Canadian Provinces Overpay for Generics

Today’s Managing Health Care Costs Number is 46%

That’s the percentage of Canadian provincial budgets that are dedicated to health care.  It’s up from 35% in 1999.

Health care cost woes are not unique to the United States!

The rise of health care costs crowds out other important government services, and this is not sustainable.

The Economist  reports that if there is no change in health care inflation, Ontario will spend 80% of its budget on health care by 2030!

What’s the problem?

For one thing, the Canadian provinces are overpaying for generic medications. Each province sets rates for generic medications, and in Ontario these are pegged at 50% of brand name price, and scheduled to drop to 25% later this year.  Generic prices are often 10% or less of the branded product cost in the United States. 

Some will suggest that this is further proof that we should rely on market forces to drive down prices, rather than having the government set prices.  I think this shows that regulatory agencies have a hard time being dynamic in their approach to prices.   It’s likely that regulations to cap prices of brand name medications is effective, but there is no need for price controls for commodity generic medications. In Ontario,  setting prices actually artificially inflates costs.

We’re likely to have arguments in Massachusetts and in the United States about price controls in the coming months and years.   In the US, our high unit costs are the main reason our health care is more expensive than the rest of the developed world.    Price controls work (at least temporarily) in some instances, but they can lead to paradoxically high costs rather than cost savings.  

Domestic Medical Tourism - Why Competition Can Lower Price Even if No Volume Moves

Today’s Managing Health Care Cost Number is

0 

Today’s USA Today  (from Kaiser Health News) reports on domestic medical tourism.   Many have written about domestic and international medical tourism, and projected huge increases in this.  In fact, Deloitte breathlessly suggested in 2008 that 6 million Americans (1 in 50) would go abroad for treatment in 2010!  [I can’t find an active link to this report now –it’s apparently no longer online.)  Deloitte revised these trends substantially in fall, 2009, now estimating that by 2012 international medical tourism will reach 1.3 million in 2011.

Here’s why I’m focused on zero.  Hannaford Brothers, a large supermarket chain, initiated an international medical tourism program in 2007 for knee and hip replacements in Singapore.    The plan was widely reported, and widely commented upon.  Many suggested    Today’s USA Today article reveals that exactly no one took Hannaford up on the offer.

Does that mean Hannaford’s program was an utter failure? Au contraire!  The program was a real success.  The credible threat of competition led to a number of offers for less expensive orthopedic surgery in the US, and the local hospitals in Maine were willing to lower their prices.

So – a program that creates competition can lower prices even if it doesn’t actually move volume.  Not so good for the entrepreneurs in Singapore, but excellent for the patients and the shareholders of Hannaford.

  

Insurance Up, but Emergency Visits Up Too

Blog Note:

I’ve become a devotee of NPR’s Planet Money npr.org/money – which starts each podcast off with a number – and then dissects the implications of that number.  I think that’s a great idea – so today, I’ll inaugurate beginning each post with a relevant statistic.

Today’s Managing Health Care Cost Number is…..

9%

That’s how much emergency department use in Massachusetts has risen over the past 4 years.  The Division of Health Care Policy and Finance released this report at the end of June, and the Boston Globe reported the results on July 4.    The total number of ED visits in the Commonwealth went up to almost 3 million. 

Emergency Department Visits in Massachusetts, 2004-2008

Massachusetts has the lowest rate of uninsured in the country – so many figured this would help decrease emergency department utilization.

As Nancy Turnbull pointed out in the Globe, the rate of health insurance among Massachusetts residents has been high for some time. Therefore, the percentage of those going to the ED who were uninsured was low even before we passed health care reform – so any change in the number of uninsured was not likely to have a big impact on ED utilization.  ED utilization was increasing before health care reform, and the increase has continued unabated since we passed health care reform. 

The real problem is that there is a lack of access to less-expensive alternatives to the emergency department.  Many Massachusetts residents have a hard time finding a primary care physician. That’s especially true for healthy people who have acute illnesses and haven’t already developed a primary care relationship.   We’ll need retail clinics and non-physician providers (nurse practitioners and physician assistants) to create enough access so that ED rates don’t keep on going up.  We also need tools (like nurse lines) to allow patients to make the best decision about when it’s necessary to go to an emergency department.

Health care reform has improved access to health insurance in Massachusetts.  We now need to make substantial improvements to the delivery system if health care reform is to fulfill its promise.

Payment Reform: Off the Rails in Massachusetts

Massachusetts not only led the nation in passing and implementing legislation to dramatically decrease the number of uninsured, but it also planned to lead the nation in reforming provider payment to be sure that we could afford near-universal coverage.

Health care reform in Massachusetts remains popular, but the wheels are coming off of the payment reform bus.

A state commission recommended a multi-year transition from predominately fee for service to a series of bundled payments to encourage better coordination and to discourage providers from “running the meter” and recommending diagnostic and therapeutic care which would enrich providers without real value to patients. 

The Boston Globe reported Saturday   that state Senate President Terese Murray has, for the moment, given up on enacting legislation to reform payment in Massachusetts.  She said ““It’s like going around in circles…Nobody is in agreement on anything.’’

It’s no surprise.  The goal of payment reform is to lower overall costs, and that means that some stakeholders will earn less.  Since all of us are intensely loss averse, the losers will fight much harder against reform than the winners will fight for reform.

Here is my summary of barriers to payment reform, and some steps to help overcome these barriers.   Under the best of circumstances, it’s hard to reform payment methods.  It’s probably even harder when money has to come out of the system.

Barriers	Potential Enablers
Many providers are doing quite well under fee for service, and perceive the threat that payment reform will lower their earnings.	As long as providers feel that fee for service will yield continued increases (in both fee per unit and allowed utilization), they will insist on continued fee for service.   We won’t see health care payment reform until providers feel a meaningful threat that there will not be future fee for service increases.
The payment system is fragmented, and employers demand that every health plan include (almost) every provider.   This gives health plans little leverage to change the payment methodology.	For most adult practitioners, Medicare is a huge source of revenue.  The commercial payers cannot legally collude around payment, so any health care reform will depend up on a Medicare waiver allowing CMS to pay other than fee for service for Medicare services. Limited networks could facilitate introduction of bundled payments.
Providers are fragmented, and few are arranged in such a way to take “risk” or capitation for their entire population.	As long as fragmented fee for service payment is available, many physicians who deeply value their autonomy will continue to practice in nonintegrated practices.  We'll need transitional approaches for those physicians who are not currently in integrated groups. We also should continue to pay fee for service for some specialty services.
Providers remember that the capitation of the 1990s included inadequate risk adjustment.	Risk adjustment software is far better than 10 years ago
We demand choice, and bundled payment is far easier to arrange if patients are locked in to a delivery system	We need bundled payments that have corridors to avoid excess loses or windfalls, and we must include contingencies for when patients choose to split their care among different systems.
Most large companies self-insure, and it’s difficult to administer payments other than fee for service for these plans which  are governed by ERISA	Health plans must show their clients that paying fee for service, even with discounts, is more costly than paying for bundles of care.
Capitation or global budgets lead to an incentive to undertreat	Payment reform must include quality scores and report cards, and payment must be decreased if all appropriate evidence-based care has not been delivered.
Capitation or global budgets lead to an incentive to reject the sickest patients	Risk adjustment should help – although we’ll have to rely on physicians’ professionalism too.  That’s imperfect, since we know professionalism has not prevented overtreatment in the fee for service system.

These aren’t all the challenges, and there’s no guarantee that these steps will overcome enough of the objections to payment reform in the provider community.  From my discussions with colleagues over the past few weeks, I’m convinced that many physicians and hospitals accept that we will need to reform payment to be able to afford to cover our population.

But it will take a real sense of crisis to move forward, and a real threat that rejecting health care payment reform will lead to unacceptable fee for service payment cuts.