Another Vaccine Success Story

Today’s Managing Health Care Costs Indicator is 

$200 million

The October Journal of Infectious Diseases reports that rotavirus vaccine, administered to prevent early childhood diarrhea, decreased the number of hospitalizations for diarrhea by 66,000.  This represented a decrease of 69% for discharges coded as rotavirus, and 36% for all hospital discharges with diarrhea of unspecified cause. 

Between 15-20% of this decrease was due to ‘herd immunity,’ where even the 43% of infants that had not gotten a single dose got some protection because there was less rotavirus in the community due to those who did get vaccinated.  Huge decreases in hospitalizations were seen in children ages 5-14, who had not received the vaccine.  This is similar to findings with influenza vaccine, where immunizing young children might be an especially effective way to prevent flu deaths among the elderly.

The total savings from hospitalizations prevented by the rotavirus vaccine was estimated to be over $200 million.

Immunizations remain one of the few medical interventions that are not merely cost-effective, but which are frankly cost saving.  The newer childhood vaccines, which are quite expensive, probably won’t be nearly as cost saving as the older vaccines, such as the measles-mumps- rubella (MMR) vaccine.  Rotavirus vaccine costs between $60 and $70 per dose. We should we consider the prevention of disease in those who themselves are not vaccinated when we calculate the overall cost impact of these vaccines.

Device Company Payments to Orthopedists

  

Today’s Managing Health Care Costs Indicator is $228 million

The Department of Justice settled lawsuits with 5 major artificial joint manufacturers in 2007.  The lawsuit required each to stop improper compensation to practicing physicians, to accept heightened oversight, and to divulge future payments to orthopedists.  The firms did not acknowledge any guilt.  These firms disclosed $198 million in payments to 939 orthopedist in 2007, and $228 million to 526 orthopedists in 2008.

Researchers have poured through the filings to compile a list of which physicians received how much compensation as consultants (published in Archives of Internal Medicine on October 24  Harvard Link)   Here’s what they found:

• 4% of practicing orthopedists received payments
• Payments averaged $190,331 in 2007, and $401,951 in 2008. (The 2008 number is inflated because of a large contract buyout by one orthopedic device manufacturer)
• 43 Orthopedists received more than $1million in both 2007 and 2008. Over a third of these each year (16 and 17) had no academic affiliation.
• Over a quarter of those orthopedists receiving payment as consultants had  one or fewer published papers

Orthopedists make important decisions about which implantable artificial joints to use, and these decisions are worth hundreds of millions to each of these companies.  These payments are large – and would represent a substantial portion of each of these physicians’ income.  Most or all of them deeply believe that these payments have no impact on their clinical decisions.  But that’s just not credible. 

Tools to diminish this kind of payment include

• Transparency.   Putting this data in searchable databases will make physicians less likely to accept these dollars
• Disclosure.  Physicians who recommend one course of treatment when they are getting payment from a manufacturer should fully disclose this to their patients. 
• Professional ethics.   Many medical schools have implemented guidelines to diminish this type of unseemly influence. (On the other hand, collaborations between practicing orthopedists and research universities is should be continued)

We all want some sense of assurance that we’re getting a physician’s honest recommendation. We don't want our operating rooms to be full of product placements.

Insurance Companies Betting on Government Health Plans

Today's Managing Health Care Costs Indicator is
$3.8 billion

 

Source (click image to enlarge)

Cigna agreed last week to purchase HealthSpring, a Medicare and Medicaid health plan based in Tennessee, for $3.8 billion.  This prompted Wall Street analysts to increase the valuation of Medicare and Medicaid health plans --which it says are now worth $6000 per enrollee (Medicare) and $1200 per enrollee (Medicaid.)

This is a big bet - the insurers are wagering that the Medicare HMOs will continue to be paid a hefty amount (12-13%) more than traditional Medicare on a risk-adjusted basis, leaving a nice profit margin even after accounting for costs of marketing, enrollment, and network contracting that indemnity Medicare doesn't have to worry about.

The Affordable Care Act lowers Medicare Advantage plan reimbursement by $130 billion over 10 years, and past deficit reduction bills had additional cuts, although no one is sure what the "supercommittee" will suggest, if it suggests anything at all.

Medicaid plans are being cut by all 50 states, but many of them hope to wring out some savings through sending more members into managed care, leaving this an area of potential growth.  Medicaid should also enroll an extra 16 million members as a result of health care reform - although that's been in some jeopardy due to state cuts as well. Most states intend to move more Medicaid beneficiaries into managed care - which means plans with a track record of good Medicaid management should be especially valuable.

Wall Street financiers have an incentive to project hefty insurance plan profits from government health plans in the future.  This helps convince the big four (or five) health plans to open up their wallets (reserves) and pay high valuations for other companies, which leads to higher transaction fees.  The Affordable Care Act offers some tax advantages to nonprofit health plans, but that is also apparently not making investers any less skittish about putting their dollars into health plan stock.  Government cannot keep paying more and more for health care, though, and I think fee cuts for these health plans are highly likely in the coming years.

I believe that we're likely close to the top of this market, and health plans will have to show a genuine ability to lower health care costs while satisfying their members to justify such high valuations in the future.

Paul Starr on the “Medicare Bind”

Today’s Managing Health Care Costs Indicator is 17.4%

Paul Starr, the sociologist whose “The Social Transformation of American Medicine” helped many of us understand the history behind the financing and delivery of our health care system, has a long thoughtful piece about the “Medicare Bind” in the November American Prospect.  

Starr is a liberal, and American Prospect tilts left, but he’s pretty clear that the status quo will be unsustainable over time.  He points out that Medicare would be 17.4% of the federal budget in 2020, assuming that there is no fix of the SGR 29.4% physician pay schedule cuts, which is dubious.  Medicare will continue to crowd out other programs – so figuring out how to purchase better value with Medicare is key to our future economic well-being. 

Starr challenges Democratic orthodoxy, and states that Medicare had a fatal flaw from when it was established.

Ultimately, however, we need to recognize that establishing a separate health-insurance program for seniors was not a good idea in the first place, and the fairest and most effective way to control Medicare’s costs will be to bring health insurance for seniors under the same rules and policies that govern health insurance for everyone else—though, as the varied systems of other countries show, there is more than one way to achieve that goal.

He points out that the initial program paid providers too generously, offered stingy coverage (no drug coverage, no catastrophic coverage, no limits to out of pocket payment) and was dizzyingly complex (four programs, Medicare Part A with the hospital trust fund for inpatient care, Medicare B funded by premiums and tax revenue for outpatient care, Medicaid for the poor and those with disabilities, and private Medigap plans to cover the plethora of holes.)

Medicare has also increased the cost of health care by paying for hospital capital expenses, leading to overbuilding, and by making medical education payments an entitlement, leading to oversupply of some specialties.  He says

Most people see Medicare as a program serving the elderly; what they miss is that Medicare has also been a program serving the health-care industry, financing its expansion.

But it’s been hard to reform the system. Starr’s explanation:

Yet by protecting the larger part of the public, concealing the system’s true costs, and enriching the health-care industry, the nation’s policies have made every attempt at reform politically treacherous. The United States has cleverly ensnared itself in a policy trap: an increasingly expensive, complex, and dysfunctional system that has nonetheless resisted fundamental change.

Medicare has created a large bloc of voters who do not realize how great a public subsidy they receive and who think that other people shouldn’t expect government to help pay for their health care.

He points out that there are many elements of potential future cost saving built into the Affordable Care Act, including the the Payment Advisory Board, comparative effectiveness research, bundled payment pilots, accountable care organizations,

Starr on patient cost-sharing:

The evidence is that increased patient cost-sharing does reduce health costs to some extent. But as a general remedy for rising health costs, this approach has much less to recommend it than many people assume. Americans already pay a higher percentage of health-care costs out of pocket than do people in the other rich democracies, yet total costs are much higher in the United States than anywhere else. In the United States, health-care spending tends to be highly concentrated in a small proportion of high-cost cases; during the course of a year, the most costly 5 percent of people typically account for more than 50 percent of health-care costs, and the top 10 percent of people account for 70 percent of costs. These high-cost cases are little affected by cost-sharing; once a patient is in the system, physicians make most of the decisions affecting costs.  Rather than expecting patients to economize, much less to bargain over prices when they’re ill, we should focus incentives on physicians and providers—to try to influence the “supply” rather than the “demand” side of the market, because in health care, unlike other markets, the suppliers drive so much of the demand.

He notes there are a few options to address health care access and cost:

On the right: Moving to vouchers, as proposed by Paul Ryan and passed by the House of Representatives earlier this year.    This would be untenable without health care exchanges.

On the left:   Single tax supported universal coverage system

The first will lead to much higher patient costs (the CBO suggested the Ryan plan would double the cost of health care for the elderly).  The second is politically untenable, and probably not compatible with American culture.   Some hybrids could include a public option plan to compete with existing private plans, or allowing 55-65 year-olds to buy into Medicare.   He notes that either such a plan would need to be wary of adverse selection. 

Starr’s conclusion:

Health policy is not like a mathematical problem that has only one correct solution. The many countries that provide good health care at a reasonable cost do so in a variety of ways that reflect their distinctive institutions and history. The United States could yet evolve a distinctive, rational solution of its own even though the poisonous air of American politics today gives little reason for hope.