Affordable Care Act and Pharmacy Savings

Today’s Managing Health Care Costs Indicator is $1.5 billion

I’ve been on the road early this week – where I see a lot more of USA Today. The top of the fold Tuesday trumpeted “Health Care Law Changing Behavior.”    The article itself mostly recounts pharmacy savings from the ACA, and briefly mentions full coverage for preventive care in some of the last paragraphs.

The article states that Medicare beneficiaries saved $1.5 billion this year (through August) because of the 50% discount on brand name drugs that are purchased within the “donut hole,” where cost of outpatient drugs are entirely the patient’s responsibility. The donut hole is between $2700 and $6154.  CMS states that the average saving was $569 per person.

Where did these savings come from?   The ACA included mandatory price cuts for seniors who are in the “donut hole,” and thus the funding for this comes from the brand name pharmaceutical industry.   This isn’t all a giveaway, though, by any means.   Lower priced brand name drugs for those on multiple prescriptions is a great deal if there are no generic equivalent.  However, generics tend to be 90% less expensive than brand names – so a 50% discount on a brand name remains a bad deal for seniors.

I suspect the $569 is the average savings for those who had any savings – because a bit over half of Medicare beneficiaries does not hit the $2700 in eligible outpatient pharmacy expenses.

The pharmaceutical industry made a deal early to support what became the Affordable Care Act.  PHaRMA agreed to some price concessions, but gained many more elderly with meaningful drug coverage. Out of pocket costs went down by more than 20% for seniors, leading to a bit over a 5% increase in overall drug utilization.    Marginal costs to produce drugs are very low- so these extra customers are very important to industry profitability.

Has there been behavior change?  Perhaps.  But the USA Today reporter didn’t probe very hard. Catch this quote.  

“Seniors are becoming more engaged in their care, [CMS director Jonathan] Blum said, citing the hundreds of forums Medicare has conducted about the changes.”

I’m guessing the benefit design of full coverage for preventive care might change behavior more than the hundreds of forums!

Further Evidence that Self Referral is a Bad Idea

Today’s Managing Health Care Costs Indicator is 86%

An enterprising radiology resident reviewed a series of 500 imaging studies (lower back MRIs) ordered by orthopedists; half had a financial interest in the scanner, and so made more money when a scan was ordered. The other half had no financial interest in the scanner, and their income was independent of MRI scan volume.

	Self Referral	No Self Referral
Average Age	50	57
% Negative Scans	42.45	22.8%

The results are exactly what you’d expect. The physicians with a financial interest in the MRI scanner ordered scans on younger patients. The scans they ordered were 86% more likely to be negative -- suggesting overutilization. 

This is a small study- done by a single researcher – and he was likely not blinded to which group the orthopedists belonged to.  Still, this is consistent with all the other evidence available. Doctors make different clinical decisions based on their financial interests. 

Physician financial interest in enterprises they refer to continues to be an ethical and financing dilemma.  I don’t believe that many physicians who own imaging consciously believe they are ordering extra tests.  However, there is plenty of evidence that they are.  Here are just a few links to past chapters of this sordid tale:

Nuclear cardiology ordered more by those who own scanners

Urologists who own IMRT radiation therapy have higher costs

Orthopedists who own a share of a surgical center do more surgery

Some potential solutions

Incidentally, you might worry for the intrepid radiology resident who did this study. Will he be shunned by colleagues for exposing their dirty laundry?

By no means.  Radiologists have been aggressive at pointing to inappropriate self-referral incentives for specialties that compete with them for some time! Harvard Link 

Don Berwick’s Exit Interview

Today’s Managing Health Care Costs Indicator is 5

Don Berwick ended his 17 month run as Center of Medicare and Medicaid Services Administrator –and it’s too bad that we won’t have his willingness to be disruptive and his vision to lead CMS through these critical next few years.

Kaiser Health Networks praises Berwick for his top 5 accomplishments:

1. Made CMS less bureaucratic and more responsive
2. Made CMS a force for U.S. health improvement.

3. Pushed hospitals to improve patient safety. 

4. Started to move Medicare from paying by the procedure to paying based on outcomes. 

5. Encouraged "innovative" health care delivery models

Perhaps to be symmetrical, Berwick gave an interview to the New York Times as he was packing his bags, and noted that “20 percent to 30 percent of health spending is “waste” that yields no benefit to patients.”  He cited five key areas of waste in health care.

Berwick’s top five list, with my annotation.

1. Overtreatment of patients

There is certainly plenty of overtreatment – especially in Medicare patients at the end of life.  Much of the underlying reason is cultural –and cultural changes take a long time.

2. Failure to coordinate care

The sickest  1% of our population represents 20% of costs –and patients are on polypharmacy (more than 8-10 medications a day), and it’s hard to find a hospital discharge that includes appropriate discharge instructions. 

3. Administrative complexity

By definition a system that has multiple payers will be complex- and the Affordable Care Act increases that complexity further through a series of regulations to protect patients – but which require compliance efforts that some will find burdensome. 

4. Burdensome rules

One person’s burdensome rules are another’s critical protection.   Some rules can simplify choices (like Massachusetts’ requirement that plans offered by the health care exchange are easily comparable), while others just make for higher cost (like requiring an RN or MD license to give injections, even though medical assistants are well trained for this).  We’ll have to take a surgical scalpel to rules, not a bulldozer.  

5. Fraud

Fraud is certainly rampant in health care, and health plans and Medicare are doing a better job of ferreting it out.  Fraud settlements are the highest they’ve ever been in the last two years.  Building fraud detection into payment systems, rather than waiting for someone to complain, is critical.  There are tradeoffs in combating fraud, too.  Some systems to interdict fraud might delay payment to legitimate providers, and could increase the cost of providing care. 

This is a good list, but it’s not exhaustive.  I was surprised and a bit happy not to see variation on the list.  It’s pretty hard to get to rural Minnesota levels of utilization in urban Boston or New York – but that type of variation is usually included in estimates of health care waste.   Just because there’s waste, doesn’t mean that it will be easy to remove that waste.    I was also surprised not to see medical errors and health care acquired complications and infections.   Berwick, as the CEO of the Institute for Healthcare Improvement and as CMS Administrator, has worked tirelessly to reduce health care complications, and there is still plenty of work left to do.   

Don Berwick, I’m sure, will still be working to improve health care in his next role.

Health Care Jobs Grow – in Bureaucracy Rather than Care Delivery

Today’s Managing Health Care Costs Indicator is 95,000

That’s how many new jobs were created in health care so far this year – one of precious few sectors in the entire economy to show significant increase in jobs.

A Kaiser Health News article in today’s USA Today has some information that is even more scary than more health care jobs (which generally will mean continued growth in health care costs).  The new jobs being created are largely administrative.  Hospitals that cut their clinical staff after Medicaid cut rates are hiring up clerks and information technology staff.  Many attribute this new surge of nonclinical hiring in health care to the Affordable Care Act.  I expect to hear about this on the campaign trail. 

Hiring more nonclinicians in health care isn’t always bad.  Banks hired a lot of IT staff and shed many teller jobs – and the customer service experience of banking over time got better for most of us.  Hiring a few system engineers to smooth flow and increase capacity is often more cost effective and much better for patients than hiring a bunch of extra clinicians.   But while some of the newly-hired nonclinical staff could really improve health care (such as better IT systems that prevent medical errors), many of the new nonclinical staff are likely to be billing clerks or intermediaries making health care more expensive without any benefit to patients.