Health Business Blog

Pharmaceutical Benefits Manager (PBM) Express Scripts released a report claiming that more than $400B in annual pharmacy expenditures are wasted and that the greatest waste occurs in the poorest states, i.e., the South. The map is pretty striking with the North the best, middle next, and South the worst.

Express Scripts breaks waste into 3 categories:

• ~$60B wasted on high priced meds when cheaper equivalents, (e.g., generics) were available.
• ~$95B from not using “the most cost-effective and clinically appropriate pharmacies, including home delivery and specialty.” This is further broken into savings from lower drug costs (~$35B ) and savings from higher adherence through those channels (~$60B)
• ~$270B from avoidable pharmacy and medical expenses from low adherence, independent of the waste included in the second bullet point

All three bullet points are self-serving, especially the second one, since it describes the line of business that is most profitable for Express Scripts. (On a side note, I’ve noticed that PBMs have replaced the term “mail order” with the friendlier sounding “home delivery.”)

Nonetheless these numbers are probably supportable and directionally correct.

There’s another big category, too, which is drugs that should not have been prescribed in the first place. I don’t know how big that category is but I bet it rivals point number 3 in magnitude. Express Scripts benefits financially from the perpetuation of that kind of waste, however, which could explain why it’s not included in the study.

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I think everyone believes that Texas Governor Rick Perry is sincere in his opposition to the Affordable Care Act (ACA aka ObamaCare). But this still doesn’t explain why he’s refusing the expansion of Medicaid that the law brings.  From The Hill’s Healthwatch blog:

Texas Gov. Rick Perry (R) doubled down Monday in his opposition to expanding Medicaid under President Obama’s healthcare law, even though opposing it could cost his state $90 billion.

At a press conference where he was flanked by other conservatives, Perry argued expanding the health insurance program for the poor would make Texas “hostage” to the federal government.

“It would benefit no one in our state to see their taxes skyrocket and our economy crushed as our budget crumbled under the weight of oppressive Medicaid costs,” Perry said at the state capitol.

The last paragraph in particular is a head scratcher. The federal government will be paying 100% of the cost of the expansion over the first few years of the program and then downshifting slightly to around 90%. This is a much better deal for the states than the base Medicaid program, which Texas continues to participate in. Perry’s argument seems to be premised on the idea that the feds won’t live up to their promises  –in particular that the 90% federal share in the out years somehow won’t come true or that even if it does the extra 10% will play havoc with taxes and the Texas economy. Even if we give Perry the benefit of the doubt on this point, why not take the 100% for now and then throw all the extra beneficiaries off the rolls later? The idea that accepting the Medicaid expansion will be crushing financially is laughable.

In addition to Texas losing out on the $90 billion or so of federal funds mentioned in the article, Texas employers may face federal “shared responsibility payments” in the range of $300 to $450 million per year as a result of Perry’s obstinance. According to Jackson Hewitt Tax Service, employers are generally not penalized if their employees are on Medicaid. But if Texas rejects the Medicaid expansion, some employees who would have qualified for Medicaid will end up enrolling in the premium assistance tax credits provided by the ACA instead. And in that case their employers will be subject to substantial penalties.

Those shared responsibility payments will flow from Texas to the federal government, and the federal government will also spend billions less on Medicaid expansion in Texas. That’s good news for taxpayers in states that are accepting the Medicaid expansion, but I don’t see how it helps the people of Texas, whom Governor Perry is supposed to represent.

MCOL has a good infographic showing the impact of this provision on various states, including Texas.

You’ve heard the expression “Don’t Mess with Texas” –which originated as an anti-littering campaign– but in this case Texas it messing with itself.

By David E. Williams of the Health Business Group.

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Fast food chains, which employ many low-income, uninsured adults, have been worried that the full implementation of the Affordable Care Act (ACA) aka ObamaCare next year will be unaffordable for them. Some political opponents in the industry have been strident in their critiques and doomsaying.

But as 2014 draws closer the green eyeshade types are speaking up, and the message is more reassuring. ObamaCare actually won’t cost each Wendy’s restaurant $25,000 per year as previously estimated. The new estimate is down 80 percent to $5,000 annually. The average Wendy’s has revenues of $1.4 million, so we’re talking here about less than 0.4 percent of sales.

According to the Wall Street Journal (Restaurant Chains Cut Estimates for Health-Law Costs), other restaurant chains have been making similar pronouncements:

They say many employees will decline company-offered insurance, either because they can get insurance through Medicaid or a family member, or because they prefer to pay the penalty for not having health insurance. The penalty next year will be as low as $95 next year, much less than most employees will be asked to pay through company-sponsored insurance plans.

As long as restaurants and other employers offer plans that meet ACA’s requirements they won’t be penalized for lack of employee uptake.

The new estimates are good news for the restaurant industry, and demonstrate again that ObamaCare is actually a moderate law, not a sweeping takeover of the health care economy. It’s not so great, though for those workers who will still be without coverage. Penalties go up gradually over time, which may increase worker participation somewhat. In any case it will give some time for kinks in the law to work out and for the provider and payer community to absorb the new entrants into the system.

Once the dust settles we’ll see where we are and maybe there will be a need for further tweaking. In any case there should be a significant increase in the number of people with coverage and no threat to the chains’ ability to offer bargain menus.

Of course ACA is about a lot more than forcing restaurant owners to offer insurance. The cost and quality improvement elements are important, too, and with time and good will there is the potential to realize significant overall changes for the better in the health care system. Putting health care on a sustainable path will be good for the restaurant industry and others, and 10 years from now we are likely to look back on 2014 as no big deal.

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The Health Business Blog is on vacation this week. Here’s a rerun of a post that originally appeared a year ago.

Peter J. Neumann, ScD runs the Center for the Evaluation of Value and Risk in Health (I’m an advisory board member there) so he’s well placed to initiate a forthright discussion of costs, as he’s done in today’s New England Journal of Medicine. See What We Talk about When We Talk about Health Care Costs.

Neumann focuses on a statement from the new edition of the American College of Physicians’ Ethics Manual:

Physicians have a responsibility to practice effective and efficient health care and to use health care resources responsibly. Parsimonious care that utilizes the most efficient means to effectively diagnose a condition and treat a patient respects the need to use resources wisely and to help ensure that resources are equitably available.

The term “parsimonious” has generated a lot of pushback. That’s not unexpected, because policymakers, the health care industry and consumers continue to studiously avoid serious discussions of cost. Neumann is on the side of the ACP, and makes the following key points:

• The embrace of “more efficient, more effective, and safer care” and reducing waste is sensible and productive, but won’t really address cost growth
• Society has to face the fact that unlimited access and unlimited patient choice are unrealistic
• The Affordable Care Act’s restrictions on using comparative-effectiveness research for coverage decisions and its ban on the use of cost-effectiveness thresholds will limit the law’s impact
• It’s nice to have a “patient-centered” approach to outcomes research embodied in the Patient-Centered Outcomes Research Institute, but it hinders the cost debate by de-emphasizing “considerations of societal resources”
• Accountable Care Organizations (ACOs) are actually well placed to employ “parsimonious” care, but no one speaks in those terms
• The ACP is performing a real service by bringing up a topic that isn’t being discussed honestly

I’m fully on board with Peter, and would add a couple observations from recent news:

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I woke up today and found a weird headline in my inbox: “Med School Debt May Push Docs to Primary Care.” It struck me as weird because I thought it was commonly agreed that the effect is the opposite. To the extent choice of specialty is motivated by concerns over debt repayment, it should push doctors to sub-specialties like radiology, oncology and orthopedics that pay a multiple of what primary care gets paid. Of course the training is longer but the financial payoff over the course of a career is pretty clear.

Reading a little further into the article, and then reviewing the primary source (Pediatric Resident Debt and Career Intentions )  it turns out this story is about pediatrics and that the causal relationship –if any– is modest. Pediatric residents with more debt are somewhat less likely to say they will pursue a specialty that requires fellowship training. Meanwhile over the past few years, as debt levels have increased, pediatric residents have actually been expressing a higher interest in sub-specialties and a lower interest in primary care, which begs the question of why this article was written in the first place. (We also need to be careful about extrapolating findings from pediatrics to adult medicine considering that pediatric compensation, including for sub-specialities, is lower.)

Stepping back a bit from this article, I would reframe the topic as an examination of the impact of high and rising medical school debt on the physician workforce. I would like to see more attention given to questions such as:

• Why is the level of debt rising in the first place? To what extent is it due to rising medical school tuitions? What role does undergraduate debt play in overall educational debt for doctors?
• How much does debt affect the decision to go into medicine in the first place? Why did the residents surveyed here (all of whom were in pediatrics) decide to go into pediatrics at all despite the fact that incomes tend to be lower?
• To what extent is the trend toward more medical debt interfering with national priorities? For example, what will be the cost to Medicare, Medicaid and private payers in terms of future medical bills as a result of training more sub-specialists at a time when there are shortages in primary care? What would be the ROI if the government paid more medical school tuitions in exchange for certain workforce commitments?
• What policy solutions are available to address the debt issue? For example, can debt forgiveness programs like the National Health Service Corps play in encouraging more primary care and a more even geographical distribution of physicians?
• What is the responsibility of medical schools in all of this?

The medical debt issue is an important one, which I’d really like to see addressed at multiple levels. However, I don’t think it’s helpful to the debate to be spreading the word that more debt equals more primary care.

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Both President Obama and Mitt Romney are interested in “closing loopholes” as part of broader tax reform, and both are famously reluctant to say exactly which loopholes they are talking about. The problem is that these “loopholes” are pretty popular and also fairly fundamental to the economy. By far the biggest loophole (or “tax expenditure” as official government documents term them) is “exclusion of employer contributions for medical insurance premiums and medical care.” That deduction costs the federal treasury $184B in 2012. The second biggest item is “deductibility of mortgage interest on owner-occupied homes,” at $99B, and then it drops off from there to $68B for 401(k) plans, $61B for step-up basis of capital gains at death and $51B for exclusion of imputed rental income.

Read through the list (Table 17-3 on p. 252 of this document) and you’ll understand why politicians are reluctant to say what they’re going to eliminate. The larger “loopholes” are mostly well-established, broad based and popular. Most people don’t think of deductibility of 401(k) plans as a loophole, for example, but rather a fundamental part of how they operate.

I’d love it if we could find bipartisan consensus on reducing (though not eliminating) deductibility for employer contributions for health insurance. I have at least a wee bit of optimism on this count. So-called private health insurance is heavily subsidized through the tax code. That means there’s less attention given to careful spending. All else being equal tax deductibility drives costs up. The Affordable Care Act actually addresses this issue through the so-called “Cadillac tax,” which will penalize the priciest plans. A major impact will fall on unionized employers, who tend to have the richest plans.  One would think that Republicans could get behind the idea of limiting deductibility to the first $x dollars of per employee costs, and then making anything above that amount subject to taxation.

Going after deductibility of health insurance is tricky business, because it could lead employers to abandon their sponsorship of health care. If it’s done in a partial and gradual way, though, it could remove distortions in the health insurance market and reduct the deficit.

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Hospital ranking systems have been getting more attention in recent years as the number of rankings has proliferated, and as patients, purchasers, health plans  and the government have taken a greater interest. USA Today (A Healthy Disagreement) looks at the rankings, noting that some hospitals do well on certain lists but not others. Of course the main reason for this is differences in methodology.

US News tries to be comprehensive. Consumer Reports emphasizes  patient safety. The Joint Commission compiles its list of top performers on “accountability measures.” H&HN has a “most wired” survey. This information is all interesting enough in its own right, but it will be a long while before the surveys evolve to the point where they are very useful for patients. For now, the rankings serve as a spur for hospitals to improve their performance.

One critical omission from these rankings is any ranking by cost or efficiency. Considering that the US hospital industry consumes close to $1 trillion of resources per year and that patients are increasingly responsible for paying hospital fees themselves, there should be plenty of interest in such rankings. A big challenge is data gathering and analysis, which is a lot more involved when dealing with cost and efficiency topics. Some states, like Massachusetts, do publish summary level information on cost, but the results are limited.

It’s unreasonable (and actually not all that useful) to do such rankings nationally. But I do look forward to seeing individual states or regions move forward with systematic approaches to mine all payer claims databases and other data feeds to produce information that helps the buyers and users of hospital services and assists hospitals themselves in making improvements.

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Employer-sponsored health insurance exchanges are featured on the front page of the Wall Street Journal today, as Sears and Olive Garden’s parent start providing employees with benefits dollars to be used in a private health insurance marketplace. I published an interview about private exchanges earlier this week, so the topic is timely. I’m a fan of these arrangements, which allow employees a better chance to tailor their benefits to their needs.

Whenever a company adopts this model, yellow flags go up. First, people worry that the shift to an exchange is a move by employers to shift costs to employees. Second, there’s a related worry that matters will get worse over time as company contributions fail to keep up with premium growth. I understand why these objections come up, but I don’t think there’s a lot of merit to the concerns.

There are a couple main reasons that people worry about cost shifting:

• First, employers have been cost shifting for years, so the natural reaction is to assume that any change is just another cost shift. And yes, some companies do increase cost shifting when they move to an exchange –but they probably would have done so even if they hadn’t shifted
• Second, the move to exchanges is often compared to the transition from defined benefit to defined contribution retirement plans. In the olden days retirees received pensions based on their final pay rates and number of years of service. When 401K’s came in, employers ended up contributing a lot less –sometimes nothing at all. It wasn’t until employees neared 65 that they figured out that they were in much worse shape for retirement under the new system than the old. Health insurance is purchased on an annual basis, so it will be much easier for employees to see how they’re making out. They won’t have to wait till age 65 to see the consequences. And companies competing for talent will still need to offer competitive benefits

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Drug maker Questcor has been having serious troubles lately. Aetna restricted reimbursement to one indication, the federal government is looking into potential marketing abuses, and short-sellers are making a fortune as the stock plummets. Read the recent news coverage (WSJ, Reuters, Bloomberg) and it looks like all these issues have just come to the fore. But Questcor has been on the questionable list since 2007, when I first wrote about it.

If you read what I wrote you probably would not have invested, figuring something bad would happen to this company eventually. And yet at the time of my first post, the stock was trading for$0.57 per share. It subsequently climbed to $53 and even now it’s about $19. So don’t use my posts for short-term trading!

Here’s a recap of my earlier posts:

Abusing the orphan drug law to rip off customers (August 2007)

Questcor obtained orphan drug status for a product that had been used for decades, then jacked the price 20x.

New York Times is 7+ months late with H.P. Acthar Gel story and still misses the point (April 2008)

Incredibly when the Times finally does run the story they blame the drug distributors for the price jump. Another reporter had called me months earlier and I spent a lot of time educating him, so someone got their wires crossed.

Wiki discusses alternatives to ACTH for infantile spasms (July 2008)

Pediatric neurologists pointed out alternatives to giving in to Questcor’s pricing stratagem.

Conde Nast Portfolio shines a light on Questcor (July 2008)

A mainstream source finally covers the story and gets it right.

I stopped covering Questcor after that, leaving the job to other bloggers who’ve pursued it with more passion and interest. But from time to time over the past couple years I’ve received calls from reporters, short-sellers and investigators sniffing around this story. I’m not surprised to see the recent troubles.

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Everyone in the health care world knows about the shortage of primary care physicians. A great many everyday people learn about it firsthand when they try to find a doctor make an appointment. In most sectors of the economy supply and demand balance out more through market forces. But the shortage of primary care physicians won’t be addressed so easily. An article in the New York Times (Luring Students Into Family Medicine) points out two reasons: medical schools discourage physicians from going into primary care and primary care physicians make less than specialists. Those reasons are both real, but there’s more to it.

On the financial side, rising costs of post-secondary education are taking a toll. Medical school itself is expensive, but of course students are also coming out of college with large and growing debt. It’s not at all unusual to see medical students with $200,000 of debt as they enter practice, an amount that takes a long time to pay back on a primary care income. Education costs have been rising even as compensation for physicians has been flat, so this challenge has gotten worse. Debt forgiveness programs are few and far between, even when they exist they still don’t do much to address the gap in career incomes between primary care and specialties.

The share of physicians trained in primary care who are practicing office-based medicine has also been declining. The rise of the hospitalist movement means many internists –who 10 years ago might have gone into community practice– are salaried employees of hospitals who spend their time working with inpatients. That’s a new opportunity for internists, which I don’t begrudge, but ironically a major beneficiary of hospitalists are specialists who are relieved of the need to spend as much time managing their hospitalized patients.

Despite all the attention to the need for primary care physicians, medical students still receive subtle and overt messages to the effect that the best students don’t go into primary care. The Times piece highlights this issue and mentions medical schools that are trying to do something about it. I’m modestly optimistic about that trend. The overt discouragement of primary care may decline more rapidly than the more subtle kind.

The gap in compensation actually has the potential to change fastest. Fee for service medicine is notorious for paying a premium for procedures, which favors specialties. There may be some convergence over time between primary care and specialties in fee for service rates (we are already seeing pressures in the despised specialty of radiology) but the biggest impact could come from changes in payment methodology to global payments. If providers’ analytical tools are able to detect significant differences in overall costs and outcomes based on differences in primary care physician, the potential arises for serious shifts in primary care physician compensation. It’s likely that the analytical tools will be available before the cultural readiness is there to pay an excellent office based internist the $800,000 a year that such a person might be worth.

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