Health Business Blog

The latest Cavalcade of Risk –risk based posts interspersed with photos of the host’s garden in Auckland, New Zealand– is hosted at Chatswood.

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Mitt Romney is taking a lot of grief for his casual offer to bet Rick Perry $10,000 during the latest Republican Presidential debate. According to the dominant storyline, $10,000 is a sum so vast that only a really rich person like Romney could contemplate offering it up. Mentioning $10,000 somehow proves Romney is out of touch. Romney may have been a bit tone deaf politically but his betting strategy with Perry was shrewd. He offered the bet because he was certain he would win it (and he would have) and picked $10,000 because that’s toward the upper end of the range that Perry was likely to be able to afford. It really doesn’t have much to do with Mitt’s wealth level.

But setting all that aside, $10,000 is actually a very relevant figure for a discussion of health care policy, and it’s a figure the electorate should get used to discussing. Consider what $10,000 (plus or minus) represents in the US health care environment:

Health insurance

• The average annual employer contribution to one worker’s health insurance
• What my business pays for six months of family health insurance coverage
• The amount my business’s annual health insurance premium for family coverage has risen over the past decade

Medicare

• The average amount Medicare spends per beneficiary per year
• What a wage earner making $350,000 per year pays in Medicare tax  (employer + employee contribution)

Clinician salaries

• One month’s salary for a new pediatrician
• One month’s salary for an experienced nurse

Drug costs

• Six years of Lipitor for high cholesterol
• Six months of Humira for rheumatoid arthritis
• Two months of Avastin for lung cancer
• Two or three weeks of Cerezyme for Gaucher Disease

Treatment costs

• The average cost of a hospital stay (in Maryland)
• 1/2 of an angioplasty (in Massachusetts)
• 1 appendectomy (in Massachusetts)
• Comprehensive orthodontic treatment for 2 kids (in Massachusetts)

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Dr. Bryan Vartabedian has a thoughtful post on 33 charts about online reputation management. He begins:

I spoke to a group of academic physicians recently.  Afterward I was and asked, “Shouldn’t my hospital be responsible for my digital footprint?  I don’t have time to look after that sort of thing.  And wouldn’t it make sense for them to promote my research?”

His four reactions are pretty good:

1. Individuals should be responsible, not their institutions –since no one will look after you like you do
2. Physicians should invest in relationships — to “dig your well before you’re thirsty” because you never know when you’ll need help
3. Physicians should look for good stories to share with hospital PR/marketing –since this may result in high visibility for modest effort
4. Institutions should think about their own digital footprints –including encouraging medical staff to record introductory YouTube videos and placing professional profiles on LinkedIn and Doximity

I agree with Vartabedian that academic physicians generally do a pretty poor job of establishing and maintaining a digital presence, and that they could do better with a modicum of effort. But many don’t see it as a high priority and they may well be right. After all their salaries are covered by their institution, they receive recognition among peers for research and publications, and they’ll have plenty of patients as long as their institution maintains a strong brand and flow of patients.

Hospitals perhaps have the most to gain from Vartabedian’s advice. In particular, they can strengthen the overall positioning of their institutions by encouraging their physicians to have a more active profile outside of the hospital’s own website. Too often when I type in the name of an academic physician to Google the results are dominated by a bunch of fairly useless profiles and ratings by HealthGrades, UCompareHealthCare, EveryDay Health, RateMDs and the like.  Usually there is a bunch of stock information I could get from the white pages along with 2 or 3 ratings from patients. Maybe there’s also a short profile from the academic institution in there somewhere.

How hard would it be for physicians –with encouragement or active assistance from their institution– to build profiles with more interesting and useful information that would climb to the top of Google listings? Not very. Done right, these profiles would include links to colleagues and the institution. Come on fellas, the bar is pretty low!

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A Health Affairs article by Peter Neumann et al. (Risk-Sharing Arrangements That Link Payment For Drugs To Health Outcomes Are Proving Hard To Implement) catalogs a set of experiments –mostly in Europe– where pharmaceutical companies put a portion of their payment at risk contingent on certain outcomes being realized. As the article indicates, these experiments aren’t going all that well. The main problems are high transaction costs, the lack of acceptable outcomes measures, difficulty of determining treatment effects and an absence of suitable data capture systems.

An example of a difficult program to implement is the UK National Health Services’ agreement with makers of beta interferons for multiple sclerosis. The NHS was skeptical of the products’ long-term efficacy, so the program calls for price adjustments if the results are 20 percent better or worse than expected over a 10-year period. The long lifecycle, difficult administration and low adherence to the medications makes this one a real nightmare and I can’t imagine it’s worth the trouble.

Meanwhile, a more successful program is an agreement between the NHS and Novartis to limit the number of Lucentis doses that the NHS must pay for to 14. If the patient still needs more injections –based on a measure of visual acuity– Novartis picks up the tab.

As consumers in the US take on an increasing share of medical costs, I expect that drug companies will try various risk sharing arrangements directly with patients, probably administered through PBMs or health plans. The Lucentis example is a good one. Patients will probably be willing to pay a fixed amount to receive all the Lucentis they need –it may be more or less than 14 doses. Certain other drugs, like fertility medications, could also be offered on a risk share basis –although this may require someone to bundle a variety or products to make it work.

I can also see the value of long-term contracts for maintenance medications for chronic conditions, e.g., for high cholesterol or high blood pressure. It could actually help patients adhere to their regimens if they had –for example– a three-year Lipitor contract. They might feel badly enough about not taking a drug they’d already paid for that it would guilt them into keeping up their therapy.

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Brad Wright hosts the Holiday Shopping Guide edition of the Health Wonk Review on Wright for Health.

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Health and Human Services Secretary Kathleen Sebelius overruled the FDA to prevent the plan B emergency contraceptive from being offered without a prescription to girls under 17. The practical impact is to limit access to the “morning after” pill. The drug will remain behind the pharmacy counter and those under 17 will need to get a doctor’s prescription before they can purchase it.

The official reasoning is that the data submitted did not prove it would be used appropriately by young girls. But in fact this is a highly cynical decision that has everything to do with the upcoming presidential election.

Consider:

• The decision of the HHS Secretary to overrule an FDA decision appears to be unprecedented
• The drug isn’t dangerous even when it isn’t taken properly
• The FDA made the applicant (Teva) jump through a lot of hoops for this submission, then reviewed the data thoroughly
• Scientific panels have been in favor of OTC use since 2003, but political pressure (at that time from the Bush Administration) kept access restricted. In 2005, assistant FDA commissioner Susan Wood resigned over political interference in Plan B

Obama came to office vowing to change course from the Bush administration by respecting science and supporting reproductive freedom. His supporters will be very disappointed in this decision. And yet it is the right thing to do from the standpoint of supporting Obama’s re-election and the move is unlikely to cost Obama votes. Political discourse has moved so far to the right over the past few years that the Obama Administration could have gone considerably further than it did (like pulling Plan B from the market entirely) and still be well to the left of the Republican candidates.

With Republicans treating Planned Parenthood (which historically had bipartisan support) like the Devil, calling Obama a socialist, Bernanke treasonous and treating talk of any new taxes as completely off the table, one really has to wonder where things are headed. An Obama supporter enraged by the Plan B decision would really have to think seriously before jumping over to support a Republican Party whose commitment to things long taken for granted –such as the right to abortion in the case of rape or incest and the legality of contraception — is unclear.

You can bet a decision to widen access to Plan B would have given Republican candidates plenty of fodder to go after Obama as pro-abortion and in favor of 11 year old girls having sex. He did the right thing politically.

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Shortages of lifesaving drugs have been rising toward crisis levels in recent years. As a result some hospitals have been forced to delay treatment, substitute other drugs, or pay high prices to secure supplies from distributors. Michelle Hudspedth, pediatric hematology and oncology chief at the Medical University of South Carolina explains that federal policy is largely responsible for the shortages. In particular it’s hard for the drug companies to make money. From California Healthline:

Hudspeth identified the Medicare Modernization Act of 2003 as the main reason for drug shortages, as it shifted the reimbursement rate from a percentage of average wholesale pricing to the average selling price, including all discounts and rebates.

She said, “Generic prices are driven down by market competition, and the current model under the MMA makes it difficult for companies to raise prices more than 6% per year.” Hudspeth added, “Product margins have fallen significantly for many generic drugs, leaving companies with little incentive to continue manufacturing the drug or to increase production” (Modern Healthcare, 11/30)

Problems in manufacturing plants are also playing a role, as sterile drugs for injection/infusion are notoriously hard to produce.

Now Senator Charles Schumer of New York is proposing a headline-grabbing but wrong headed idea: to make it illegal for drug distributors to engage in “price gouging” when they sell medications. The law would be backed up with penalties of up to $500 million per case. Said Schumer:

“Forcing hospitals to buy life-saving medications at outrageously inflated prices is unquestionably unethical, and with this legislation it would be illegal, too.”

Schumer should really be focusing on the root causes of the problem instead of blaming a seller for engaging in a market clearing transaction. The seller isn’t “forcing” a hospital to buy any more than the hospital is “forcing” the seller to sell. If anything, Schumer’s law would make things worse by eliminating the incentive for distributors to hunt down pockets of excess supply and scaring buyers and sellers away from pursuing transactions to avoid getting tangled up in a legal case.

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An important reason that medical costs are so high in Massachusetts is that residents are accustomed to visiting major teaching hospitals for routine care. The big academic centers, especially the Harvard-affiliated hospitals, have been masterful in persuading people that there is no worthy substitute. They’ve done a great job of branding and investing in facilities –and of course they really are excellent places to obtain care.

Community hospitals in Massachusetts have long complained about the power of these big systems, and have gotten worked up as Partners HealthCare in particular has expanded into the suburbs. Employers and health plans have generally been sympathetic to community hospitals –because Partners’ expansion means higher costs for them.

Community hospitals have a strong story to tell, especially in an era of cost-consciousness and transparency. Their clinical quality is typically comparable to the teaching hospitals’, locations are more convenient, level of personalized service is relatively strong, and costs are lower.  Community hospitals could also do more to learn from one another’s experience by sharing information with one another more freely than is done now.

But in general community hospitals in Massachusetts have not taken the initiative to exploit their competitive advantage. That’s why I’m grateful that private equity backed Steward Health Care System has seized the opportunity to create a cost-effective, high quality, high service offering that can thrive in the marketplace. Not surprisingly Steward is now taking heat from other community hospitals, who are whining to the Attorney General (failed Senate candidate Martha Coakley)  about “apparent predatory practices against community hospitals” –in this case related to Steward’s move to ally with a group of physicians, Whittier IPA.

As is often the case with groups running to the government or media to seek special protection, community hospitals are trying to argue that Steward is harming the public –when the real concern is that Steward is eating their lunch through competition. I’m glad to see a profit-maximizing entity such as Steward come in and take on the market opportunity aggressively. And I agree with the sentiment expressed by Steward in the Globe:

“This letter seems to be saying a system of 10 community hospitals is damaging community health care, which is our own business,’’ [Steward] said. “Without us buying these hospitals, most, if not all of them, would have failed or closed. We’re out there as a business saving community hospitals and keeping patients in the community.’’

Don’t be fooled by community hospitals ranting against big bad capitalists. The important objective for the public interest is not the comfort of traditional community hospitals but the ability to finally bring the costs of health care under control in this state.

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By the way its vehement opponents speak, there should be absolutely no problem to find people and businesses harmed by the Patient Protection and Affordable Care Act (PPACA).  From Herman Cain, who says he would have been killed by “ObamaCare” (but is certainly wrong about that) to the National Federation of Independent Business (NFIB), which argues that it will kill small businesses, it’s easy to imagine tens of millions of innocent victims.

That’s why it’s so ironic to read about the plight of the small business owner NFIB chose to represent its Supreme Court case opposing the law and its mandate to purchase insurance. The Wall Street Journal (Hurdle for Health-Law Suit) reports that plaintiff Mary Brown, owner of an auto repair shop,  argued that “she would have had to divert funds from her business to comply with the law’s requirement that… most American obtain coverage or pay a penalty.”

But she closed the business in September and she and her husband filed for personal bankruptcy, citing debts of $63,000, mostly business expenses. As the Journal reports:

Without owning a business, it could be harder for Ms. Brown to argue she is harmed by the legislation. Meanwhile, her recent financial woes suggest the possibility she would be exempt from penalties for noncompliance with the individual mandate. That raises questions about whether the suit can be based on her experience.

Not only will she not be harmed by PPACA, she might even be helped. That’s because the law provides fairly generous subsidies to lower income people –a group that now presumably includes Brown– to buy health insurance. She may also qualify for Medicaid.

What would be really funny is if Mary Brown comes to her senses and becomes an advocate for ObamaCare.

Meanwhile, I’ve been thinking about another way to close the deficit. Just as Grover Norquist has gotten so many GOP reps in Congress to take the no tax pledge, why not have opponents of “ObamaCare” vow not to accept subsidies to buy insurance or to go on Medicaid? That would be a principled stand.

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Everyone who’s looked at the data knows that the cost of Medicare is killing the federal budget. The Medicare payroll tax only covers about half the direct costs, with the rest coming from general expenditures.  But as HealthLeaders points out, an increase in cost shifting from Medicare onto commercial plans may also be taking place.

The author, John Commins, notes that per capita costs in the commercial market grew more than 8 percent over the past year, while Medicare growth was just under 2 percent.

Robert Zirkelbach, spokesman for America’s Health Insurance Plans, agrees… that the different rates of growth for commercial plans and Medicare can be attributed to cost-shifting.

“Medicare simply dictates the prices they will pay for services, and often those prices are well below the cost of providing those services,” Zirkelbach told HealthLeaders Media. “So, what happens is doctors and hospitals charge more to people with private insurance to cover the costs of those services.”

A couple of other federal policies may further exacerbate the situation:

• With the minimum Medical Loss Ratio requirements of the Affordable Care Act, health plans may not care that much about higher medical prices. After all, their administrative costs (including profits) are capped as a percentage of premiums. All else being equal, higher premiums equals higher profits in dollar terms
• Providers are preparing for federally-authorized Accountable Care Organizations (ACOs) by consolidating. In the near-term that provides them with greater market power in negotiating with commercial payers. As Zirkelbach says:
• “Our members are getting rate increase requests from providers by as much as 60% and 70% in some markets across the country,” he says. “There is a growing body of evidence and research showing that as hospitals consolidate, that leads to higher prices for services. In some markets there is only one ‘must-have’ hospital in a region that is able to charge significantly more for services, often 200%, 300%, 400% of what Medicare pays for the same services, and that is having a direct impact on the cost of care.”

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