means a product can reach $1 billion in sales on a very small base of patients. Now the big pharma companies are latching on to this business model, charging very high prices for biotech and traditional drugs to treat a small set of patients. The Wall Street Journal (Pfizer’s Future: The Niche Blockbuster) describes how Xalkori (crizotinib) is being marketed for $9600 per month compared to $160 per month for Lipitor. It works on a small fraction of lung cancers, but at $115,200 per year Pfizer doesn’t have to reach many patients to rake in big revenues.

Cirotinib was basically a failed drug in that it just worked on a few people. And it’s no cure. Even the poster child for the drug described in the Journal, Linnea Duff is going off the drug because it’s stopped working for her.

There are a lot of people with rare, serious diseases or mutations. If pharma companies target them all  with $100K+/year therapies we’ll soon find that as a society we are paying a fortune for modest benefits. In the current policy environment where any mention of cost/benefit considerations leads to shrieks of “rationing” the trend toward pricey, niche drugs can continue for some time. But ultimately the business strategies of the pharmaceutical companies will lead the country to the realization that costs do in fact matter and that trade-offs must be considered.

With the right policy moves and entrepreneurial response, perhaps we can achieve the same level of benefits with lower cost, or settle as a society for less cost and less benefit. The main opportunity is to lower the cost of clinical development.

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Republicans have done a good job attacking the Patient Protection and Affordable Care Act, and I’ve criticized their criticisms for being largely cheap shots and inaccuracies. John McCain’s health care proposals weren’t credible in the 2008 campaign and there has been little in the way of intelligent discourse from the GOP on Capitol Hill.

Now that the 2012 Republican primary campaign is in full swing, a new batch of candidates is having a go at health care policy. Unlike in 2008 when health care wasn’t a big part of the GOP primary campaign, it is an issue in 2012. In general the candidates have not set out full-blown health care policies, but Kaiser Health News has started tracking candidates’ positions, which are summarized here.

There are a lot of bad and just plain silly ideas on the list –mainly from Michele Bachmann and Rick Perry– but I also found some thoughts that make sense and that are not being voiced by Democrats. Here’s what I found encouraging:

• Ron Paul proposes cutting other programs to fund Medicare for current retirees while weaning younger people off the program over time
• Paul also agrees that the Medicare Part D drug benefit –passed by Republicans under President Bush– was a mistake
• Jon Hunstman supported a progressive health reform plan when he was Governor of Utah, which included an insurance exchange
• Mitt Romney led reform in Massachusetts and deep down knows that it formed the basis for PPACA, even if he won’t admit it publicly

So there you have it: at least some basis for an intelligent debate if the electorate is ready to hear it. I’m hoping to see some serious ideas being bandied about.

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I’m taking a break from blogging this week so am rerunning some favorite posts from 2010. Please visit the original post to comment.

More than 20 years ago, a senior colleague told me a good shortcut to weed through a business literature search: just limit the search to the Wall Street Journal. They cover most topics and usually get the story right. I’ve followed that advice a lot, even in the era of Google when searches are much simpler, and it’s still a good tip. Yesterday’s Journal, though, had an article that really missed the mark.

Here’s the headline and lead paragraph:

Law Prompts Some Health Plans To Cut Mental-Health Benefits

Members of the Screen Actors Guild recently read in their health plan’s newsletter that, beginning in January, almost 12,000 of its participants will lose access to treatment for mental-health and substance-abuse issues.

The article then continues to list other employers that have dropped mental health and substance abuse coverage in reaction to a new law that requires larger plans to treat such coverage the same way they treat coverage for physical ailments –if they offer mental health and substance abuse coverage at all. It quotes the Screen Actors Guild CEO saying it can’t afford the increase in costs caused by the mandate.

But a look at the data contained in the article itself demonstrates that the Journal has the story roughly backwards. Of firms surveyed by Kaiser Family Foundation, 69 percent were not changing their mental health and substance abuse benefits at all. Of the 31 percent that were changing such benefits, 66 percent were eliminating limits on coverage. Only 5 percent of the 31 percent (or about 1.5 percent of the total) were dropping their mental health coverage. In essence, the Journal decided for some reason to focus on this 1.5 percent of employers as the big story.

A closer read of the Screen Actors Guild (SAG) story also shows that this is a pretty atypical situation. Deep in the article it is revealed that the entertainment industry is among the top three in illicit drug and heavy alcohol use, so naturally they will have high mental health and substance abuse treatment costs. Second, the Guild’s decision only affects a plan that is open to members who make less than $30,000 per year. “Higher earners qualify for a more comprehensive plan,” it says, presumably one that includes mental health benefits.

As noted elsewhere in the article, the Congressional Budget Office projects mental health parity will raise premiums just 0.4 percent, hardly noticeable amid the typical double-digit increases. In addition, a leading actuary cites “ample” evidence that spending on mental health and substance abuse benefits lowers overall costs.

I’m going to give the Journal the benefit of the doubt on this one and assume it was just a poor choice of angle for the story. But it will be a bit disturbing if the story is a sign of the Journal aligning its traditionally independent news section with its reactionary editorial page under Rupert Murdoch’s ownership.

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I’m taking a break from blogging this week so am rerunning some favorite posts from 2010. Please visit the original post to comment.

This is the transcript of my recent podcast interview with Castlight Health Chief Medical Officer Dr. Dena Bravata.

David E. Williams: This is David Williams, cofounder of MedPharma Partners and author of the Health Business Blog.  I’m speaking today with Dr. Dena Bravata.  She is Chief Medical Officer of Castlight Health.

Dena, thanks for joining me today.

Dr. Dena Bravata:            David, thank you so much.  It’s a pleasure to be here.

Williams:            What is Castlight Health and why is it needed?

Bravata:            Castlight Health is dedicated to making health care cost and quality information publicly available. It’s needed because that kind of information is not readily available today.

One of the things we do that is not publicly available is to personalize cost and quality information.  Rather than showing the average cost of a service, such as seeing a doctor or getting a cholesterol test, we show our users what their personalized cost for that service would be, based on where they are in their plan today.

Williams:            Many people talk about transparency and personalization.  Is there something different that Castlight does that others don’t?

Bravata:            Transparency means different things to different organizations. We’re showing people the full spectrum of where the costs and relevant quality information come from.  For example, your cost for a particular health care service will be a function of what the negotiated rate is, what your employer or insurer pays for that and what your out of pocket cost is. We show all of that to you in a very consumer friendly way. Not everybody is interested in all that information all the time but we enable you to see all of it.

Similarly, many of the quality metrics that we show on our application are publicly available.  These are well validated measures, many of them coming from the federal government. But it’s not transparent unless the data are presented in a way that’s consumer friendly. We show data –for example about hospitals’ clinical outcomes. We show patient satisfaction measures for providers and facilities and we show exactly where those data are coming from. But we have simplified them and show them in a very consumer friendly, easy to understand manner.

We wrap all that up with straightforward educational content so people learn how to use the information.  The ability to see this information  –some of which consumers have never been able to see before, others that they’ve never been able to see in a consumer friendly manner– wrapped in normal language resonates with users and becomes very actionable.

Williams:            Who would be a prototypical user?

Bravata:            Someone on a high deductible plan or who has a high co-pay, because these are people who have to spend their own money on health care; people who have health savings accounts, because they’re really incentivized to shop for health care services.

Those lucky souls who pay five dollar co-pays for everything are not a good fit.

Williams:            Give me a real example of somebody who has been helped by Castlight.

Bravata:            We have “Castlight Guides” who provide full phone support. If you’re in a place where you can’t access your computer you can call in and get the same information you would have if you had a computer in front of you. Our Castlight Guides supply great anecdotes from people calling and getting information that changes their health care behavior.  One notable example was a woman who was 50 years old and was just about to get her first screening colonoscopy.  She had been given the name of a provider and saw that that the colonoscopy was going to cost her in excess of $2,000. She came onto our site, saw that she could get the same exact procedure in her same town for well under $1,000. She called our Castlight Guides just to tell them that we saved her over $1,000 on that one procedure.

It’s particularly poignant when you sit with a user and show them the application for the first time. A woman burst into tears because she said that this was just so unbelievably helpful to her and wondered how she had negotiated the health care system previously without access to this.

Similarly we often get requests to print out the information and take it home to show relatives.  We have now enabled the ability for people to print what they see on the application.

Williams:            Many companies have technologies that look interesting and are able to persuade HR (or whoever the decision maker is) to give it a try. But when it comes right down to it, sure they have a few anecdotes, maybe even like ones you’ve described, but there isn’t a broader uptake and the company doesn’t get the return on investment (ROI) overall.  Any evidence of how that’s working out for Castlight?

Bravata:            It is a little early for us to be able to say our ROI is X or Y.  Our first commercial customer is Safeway. We have three other customers in the pipeline that will launch early next year. Therefore we’re only now beginning to get a sense of user adoption.

Adoption is exceeding some of our expectations. I think much of our ROI is going to come from the fact that the services we support are common outpatient procedures that people can shop for.  We support all kinds of doctor visits and imaging tests of all kinds. We cover conditions –for example urinary tract infections (UTIs)– that can be cared for in a doctor’s office, an urgent care clinic or the emergency room. For many of the services –with that UTI example primary among them– there is gigantic variance in the price for care for that same condition. Our ROI is about showing that variance to our users and helping direct them to high quality but lower cost providers for that same service.

You may be familiar with a recent New York Times article that highlighted, even within the Bay area, that the cost for colonoscopy ranges from $400 to $7,200 for exactly the same service. That high cost location is not gold plated, you don’t get better anesthesia.  There’s nothing better about it.  It’s exactly the same procedure, it’s just that there’s this gigantic price variance.

That’s not to say that everyone should get the lowest cost one, but even if we can help some people to the median, we immediately can show an ROI for the employers who are paying for our service for their employees who are on higher deductible health plans.

Williams:            How does Castlight make money?

Bravata:            We provide our service to employees of large companies who are self insured. Because the employer is self insured, they stand to benefit from reductions in health care costs for their employees and from improvements in health in the long term.

Williams:            Self-insured employers are the main customers, but how do you work with health plans?  Are they customers or partners?

Bravata:            They are partners. We are in increasingly interesting conversations with health plans to develop closer partnerships. We receive health claim information from employers but receive other important information from the health plans.  To date the plans serve as partners.  None of them are direct customers.

Williams:            It sounds like we’re still at the relatively early stage of Castlight’s existence and the movement toward personalized transparency.  How do you foresee the evolution of this service?

Bravata:            We are in the early stage.  We are almost two years into this now and we’re growing in a number of different areas. Our first efforts were to get the prices right for common outpatient services. We’ve done a nice job with that.  Our current effort is to expand the quality information that we show, making that very robust and consumer friendly.  Soon we’ll be enabling our users to provide reviews for both providers and facilities.

Moving forward we’ll tackle increasingly costly, complicated procedures like elective surgeries. These are things many employers have unique benefits around.  Many employers we work with have centers of excellence for particular surgical procedures or medical tourism programs.  Those are things we have plans to support in the upcoming months.  We don’t yet have a mobile application but that’s clearly something that’s on the horizon.

We have a product that’s very useful today and I’m delighted by what we have on the road map for the next six to twelve months.

Williams:            Is there any interaction between the Castlight service and implementation of the Affordable Care Act?

Bravata:            There isn’t direct interaction.  Health care reform only stands to help us. There will be more people on higher deductible plans and other plans where they are at greater financial risk, so those people are our natural users.

It will be interesting to see what might change in health care reform with the recent election, but thus far it really stands to play to Castlight’s advantage.

Williams:            This is an era where the venture capital industry is shrinking and more technology start up’s are raising smaller rounds. Yet Castlight raised a lot of VC money.  What were you thinking?

Bravata:            We have, as you well know, a very charming, dynamic and impressive leader in our CEO Giovanni Colella. Gio has done a great job raising venture capital. The main reason we have raised the impressive amount of money that we have is to have the ability to hire the best and the brightest.  More than half of our 60 employees are engineers who are dedicated to making this product and ensuring that we are the leader in this new space that we’re creating.

It’s a whole new industry, a whole new category we’re trying to develop.  The main reason to raise all that money is to have an office full of computer science PhD’s who are making that happen for us.

Williams:            Tell me a little bit about your personal story.  Why did you decide to join the company?

Bravata:            Before coming to Castlight I was at Stanford for just under 16 years, first as a resident and then I stayed and did a fellowship and a masters degree in health services research. Then I stayed on as a staff researcher in the health policy/health economics group.  At the same time I was a practicing general internist, first at Stanford and then I had a private practice for just under a decade here in San Francisco.

What I bring to Castlight is a background in health policy and analysis with deep experience in general outpatient primary care medicine.

I got involved with Castlight initially as a consultant. Over time the compelling nature of what we do led me to believe that I had a unique opportunity to work for a company that is positioned to radically change the way health care is delivered. I felt I had an opportunity to affect far more lives by trying to be a leader in this amazing new endeavor than I ever could as an academic or practicing clinician.

Williams:            I’ve been speaking today with Dr. Dena Bravata.  She is chief medical officer at Castlight health.  Dena, that’s so much for your time.

Bravata:            Thank you so much David.  It was a pleasure.

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I’m taking a break from blogging this week so am rerunning some favorite posts from 2010. Please visit the original post to comment.

In Health care’s dilemma: Competition or collaboration? the Washington Post’s Steven Pearlstein points out that health care reformers tend to favor integrated care providers like the Mayo Clinic, which deliver affordable, quality care.

But, as he says:

Here’s the dilemma: The only way for the health-care industry to move toward accountable care is to further accelerate a process of consolidation that has already reduced competition and increased market power. Hospitals are once again busily buying up physician practices and outside laboratories that used to compete with them, incorporating them into their “systems.” And independent physicians who used to compete with one another are quickly merging into multi-specialty practices, offering a full range of services to large blocks of patients for fixed annual fees – an arrangement known as “capitation.”

I agree with Pearlstein that hospital consolidation is a likely next step in the evolution of the health care system. But it’s untrue that “the only way… to… accountable care is… consolidation.” Certainly the easiest way for providers to gain clout with health plans is through getting bigger and developing networks that the plans can’t get away with excluding. But along with market power come serious downsides to consolidation. For one thing, when physicians sell their practices to hospitals they tend to adopt an employee mentality. They stop working hard to build their practices and start taking it easy and griping about work conditions and salary. Big systems can become unwieldy and require a lot of extra administrative expense. And the days of bulking up and extorting health plans for higher payment are coming to a close as health plans face pressures to keep premiums down and as governments intervene. For example, Partners HealthCare in Boston, which for years used its non-excludability to extract premium reimbursement levels from health plans, is facing pressure from the state to be part of the solution rather than part of the problem.

Integrated Delivery Networks (IDNs) are working hard these days to prevent “leakage,” i.e., patients leaving the system to receive care elsewhere. Conscientious physicians are unhappy about this trend, because it can mean referring patients to second-best choices.

The alternative to consolidation is physician-led Accountable Care Organizations (ACOs) and Patient Centered Medical Homes (PCMHs) that provide patients with a high-service, concierge-style primary care physician who has the freedom and information resources to refer patients to high quality, efficient specialists and hospitals that meet their specific needs. One key is interoperable electronic health records and community based health information exchanges that allow physicians to communicate effectively with all providers, not just those in their big hospital-led systems.

This will require physicians and their  financial partners to step up to the plate and create alternatives to the big IDN cocoons. If they do, and payments are based on capitation and outcomes rather than fee for service volumes, there should be great opportunities to forgo the consolidation model and encourage hospital-based systems to compete against one another in the patient’s interest.

In Boston, I’d like to be able to see whichever provider makes the most sense for my specific issue. I don’t want to be limited to Partners, CareGroup or some other system. I’d rather have an independent primary care physician who can work effectively with everyone and I don’t see why this shouldn’t be the case.

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I’m taking a break from blogging this week so am rerunning some favorite posts from 2010. Please visit the original post to comment.

In Health Insurers Get Tough on Hospital Prices, the Wall Street Journal reports that health plans and employers are using narrower provider networks to negotiate lower prices with hospitals. The idea is that hospitals should be willing to make concessions when that gives them the opportunity to exclude their competitors from a health plan’s network.

No doubt this approach works, at least up to a point. Aetna is excited enough about the idea to brag about it at a recent conference. Apparently the company is even bringing its employer customers along to hospital negotiations to show it isn’t bluffing.

But the approach isn’t as productive or sustainable as it sounds. First of all, we’ve been here before. There were plenty of narrow network HMO products offered in the early 1990s. Patients didn’t like it, especially when the network changed from year to year as the employer changed health plans or the plan changed its network (partly when those providers who’d provided concessions decided they’d had enough).

Second, when providers (hospitals or physicians) cut pricing to one health plan it has little to no impact on their overall costs. Providers look to maintain or increase their incomes by doing more procedures, upcoding, or sticking it to somebody else –like commercially insured patients from other health plans.

Third, narrow networks mean more patients go out of network, whether due to necessity or choice. Out-of-network providers can generally still get paid by the health plans, and can charge more or less whatever they want. See yesterday’s post (Entering the murky world of out-of-network charges) for more.

Fourth, narrow networks involve more than just hospitals. It has to encompass physicians, labs, etc. And that means a patient can go to an in-network hospital and end up with high charges from out-of-network specialists. Good luck keeping track of network status when you’re recovering from surgery!

Fifth, national health plans and employers talk a tough game, but when it comes right down to it they aren’t that powerful in local markets. Sure, there are a few company towns where a GE or IBM facility drives the health care market. But in most places the biggest employers are governments, universities and, (this is funny), hospitals themselves! That doesn’t even account for the biggest payers of all: Medicare and Medicaid. So Aetna coming to the table with a big employer isn’t as big of a deal as it sounds. (On the other hand there are markets where Blue Cross Blue Shield plans are dominant enough to matter.)

Sixth, providers have tools other than price to stay in network if they want. As noted in the article, the Tenet hospital chain has national scale. If Aetna wants to exclude a specific Tenet hospital from a local provider network, Tenet can cause trouble in another market. In many markets there are just a few big, consolidated provider groups. They have high market share and brand equity and can’t easily be excluded. My hometown of Boston is a prime example. In places where competition exists now, expect a sustained trend toward narrow networks to impel those providers to consolidate.

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I’m taking a break from blogging this week so am rerunning some favorite posts from 2010. Please visit the original post to comment.

A major reason US health care costs are so much higher than anywhere else while outcomes lag is that we waste so much money is wasted on end-of-life care. An article by Angela Maas in Health Plan Week (no longer available, unfortunately) provides a cogent, concise treatment of the topic. Some takeaways:

• Health plans cover palliative and hospice care but it is underutilized
  • Although palliative care discussions have a role early on, MDs don’t want patients to think they’re giving up on them
  • When terminal cancer patients come into hospice they may improve for a while –because they’re not coping with chemo effects– and such improvement may make them ineligible for reimbursement
• Patients receiving palliative care for non-small cell lung cancer from shortly after their diagnosis enjoy better quality of life and live longer (according to a NEJM study)
• High end-of-life costs are associated with worse quality of death in patients with advanced cancer (according to an Archives of Internal Medicine study)

One thing that’s not discussed directly in the article but that needs to be addressed: hopeless patients on their last legs can be highly profitable for providers and drugmakers, who in a fee for service environment can make money from the very high utilization. It would be interesting to break down an oncology practice’s profitability by stage of patient illness.

I understand that each case is different and am wary of a slippery slope leading to euthanasia. But I prefer a frank discussion of these topics and addressing the cost implications head on.

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GNS Healthcare is an analytics company that enables personalized healthcare. In this podcast interview, CEO Colin Hill describes the company’s supercomputer based, machine learning approach to hypothesis-free analysis, which goes beyond correlations to uncover cause and effect relationships. He also discusses the company’s novel partnership with the National Cancer Institute and hints at exciting announcements still to come.

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David Williams interviews GNS Healthcare CEO Colin Hill Play Now | Play in Popup | Download

Johns Goodman’s Three Simple Ways Medicare Can Save Money sparked ample debate on this blog and John’s. Now the Wall Street Journal has printed letters in response. Three of the four point out ways in which the simple solutions aren’t quite as promising as they seem. I won’t dwell on those. But one adds a fourth “simple” one. Alas, that simple one suggested by Ronald Horwitz of Farmington Hills, MI won’t work too well either.

His idea:

Do away with all dollar-based deductibles and co-payments and replace them with percentage co-pays.

Horwitz thinks this would give patients the incentive to seek out the lowest price for their care. Alas, once again a simple, elegant solution isn’t going to get us where we need to go. Here are a few problems with Horwitz’s plan:

• Percentage co-pays may encourage the use of lower cost approaches, but they aren’t always the most effective ones. If a $500 drug is more effective than a $50 one in keeping a patient out of the hospital, which could cost tens of thousands of dollars, do I really want to push the patient to the cheaper product?
• A lot of health care products and services are just too expensive for flat percentage co-pays. Most people can pay 10% of a $100 prescription cost, but fewer can afford 10% of a $40,000 surgical procedure
• Percentage co-pays can give patients an incentive to use more costly services –at least up to a point. If the insurance company is paying 90% of the cost, why not choose a pricier doctor or drug that might be better?
• It’s hard to know in advance what something is going to cost. Try sometime to find out the real price for a surgery in advance. Few hospitals can tell you.

Unfortunately health plans are being rational with their complex benefit designs: multi-tier formularies, different prices for different facilities and physicians, prior authorization, co-insurance, co-pays, out-of-pocket maximums, and provider networks. Simple solutions are unlikely to solve the complex problem of third-party payment for health care.

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