Health Business Blog

A year ago I asked my Twitter followers to make health care predictions for 2011. Several were brave enough to go on the record, and I organized their thoughts into four themes. Rather than solicit a new set of predictions for 2012 I decided to go back and review how last year’s forecasts panned out. In general they were pretty accurate.

The four themes were as follows, each with specific predictions outlined in the blog post.

1. Transparency will change from buzzword to reality
2. Information technology progress will be uneven, with the biggest breakthroughs in mobile
3. A culture of patient safety will begin to take root
4. Health reform implementation will advance despite some ugly battles

Number 2 and number 4 were right on the money, while number 1 was a bit of overstated and number 3 was worded cautiously enough that it would be fairly surprising if it didn’t come true.

The most prescient prediction came from AOL founder Steve Case (@SteveCase) under #2 who said, “Mobile health will be a game changer in health and wellness.” At the time I thought this was an exaggeration but 2011 really has been the year of mobile health. In particular I note the phenomenon of physicians bringing their personal iPads and iPhones to work to use in the clinical workflow, a development CIOs and CMIOs still don’t have their arms around.

Under #4 I single out Dr. Bruce Siegel (@siegelmd), CEO of the National Association of Public Hospitals and Health Systems for taking a strong stand and being mostly right. He wrote, “Always an optimist, I think 2011 is the year that economic recovery takes hold. This changes the national health care debate dramatically as the Administration’s leverage is bolstered. There are some very ugly battles ahead, especially in the state houses, but overall it’s a year of consolidation. Also, the Redskins won’t go to the Superbowl!”

Bruce’s predictions look durable enough to hold up for both 2011 and 2012. The US economy –even with its troubles– has been outperforming expectations lately and if it holds up will put Obama in strong shape for the 2012 campaign. The “ugly battles” prediction came true and so did the “year of consolidation” point as Affordable Care Act rules were written and implementation proceeded apace. The Redskins didn’t make the Superbowl in 2011 and don’t look likely to do so for 2012 either.

Under #1, Giovanni Colella, CEO of health care transparency company Castlight Health (@CastlightHealth) made a somewhat self-serving prediction that, “Consumers will increase their demands for personalized information about health care cost, quality and convenience and will turn to innovative applications to address these needs.” He was right at least to some extent. Beyond consumers, a lot of the transparency action this year came from initiatives by health plans, employers, and regional health improvement collaboratives.

I’ll give myself some credit for my not-so-risky assessment of the Affordable Care Act: “I expect Republicans to make moderate progress chipping away at the law, even though repeal is not in the offing. The recent one-year Sustainable Growth Rate (SGR) fix, which halted the automatic cut to Medicare reimbursement rates, was financed by snatching a little bit from PPACA insurance subsidies. Expect more gambits like that, along with objections to proposed rules, attempts to defund or delay specific provisions, and continued court challenges to the law itself.”

I hope to publish a list of predictions for 2013 (or maybe I’ll shoot for a longer time frame) just after the Presidential election.

You can expect little to no blogging from me for the rest of 2011, though I’ll probably keep the Twitter feed (@HealthBizBlog) going.

Wishing you a health, happy, peaceful and prosperous 2012 from MedPharma Partners and the Health Business Blog!

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This is the transcript of my recent podcast interview about medical loss ratio (MLR) rules with Bonnie Washington of Avalere Health.

Williams:         This is David E. Williams, co-founder of MedPharma Partners and author of the Health Business Blog.  I’m speaking today with Bonnie Washington.  She’s Senior Vice President at Avalere Health.  Bonnie, thanks for being with me today.

Washington:    Thanks for inviting me.

Williams:         Bonnie, the Affordable Care Act has rules about minimum medical loss ratios. There’s a lot of interest on the specifics of the rules and regulations coming down on that topic. Maybe we can start with the definition of the medical loss ratio.  What is a medical loss ratio anyway?

Washington:    The medical loss ratio is a mathematical calculation, defined in the Affordable Care Act as the ratio of a health insurer’s premiums that are spent on medical claims and quality improvement activities divided by the total amount of premiums that the plan collects.  So it’s basically the medical and quality improvement costs divided by the plan’s total premium revenues excluding most state and federal taxes.

Williams:         What are the rules within the Affordable Care Act about the medical loss ratio (or MLR) and why is it something that matters?

Washington:    The Affordable Care Act instituted for the first time national medical loss ratio requirements in order to try to get plans’ premium costs under control and as a way to cap plans’ administrative costs and profits.

The Affordable Care Act does three things.  First it requires all health insurance plans to report the medical loss ratio that we just talked about to the public and to the Department of Health and Human Services.

Second, it requires that plans meet specific percentages for the medical loss ratio depending on the size of the plan.  Third, beginning this year plans have to issue rebates to their enrollees if they find themselves falling below the minimum medical loss ratios for the category that they’re in.

Williams:         The rates are different for different size plans or customers.  Why are those rates different?

Washington:    That’s right, they are different.  There is an 80% medical loss ratio for small group insurance and non-group or individual insurance. HHS has defined small group as fewer than 100 people. There is a higher medical loss ratio for the large group market, which is over 100 people, and that’s at 85%.

The reason why they are different is because when plans insure individuals or smaller groups they incur higher administrative costs.  It costs more per person to enroll people in your health insurance plan.  It costs more to process the claims.  It costs more to advertise to people.  It’s assumed that large employers have a lot more efficiency because you’re basically performing the same tasks for a larger group of people. Plans can afford to have a higher medical loss ratio because the “administrative load” (the words used in the insurance industry) is lower.

Williams:         When you described the medical loss ratio calculation it sounded pretty straightforward, but I noticed you talked about medical costs plus quality improvement activities.  If I had to take a wild guess my sense would be that there will be some arguing about what a quality improvement activity is.  What are the issues, how are they being resolved, and what issues remain open?

Washington:    You’re absolutely right. I gave you a very simplified version of the definition of the medical loss ratio.  In each of those words that I used, there are lots of details.   Some states have had medical loss ratios prior to the Affordable Care Act, but this is the first time that this concept has been in place across the country. It has spawned a whole new industry in terms of accounting for the medical loss ratio.

Over the past couple of years since the Affordable Care Act was passed, there have been a lot of different efforts from different organizations to try to define what all these terms mean.

One of the big issues was, as you said, what is a quality improvement activity versus an administrative cost? Because if you’re a plan, you want as many of your costs to operate your plan as possible to be in that numerator, to be in the definition of quality improvement and medical costs.

The National Association of Insurance Commissioners recommended a series of definitions to HHS and HHS has been putting out regulations to further define this.

Quite a few things are included in the definition of quality improvement activities.  These include case management, care coordination, expenses that improve patient safety, wellness and health promotion activities, information technology expenses related to quality improvements, and health care professional hotlines.

Recently HHS changed the rules and allowed plans to include costs associated with implementing ICD10, which is the new coding system, in quality improvement activities.

There are a fair amount of a plan’s administrative costs that can be considered quality improvement activities, but there are still some really important and big ticket items that are left as administrative costs.

Williams:         Some states have sought waivers from the MLR rules.  Why are they doing that? Also, why some of those waivers have been approved and others denied?

Washington:    Great question.  The law allows states to seek waivers from the Secretary if the state believes that requiring plans to meet these new minimum medical loss ratios would destabilize their insurance market.

Destabilization means that if insurers were required to meet those minimum medical loss ratios that the market would be destabilized if a number of the insurance carriers would leave the market or stop selling health insurance products, particularly to individuals, because they can’t meet the new rules.

Several states have applied for waivers. As of this week, the Secretary of HHS has approved waivers for six states and the Secretary has rejected waivers for about three states. There are also a handful of states whose waivers are still pending.  Some of the differences between the states that got waivers and the states didn’t have to do with the makeup of the insurance market in their state.

I think Maine was the first state to receive a waiver from HHS.  Maine has one dominant insurance carrier, which is the Blue Cross plan in that state. They had a historical medical loss ratio that was much lower than the requirements in the ACA.  Maine gave a bunch of information to HHS and showed that if the insurers in Maine were required to meet these medical loss ratios beginning this year that they would have a really hard time doing so and may leave the market. That would leave people in Maine without any insurance options.

Other states like Florida have gotten rejected.  HHS has rejected their waivers because there are a lot more insurers in Florida and the insurers’ historical medical loss ratios were a lot closer to the minimums than the situation that you have in Maine.

Williams:         It sounds like in places like Maine there may be objective, structural reasons why one could argue about destabilization.  For some of the other states that have applied for waivers and perhaps have been rejected, is it more of a political expression?  I don’t think of Florida as an uncompetitive insurance market.  Was it clear on the face of it that that would be rejected or was there some solid economic rationale for it?

Washington:   I think it was probably a little bit of both.  What we’ve heard and seen from insurers throughout this process is that, particularly in the individual markets in a lot of these states, plans were not meeting the minimum medical loss ratios that were in the law.

But particularly from the big insurance companies we’ve seen them make statements in their investor relations activities and others saying that they are restructuring their business, they’re making decisions and they’re taking steps to meet the minimums.

So there may be, in a state like Florida, some local plans that can’t meet the minimums and have to issue rebates and struggle, but overall particularly in a state like Florida where there’s lots of competition by the big national plans, they’re going to meet it.

Recently the Government Accountability Office (GAO) looked at the states’ early experiences in implementing the medical loss ratio. The GAO found that most insurers will be able to meet the medical loss ratio requirements in the Affordable Care Act.

One thing that’s going on in states that are requesting waivers is the issue of insurance brokers, which is very important.  The Affordable Care Act and the HHS rules consider the commissions that brokers make from insurance companies to sell their products as administrative costs.  This is a big portion of the administrative cost line and one that is coming under a lot of pressure as plans are trying to get those costs down.

The brokers are very well connected and, at this point, well organized. They have made a big push to try to reopen the definition so that brokers’ commissions are excluded from the calculation altogether.  So far, the National Association of Insurance Commissioners has agreed with the brokers that they should remove the fees.  There is legislation pending in Congress to remove broker commissions from the MLR calculation, but HHS has chosen not to act.

I think in a lot of these states that are asking for waivers, some of it may very well be driven by the brokers who are really feeling the pinch of the medical loss ratio requirements as plans are cutting their commissions or saying to brokers we are not going to pay your commissions directly.  You’re going to have to get paid either by the employer or the individual if you want to continue your role.

Williams:         From the health plan perspective I would imagine that these MLR limits could be somewhat threatening.  A lot of these are profit-making entities that have to report to their shareholders.  I suppose on the one hand the tradeoff is that they should get a lot more customers if the mandates on individual purchases in particular are upheld within the Affordable Care Act.  But on the other hand, the MLR rules are essentially a profit cap for them.  How do they respond?  Do they have an incentive to raise the premiums or to move into businesses where their profits are not regulated?

Washington:    What you see is a little bit of everything.  If you think about the medical loss ratio in and of itself, it could lead to higher premiums because one way in this calculation for plans to have more money for administrative costs and profits is to raise the overall amount of premiums that it has to charge. But there are a lot of other provisions in the Affordable Care Act that try to prevent that.  So you’ve got an incentive to raise premiums because of the medical loss ratio, but you also have premium rate review and a lot of other things going on in the Affordable Care Act that are further pressing down on premiums and putting pressure on plans.

What we see is plans looking market by market, business segment by business segment to try to figure out where they might want to discontinue operations or where they want to continue and restructure what they’re doing to be able to meet the minimum medical loss ratio.

To your point, there are also a few other things going on where plans are trying to diversify their business lines so it’s not quite as tightly regulated.  One area is growing the business for self-funded employers.  These are large employers that hold the insurance risk for their population themselves and just hire an insurance company to administer the benefits.  That’s one area.  Another area that plans are looking at, like you said, is different pieces of health insurance such as health information technology, clinical decision support, providing claims processing and other services for newly formed accountable care organizations.  You see a lot of the plans trying to diversify their business from fully insured to self-insured to some of these other administrative and clinical services in order to balance out the risk.

Williams:         I can understand the populist appeal of a minimum medical loss ratio approach, but if I think about it from the standpoint of the member or the purchaser of insurance, I wonder whether it really holds up.  If I think about other kinds of insurance that I have like life insurance and car insurance and home insurance, I’m happy when the equivalent of the medical loss ratio is zero on my account because that means I didn’t die or crash my car and my house didn’t burn down.  With health insurance, couldn’t you argue there’s something similar? In a year that I’m perfectly healthy, presumably, I’m highly profitable to the insurance company but I’m also pretty happy that I’m not sick. If they’re taking steps to keep me from being sick and to keep medical costs down, why are they being penalized for that?

Washington:    I think that’s a great question. There are some inherent differences between health insurance and other types of insurance that have evolved over time.  Most health insurance these days isn’t simply catastrophic coverage. There’s a big focus on prevention and wellness, so there’s a lot of things that people who are perfectly healthy or who are relatively healthy and managing various chronic conditions should be doing and the plan should be paying for those things.  Health insurance covers those maintenance costs whereas your auto insurance doesn’t cover the maintenance costs that you have at your dealership, such as rotating your tires and having the oil changed.

But I do think that the medical loss ratio was a provision that has populist appeal.  We’re capping insurers’ profits. But it’s really only one thing.  There are a lot of other things that need to happen in the insurance market overall in order to make coverage affordable for people and accessible to everyone. This is really a small piece that has populist appeal that happens to go into effect really quickly.

Williams:         The Affordable Care Act has a lot of different provisions that are rolling out over a few years.  The medical loss ratio in the current rules, would you say that’s the last word on this topic or will we see an evolution in the approach of medical loss ratio regulation?  I understand your point that there are a lot of other pieces of the puzzle here in terms of cost containment, both on the health plan side and maybe in the delivery system as well, but as far as MLR rules themselves, do you expect some evolution?

Washington:    With rules as complicated as this, there will definitely be some unintended consequences.  We’ve already seen HHS put out a modification of the rules that made some important changes and tried to reduce the administrative burden on plans of the MLR rules.  I think that the big issues have been decided, but I do think that HHS will continue to make tweaks around the edges to make it work better and be less burdensome for plans.  As we go through the process this year of figuring out who met the minimums and how the rebate process works, there will be some more changes.

The biggest issue still hanging out there is this issue of the future of insurance brokers.  This is a very big group of people who are very vocal and this is really their livelihood. So I think that they will continue to try to gain support to have their commissions outside of this calculation altogether.  I don’t think that that will go away.

Williams:         I’ve been speaking today with Bonnie Washington.  She’s Senior Vice President at Avalere Health.  We have been talking about the Affordable Care Act and in particular, the rules about the medical loss ratio.  Bonnie, thanks so much for your time today.

Washington:    Oh, thanks for having me.

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Check out the latest edition of the Health Wonk Review at HealthNewsReview.org.

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This is the transcript of my recent podcast interview with Qualcomm Life.

David E. Williams:      This is David Williams, co-founder of MedPharma Partners and author of the Health Business Blog.  I’m speaking today with Rick Valencia, Vice President and General Manager and Anthony Shimkin, Senior Director of Marketing at Qualcomm Life.  Rick, Anthony, thanks for being with me today.

Now I understand you were at the mHealth Summit earlier this month where Qualcomm announced a new subsidiary called Qualcomm Life.  Can you tell me about that and what the thinking is behind the new venture?

Rick Valencia:          You bet David.  Qualcomm Life is a business that’s been in the making for nearly a decade now.  For about eight or nine years, Don Jones and a team here from Qualcomm have been evangelizing the concept of bringing wireless technology into the health care arena and specifically into medical devices.

Then in the last year or so we developed a business plan.  After having listened to a lot of customers over that eight or night year period and getting their specifications and requirements and understanding what the real challenge was, we developed a business around those specific needs.

The launch announcement was focused on three specific areas.  First and foremost was that we are now open for business as Qualcomm Life,  bringing about 40 partners with us, all at different stages of integration into the platform.  Second we launched the 2net Platform, the 2net Hub and three other gateways of getting information off the medical device.

Third, we announced a $100 million Qualcomm Life Fund where we’ll invest in early stage businesses in wireless health: devices, services and applications.  We’ve already made five investments in wireless health companies and we will continue to invest and help stimulate this market.

Williams:         There was a fairly long gestation period for the business. Why?

Valencia:          In the first eight or nine years there really was no specific business plan.  The objective was to promote the concept of embedding wireless technology in the medical device and start to build the ecosystem that’s required to support a business and an industry.  We went about doing that including building standards organizations and trade groups.  We were one of the instrumental partners in launching the mHealth Summit.

There’s even an education opportunity now within wireless health where right at Qualcomm’s campus in partnership with Case Western University, you can get a masters in wireless health.

Williams:         Great.  Rick, despite the fact that I’m sure you’re using a lot of high quality Qualcomm gear in your phone, the network is prohibiting us from have a completely clear connection, but I think I got most of what you had to say there!

The concept of remote patient monitoring and at-home monitoring has been around for quite awhile and there have been a lot of different devices and business models in the market going back even before the eight or nine year gestation period that you described for this effort. Everyone sees the appeal yet the uptake and success have been pretty limited so far.  Do you see a sharp break from the past or should we just expect slow, incremental progress?

Valencia:          There are two general areas are going to have a fairly major impact.  I’m going to focus on the first, which is the technical issue and then I’m going to let Anthony jump in about health reform.

Technically speaking what’s happened is a lot of these devices have been put in the home to send data back to a caregiver or disease management company, but they just don’t work or they’re siloed.  In other words, three or four devices that are used, all of which send data in their own stream. You’d have to view the data in its own native format or get a fax with the information handwritten.

The promise of the 2net platform is to take multiple streams of data off of multiple devices, get it all into one platform, standardize that data so that it can be viewed all at once in a simple to understand, easy to use view.

One big issue is that device companies assumed people had Wi-Fi and could connect their devices to it. In a lot of cases that’s not true, so the device never sends a single message.

By sending home the medical device or devices with a 2net Hub, it is in essence paired in the factory with this gateway device. You plug it in the wall and it just starts going.

So from a technical standpoint we think that this will really be a game changer for the device manufacturers.

A. Shimkin:     This effort has been around for years, why isn’t it picking up?  Offering several different gateways to get the biometric data off the devices is one of the advantages that Qualcomm Life brings to the table.  It can serve as a catalyst to accelerate some of these initiatives.

There has been some recent legislative trade news, as I’m sure you’re probably aware.  One is that hospitals will not continue to get paid on readmissions.  The cost and the issue in the United States with that problem is pretty significant.  We’ve seen a lot of interest early on from care delivery organizations.  These would be systems like the VA, which I know has a significant effort around remote monitoring to track those patients upon discharge so that they’re not coming back into the hospital for a series of disease states whether it’s diabetes, congestive heart failure, or COPD.

Now you’re starting to see several large scale Integrated Delivery Networks  taking a significant interest in what these remote monitoring efforts have to offer.

We’re seeing a groundswell of interest, not only from customers, but from physicians.  A recent survey reported that up to 88% of physicians were interested in tracking and monitoring their patients’ health at home.  The top three areas were weight, blood sugar and vital signs.

When you look at the three or four different pillars, we’ve seen a significant acceleration over the last six to twelve months trying to push the whole remote monitoring offering across the continuum of care and especially in the home.

Williams:         What’s the implication of rapid physician uptake of smartphones and tablets? Is that having an impact on remote monitoring that is perhaps greater than some of these longstanding devices, which are often just a glorified bathroom scale at the end of a wire?

Valencia:          There’s no question about it.  Something like 80% of doctors are now using some form of tablet or smart device in their practice, whether that’s just doing web searches for information or actually using the devices connected to their electronic medical records.  They’re starting to use wireless technology in a way that’s having an impact on their practice and their ability to care for their patients, keep track of their patients and also communicate.

One of the key value propositions that the 2net platform and hub offers is that we actually create a two-way communication between the patient and the doctor. So it’s not just a matter of getting the data off of the medical device back to a caregiver or doctor or wherever it’s intended to go, it’s also the ability for that doctor or caregiver to communicate back with the patient and maintain that two-way connection.

The tablet or smartphone also provides an opportunity to present the data in a way that is more meaningful to a physician and patient.

Shimkin:          Over 50% of patients would be interested in using a smartphone or PDA to monitor health.  You’re seeing the acceleration of technology.  As the apps become easier to use for different generations, easier to integrate, (which we’re really seeing across the spectrum in terms of interoperability), I think it’s a matter of time before you start to see some of these pick up more.

If you look at the proliferation of technology, one of the things that we cite here at Qualcomm is the number of people out there with access to a cell phone. It’s more than people worldwide with running water, electricity or the use of a toothbrush.  So it’s going to be a standard that’s hard to ignore not just in the US but worldwide.

Valencia:          Ease of use is going to be the key, taking those streams of data and delivering them in a way that’s meaningful for a doctor and patient.

The 2net platform is an open ecosystem so we are connecting any medical device and allowing any service provider or application developer to develop new solutions that we can’t even think of today, new applications and ways to present the data back to a physician or patient where it’s actionable.

Think about leveraging streams of data off of multiple devices; you can imagine a disease management scenario with a diabetic where you have a glucometer, an insulin pump, a weight scale and activity monitor.  Imagine having those four different streams of data being encapsulated in an application that presents the information in a very meaningful way on how you’re progressing or not progressing towards your goals. Instead of a doctor having to watch a ticker of your blood glucose levels throughout the day to figure out when he ought to intervene, he can view data in a way he’s comfortable using it without altering his day in a way that’s unmanageable.

Williams:         We’re talking about ease of use here as a key aspect in two-way communication.  Are you seeing any impact from the Patient Centered Medical Home, which could provide some reimbursement beyond the physician visit to actively monitor some of these feeds? Or is it just an abstract notion at this point?

Shimkin:          No, I think a lot of that also comes from payer interest.  Some of the evidence that I’ve seen has come out of the VA.  When you’re talking about putting an aging parent in a long-term care situation that costs $75,000 a year and up, the VA has really been at the forefront of some of these initiatives for remote monitoring patients to get those costs down into the low single digits thousands of dollars.

When you just look at the impact of forward thinking care delivery organizations, you’re starting to see a lot of interest in terms of clinical outcomes. It’s very difficult to ignore the body of evidence around the impact. You’re starting to see a significant pickup in payer interest.

Last but not least, we can talk a bit more about the consumer.  There’s a lot around consumer preference.  You have the aging grandparent who is in the home who really doesn’t want to leave the home.  They want more of their care in the home. You’re seeing very strong preferences from some patients with one or several chronic conditions wanting more care available in the home rather than being put in some other situation.

William:           Rick, you mentioned a $100 million Qualcomm Life Fund that has made five investments already.  Can you talk a little bit about one or two current investments and also how you’re thinking about making investment decisions in the future?

Valencia:          You bet David.  One example would be Telcare.  Telcare is a company that has the first FDA approved glucometer with cellular technology embedded in the device. They’re providing the opportunity for diabetics to have their tests go immediately to the cloud and back to where it’s intended to go.  In some cases it might be to a parent with a child who has diabetes who is at school so they can be keeping track of their readings on a regular basis throughout the day.

In addition, we recently invested in a company by the name of AliveCor.  They’re commonly known as the iPhone ECG device.  It’s a device that is a case for an iPhone in which you just put your fingers on the two sensors on either side and it generates your ECG. In an emergency situation to have a device like that where you can quickly apply it to a person and get that ECG and have that sent to a doctor somewhere immediately to determine exactly what you’re dealing with is obviously an important and valuable use of wireless technology in health care.

What we’re looking for are early stage companies.  Typically Qualcomm is not a lead investor.  We typically invest alongside more traditional venture investment firms and we like to invest within companies that need our support strategically, whether it’s the technology, the platform, or our relationships that we can support them with.  We believe that our involvement can further a company’s efforts just by being a partner with them.  That’s where we would typically be most interested in investing.

Williams:         I’ve been speaking today with Rick Valencia, Vice President and General Manager and Anthony Shimkin, Senior Director of Marketing at Qualcomm Life.  Rick, Anthony, thank you very much for your time today.

Valencia:          Thank you, David.

Shimkin:          Thanks for having us, David.

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Pfizer received a flurry of attention toward the end of November as its blockbuster statin Lipitor came to the end of its patent protection. Many media outlets were impressed with Pfizer’s aggressive, multi-pronged plan to compete with generic versions of the drug through special deals with pharmacy benefit managers, price inducements to consumers and heavy advertising. For example, here’s what the New York Times had to say in Facing Generic Lipitor Rivals, Pfizer Battles to Protect Its Cash Cow:

The company’s aggressive strategy may offer lessons for drug makers facing similar losses of patent protection for other blockbuster drugs over the next few years, and may chart a new path for shifts between the big pharmaceutical companies and generic rivals…

With Pfizer’s plans to try to maintain brand loyalty for the next six months becoming public, industry analysts have raised the company’s earnings outlook by 2 to 4 percent, and now estimate that it could retain 40 percent of the market through next year.

Instead it looks like Lipitor is behaving just about like any other drug going generic. From the Washington Post:

Sales of cholesterol blockbuster Lipitor plunged by half barely a week after the world’s top-selling drug got its first U.S. generic competition, new data show.

That’s despite a very aggressive effort by Lipitor maker Pfizer Inc. to keep patients on its pill, which generated peak sales of $13 billion a year, through patient subsidies and big rebates to insurers.

Big pharma can only win long term by develop innovative new compounds that generate clinical and economic value. They can absolutely forget about making money in the face of generic competition.

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Usually I’m asking the questions, but this time NaviNet asked for my views on health care trends for 2012 including health IT, coordinated care, ACOs, cost containment and technology. You can read the interview here.

I asked them to arrange an interview for me with Lyndon Johnson –but received no solid promise.

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The Patient Protection and Affordable Care Act (PPACA) specifies minimum Medical Loss Ratios for health plans. HHS has recently released final regulations on the matter, so I asked Bonnie Washington, Senior Vice President at Avalere Health, to shed some light on the topic in this podcast interview.

We cover a variety of areas including:

• What the definition of a Medical Loss Ratio is, and where the controversy lies in the definition
• What PPACA specifies about MLR for various size plans
• Why some states have applied for waivers from the MLR rules and whether their applications were justified
• How health plans and brokers are reacting
• Whether MLR rules are sound public policy

There was a problem with the original audio file. It’s been repaired now.

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David Williams interviews Avalere Health's Bonnie Washington on MLR [ 20:39 ] Play Now | Play in Popup | Download

Qualcomm’s new wireless health subsidiary, Qualcomm Life, is out of the gates with a a wireless connectivity platform and hub for home medical devices, plus a $100 million early stage investment fund.

In this podcast interview, Qualcomm Life executives Rick Valencia and Anthony Shimkin share the details behind the launch of the new venture. We discuss:

• Whether remote patient monitoring is ready yet for prime time (it’s been a long time coming)
• Existing and planned venture investments
• Qualcomm Life’s 40 existing partners
• The role of the Affordable Care Act and Patient Centered Medical Homes in advancing the wireless health world

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David Williams interviews Rick Valencia and Anthony Shimkin from Qualcomm Life [ 21:27 ] Play Now | Play in Popup | Download

The Bipartisan Options for the Future white paper [PDF] by Ron Wyden (Senate Democrat from Oregon) and Paul Ryan (Republican Congressman from Wisconsin) is billed as a bold move to reform Medicare. It is admirable that two prominent legislators from across the aisle have come together on the pivotal fiscal question of our era, but the plan itself is disappointing and even counterproductive.

It’s not just that I disagree with the details, which I do. The underlying principles themselves are also problematic.

To quickly summarize the plan, it is a modification of the earlier Ryan plan that would have switched Medicare over to a voucher system to be used to pay for private plans. The Wyden/Ryan version keeps the voucher element but also leaves fee for service Medicare intact.

Here are the main problems:

• The plan would keep everything the same for people 55 and older. According to the first principle, “Seniors should not be forced to reorganize their lives because of the government’s mistakes”
• The program’s provisions don’t kick in until 2022
• The plan relies on competition among health plans to bring down costs
• The plan places caps on spending and introduces rules on minimum benefit levels
• The plan includes a defined contribution option for private employers with under 100 employees

So what’s wrong with all those ideas? Quite a lot, actually.

The Medicare fiscal crisis is here today, it’s not something that can be put off till the next generation. The Medicare tax only pays about half of Medicare’s costs now. And people 55 and over are at least as culpable as those below that age for getting us into this mess. The line about seniors not having to reorganize their lives due to the government’s mistakes is nonsense. Maybe it’s not politically palatable to threaten existing beneficiaries or even anyone who’s remotely close to retirement, but the economics don’t work. As for the 2022 start for the program, that’s about three presidential cycles away. Are we really going to wait that long?

Ryan and Wyden seem to have a mystical belief that bringing private health plans into Medicare is going to control costs. Where is the evidence for this assertion? Private health plans have done a poor job of controlling costs in the private sector and Medicare Advantage plans cost the taxpayer more money than Medicare fee for service. Not to mention the fact that the white paper places all kinds of requirements on the health plans and “will also require the Centers for Medicare and Medicaid Services (CMS) to actively review marketing practices and benefit adequacy… CMS will… weed out junk plans and unqualified insurers.” Sounds nice, but that means we’ll be stuck with mandated benefits and excessive administrative hoops that will thwart innovation. There is a plan to hold down cost growth to just over GDP growth, and somehow (I’ll be curious to see the mechanism) overruns will be dealt with through “reduced support for the sectors most responsible for cost growth, including providers, drug companies, and means-tested premiums.”

The private employer provisions are a little weird and don’t belong in a Medicare plan. They encourage portability (which is fine) but go to great lengths to preserve tax deductibility for employers and employees.

Wyden and Ryan will get a lot of undeserved credit for pushing this plan. Today’s Wall Street Journal editorial refers to it as a “breakthrough.” It’s pretty clear the reason they support it is they think it will weaken Democrats’ argument that Republicans won’t do anything productive on Medicare and will lead to the defeat of President Obama.

Here’s what I would prefer:

• A recognition that Medicare reform has to start with current beneficiaries who are driving expenses today. There’s no excuse to wait 10 plus years, which will just make the problem worse and absolve a huge percentage of the population from responsibility. To me establishing this principle is more important than the details of the cost containment plan
• A focus on reforming the delivery system and payment methodologies, not just tinkering with the financing
• An end to tax deductibility of health insurance in the commercial market, which could be phased in over a five year period. That would reduce the incentive for overspending and help shrink the federal deficit. It would do a lot more than the Ryan/Wyden scheme to make the system more cost sensitive

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Florida is concerned that it spends too much on Medicaid. Unfortunately for policymakers, proposed cuts to Medicaid are likely to be self-defeating according to an Orlando Sentinel article. They may result in more spending as well as boosting the number of people with no coverage –especially children. Components introduced under the guise of personal responsibility –such as charging $10 per month per beneficiary or $100 for non-emergency use of the emergency department– have great intuitive appeal to taxpayers and legislators, yet can backfire in practice.

Experience from Oregon suggests that even modest, sliding scale premiums result in huge drops in coverage. A report from the Health Policy Institute at Georgetown University suggests 82 percent of those who leave coverage would be children, of whom 98 percent would be below the poverty level.

There are clear examples of emergency room overuse, but what’s crystal clear in retrospect is not always evident up front. In any case, hospitals can do their part with effective triage that sends patients to lower acuity settings or back home when patients who shouldn’t be there show up.

Florida Governor (and former hospital exec) Rick Scott, said, “If we do nothing, this program will bankrupt the state.” But one of the authors of the study, Joan Alker of the Winter Park Health Foundation attributes the growth to rising enrollment and notes that state Medicaid has done a lot better job of cost control than the private sector.

It would be great if Florida and other states could control Medicaid costs just by taking a hard line on beneficiaries. That seems to be the mood the country –or at least the Republican Party– is in. But policymakers will find such an approach won’t actually save much in the way of costs and will have a detrimental impact on public health, overall costs and beneficiaries themselves.

A less instantly satisfying –but more sustainable– approach would be to face up to the reality of the need for delivery system and payment reform, and to invest more rather than less in children.

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