Friday, August 5, 2016

Costs, Day 13


I've spent the best years of my professional life chasing healthcare costs, attempting to promote efficiency, deploying tools that are designed to steer patients and providers to the best solutions for costs and quality.  So, I decided to take stock to determine what I have to show for it.

Since I started in this space, about a decade ago, here's what has happened:

  • Overall healthcare expenditures has increased by over a trillion dollars a year
  • Healthcare is now 3% more of GDP than it was a decade ago due to persistent growth above the rate of inflation and ahead of the general economy
  • Per capita spending has increased over 50%
  • The contribution to both premiums and deductibles for the average person, particularly those covered by commercial insurance, has increased by a factor of 5
So, for someone who has dedicated his professional time to cost reduction, or even moderation of cost increases, this era has not been kind.

Perhaps the quality side of the equation has fared better?
  • According to the Institute of Medicine, 250,000 people a year die due to medical errors (this, by the way, is a greatly debated number)
  • While readmission rates have been reduced due to penalties and changes in incentives, it doesn't seem to be correlated with a real improvement in patient health
  • Chronic disease rates continue to rise although the level of obesity has stabilized
Where is the good news?  Is it all a waste of time?

I've asked these questions several times over the past few months.  A few factors can be tracked that are driving cost trends and are cause for long-term hope.
  1. Personalized medicine isn't real, but targeted therapies are.  One of the key drivers behind costs is the increase of utilization of specialty pharmaceuticals.  Most are novel compounds (engineered molecules, really) that directly interfere with the process of disease.  In some cases, these are wonder drugs, saving lives and restoring quality of life.  Just this year, novel therapy in Hepatitis C treatment has provided relief and hope to millions.  However, these treatments are extremely expensive.  If a balance between cost and innovation can be reached, there is much to celebrate.
  2. Many treatments that have historically required extended hospitalization now require either brief hospital stays or can be treated in an outpatient setting.  I remember visiting my grandmother after her cataract surgery; she looked like she had gone 8 rounds with a heavyweight and needed 3 days before she was discharged.  Now, that surgery is done in a doctor's office.
  3. Medicare is indeed launching broad bundled payment plans for surgeries that have been standardized.  Both joint replacement and CABG have long been identified as ideal candidates; now patients and insurers are getting a quality and cost guarantee that they deserve.
  4. A new round of information technology is emerging that is sure to make the current ERP/billing oriented EMRs more user friendly.  Look at companies like Envera Health as examples.
All of these are positives.  There is still a path through the American healthcare experience that doesn't require broad access limitations and caps, that supports the gains that have been made in access for many Americans and brings affordability back into the conversation.  This winter will be another tough one; more double digit increases for exchange plans, more increases for employers and more shifting of cost to Medicare beneficiaries will happen.  But, perhaps one day, we will look back on this winter as the "winter of our discontent" and we will see innovations, regulations and controls meant to help begin to make an impact.

Tuesday, June 21, 2016

On basketball

Allow me to veer slightly off the healthcare cost question for a bit...

I've been contemplating a post for a while on basketball.  When I started mulling it over, I was pretty sure that I was going to reflect on the age long question of would you rather be a fan of the Buffalo Bills (4 consecutive Super Bowl losses) or the Detroit Lions (with 1 playoff win in the Super Bowl era).  The reason for this is that I was pretty sure that my basketball team was going to have the dubious distinction of winning 28 or 29 NBA playoff games over a two year span and still not come home with the title.  The reason for that, according to my logic at the time, was that there was another team that had won 32 playoff games over the same period of time.  So, I was beginning to reconcile myself to being a fan of an "almost team".

Truth be told, it isn't so bad being a fan of an almost team.  Your team keeps winning long after other teams have lost.  You have the joy and frustration of winning and losing and you have a ton to talk about with your buddies at work.  You have civic pride and fun and unifying experiences, even when your team loses.  And you get to admire the hard work and determination of the players, especially as their season stretches into the eighth month, everyone is playing hurt and they reach 100 games on the year.

But, I'm here to tell you, winning is a lot better than losing.  Watching our town (I'm guessing you've figured out that I'm talking about Cleveland) bask in sheer delight, be taken up in collective euphoria, laugh and cry together- it's amazing.  I'm sure you've heard about people high-fiving strangers and the general, sleepless glee of this town.  Just walking down the street is a phenomenon.  Everyone is clad in wine and gold, there are lines down the street at the stadium for people to buy team gear, there is a general joy.  Even the weather has cooperated as today, the first full day of summer, is absolutely perfect.

Cleveland will celebrate this for a long time.  We shouldn't get greedy.  No one should ever take winning for granted.  You look at the Spurs, who have been good for almost two decades, and you see how their fans still support them, how their players still play hard and how they seem to appreciate when things go well, seem to acknowledge how many things have to go right to win a championship. That's the way you want to be.

A few years back, the Atlanta Braves were at the end of their string of winning their division for 14 straight years.  I remember watching their first round playoff games, seeing empty seats in the stands. They didn't sell out playoff games.  They had taken winning for granted, had forgotten how unique those 5 World Series appearances were, how easily your team can become- well, can become the current Atlanta Braves.  I can assure you that today's Braves fans would instantly trade this team, destined to lose 90 or more games, for a first round exit from the playoffs.  Their rallying cry would be, "Better to be swept than sitting at home."

When the Cavs lost 26 games in a row (yes, 26 games in a row) a few years ago, it gave us a moment to remember.  For those fans of almost teams, for the teams that never seem to quite make it, this is your year.  From the Cavs winning the NBA to Leicester City winning the Premier League to the Cubs putting together their greatest chance to win since 1906, this is your year.  So, I say, root for your also rans, your lovable losers, your "not quite" team.  Because, someday, you may say along with us, "I can't believe we just won!"

Tuesday, June 14, 2016

Costs Day 12

Yesterday we explored the emerging impact of bundled payment reimbursement on the device industry.  It is an interesting result, not merely because of the impact, but because it wasn't immediately predictable.  I'll explain.

Between 2010 and 2012, research was conducted that indicated that the cost of certain episodes to Medicare could vary widely depending on where the patient lived.  This followed a widely disseminated (and brilliant) article by Atul Gawande describing what healthcare looked like in McAllen, TX.  The primary discoveries of both the article and the ensuing research was that utilization by region was the most important factor in determining cost differences for the same care and that the majority of this cost difference did not occur in hospitals.  Rather, the differences in costs were driven by the utilization of care outside of the hospital, specifically post-acute care.

For many of us, the concept of post-acute care is actually a foreign idea.  We know well the routine of doctor visits, accompanied by the rare hospital admission followed by another series of doctor visits or visits to the physical therapist.  However, the older patients get and the more unstable their home environment, the more likely they will require some rather substantial care after they leave the hospital.  This care can be provided in a number of ways and generally included nursing care as well as rehabilitation.  All of these services- whether provided in a Long-Term Acute Care (LTAC) facility, a residential rehabilitation facility, a nursing home (Skilled Nursing Facility) or delivered at the patient's residence (Home Care)- form the continuum we consider post-acute care.

The research indicated that patients who were discharged to higher cost care settings, particularly Skilled Nursing Care, had no better likelihood of avoiding complications leading to hospital readmission than those who were discharged directly to home and received nursing and rehabilitation services at their residence.  These were general findings, but the data seemed to be overwhelming.  The question, then, was what to do about it.

The answer that emerged was bundled payment.  As you know, a bundle is a method of paying for everything in a care episode with a single fixed payment.  While the mechanics of administration are complicated, the concept is simple.  The idea behind a bundle is that a fixed payment encourages both efficiency as well as quality.  Efficiency is encouraged because a hospital, who is generally responsible for administering the bundle, will see more margin in the bundle if the cost of covered services is minimized.  Quality is encouraged because errors and mistakes leading to more care do not generate additional revenue.  Rather, errors reduce the margin in the bundle as the patient demands more care, and often another hospital stay, incurring more cost.  This should make all of the partners within the bundle attempt to minimize errors leading to unnecessary complications or readmission.

Enough on the theory.  With this in mind, the rationalization of acute care services, and lower cost joint replacements, is understandable.  But, current bundles, particularly those launched under the Comprehensive Care for Joint Replacement Model (CCJR), gave hospitals free rein to eliminate cost wherever they could.

Human behavior is such that if I can make you change, it is probably easier than changing myself.  Within CCJR, the path of least resistance to eliminate cost is not to overhaul clinical practice within the hospital.  It is, instead, to focus on ways to lower costs using tools or options that are already in place.  The simplest way to reduce the cost of a bundle is to discharge a patient directly to home and the associated home care services instead of discharging that patient to Skilled Nursing where the cost per day is substantially higher.  So, by design, the CCJR program is really focused on minimizing variability in the utilization of post-acute services.  Only secondarily is there some expectation that the hospital will change clinical practice.

Which bring us to our conclusion: reimbursement remains the most powerful tool that governments and payers have to effect change in healthcare.  However, design matters.  The overall impact of ratcheting down unit reimbursements over the years to hospital and provider practices has been an explosion of utilization, as providers attempt to secure revenue growth by delivering more services.  That has been an unfortunate, and perhaps unforeseen, consequence.  The wonder of bundled payment is that it is beginning to have positive consequences in both expected as well as unexpected ways.  Not merely is a positive shift to a lower care setting afoot with patient discharge to home but hospitals are being offered ways to deliver better care for less.  As we said yesterday, this should encourage more rapid innovation in reimbursement, and should also help providers see that not all changes in payment are harmful.

Monday, June 13, 2016

Costs, Day 11

Much of the competition in healthcare today is between providers or between suppliers.  Perhaps this is not where we want to see competition, as the consumer or employer is most concerned about competition between insurers and any way to stretch their healthcare dollar.  However, many of the reimbursement initiatives in the market today are designed to spur competition between providers or between care alternatives.  We will discuss more generally this later this week.

For today, the discussion is how reimbursement reform may spur competition between suppliers.  Much has been made about the ability of group purchasing organizations (GPOs) to create scale for their members, leading to the best price for a specific supply.  However, insofar as that supply or drug is distinct or unique and is required for treating a specific condition, there is only so far that a supplier is willing to go in negotiation.  At some point, they will retain margin because of a semi-monopolistic position and the economic reality that the price of any life-saving treatment is inelastic.

The challenge emerges when the market fails to recognize that monopolistic pricing shouldn't persist in the presence of competition.  Such has been long the case for joint implants.  For high volume total joints, particularly hips and knees, there have been multiple vendors in the market for some time.  However, the pricing difference between the options has been nominal, giving little reason for hospitals to drive physicians to lower priced alternatives.

That era seems to be coming to a close.  Consider this article from the Minneapolis Star Tribune:
Medtronic PLC plans to jump into the market for dependable, lower-priced knee and hip implants next year, after acquiring a Twin Cities start-up company that specializes in selling devices to hospitals in government cost-cutting programs.
Led by industry veteran Doug Kohrs, Responsive Orthopedics was founded with an unusual vision in the med-tech world — to sell lower-cost artificial knees and hips with streamlined size offerings and instrument sets. A more typical marketing strategy for the major orthopedic implant companies would be to innovate more features and models that can drive premium pricing. 
In a Star Tribune story last month, Kohrs said Responsive Orthopedics’ implants are intended exclusively for health care providers taking part in federal programs to reduce the costs of hip-and-knee procedures. Such “bundling” initiatives drive hospitals toward medical devices that can be purchased more cheaply but deliver the same quality of care.
So, bundling is resulting in a renewed focus on the cost of acute care delivery, resulting in a response from the market.  If the price differential between the newly acquired Medtronic knee and the competition is adequate, and performance of the knee is not grossly inferior to the current offerings, hospitals will have the evidence they need to work with physicians on alternative treatment.  This is a double benefit.  Not only do consumers and payers benefit from a lower reimbursement rate, with a guaranteed rate regardless of complications and readmissions, but payers can also achieve a higher margin even at a lower rate of reimbursement.

This is a slow speed effect, occurring in joints first because there has long been a belief that joints are standardized to the point where bundled payment makes sense and that there is plenty of efficiency to be gained from the optimization of joint replacement.  However, it does indicate that as reimbursement shifts, providers and suppliers can work together to deliver high quality care.  If necessity is the mother of invention, this should embolden Medicare and commercial payers to accelerate the pace of reimbursement reform.  It should also encourage hospitals and other providers to believe that the same care can be delivered for less without harming quality while still maintaining adequate margins for long-term sustainability.

Tuesday, June 7, 2016

Costs, Day 10

A superb article in the Washington Post analyzes insights from a new study about how doctors die.

I relate to the emotion reflected in the article, that we hope that doctors die differently than the rest of us do.  As the article states:

Many people have witnessed a death that seemed to be exacerbated by modern medicine: a drug that came with side effects but never seemed to halt the disease's progress, the surgery that was totally unnecessary and might even have sped up someone's death. Doctors have seen that happen even more often. 
"Patients generally are not experts in oncology, and yet they have to make decisions without knowing what the whole course of their illness will be," Craig C. Earle wrote in the Journal of Clinical Oncology. "We, on the other hand, have shepherded many patients through this journey toward death." 
That's why powerful anecdotes about doctors who die better, whose last moments are spent peacefully and with family, give us hope: There is a better way.
We want this to be true.  We want the process of dying to be accompanied with dignity, with appropriate care decisions and we don't want to burden those we leave behind with enormous bills to cover care that made little or no difference.

Unfortunately, the study (and this is just one study) showed that doctors don't seem to die any differently than the rest of us.  This led the authors to two conclusions:
But Matlock and Fischer think their data may reveal the odds against the patient, even when the patient is a doctor. The health-care system may simply be set on a course to intervene aggressively.
And:
But the findings may reveal a deep bias that lies at the root of medicine. Fischer pointed out that the entire health-care system is aimed at fixing problems, not giving comfort. For example, a hip replacement the day before someone dies is something the medical system is equipped to handle: Surgeons can schedule it, and health insurance will pay for it. But, Fischer pointed out, if a patient needs less-skilled home care — such as help with feeding and bathing — it's much harder to write a prescription. 
Consider these statements- that the odds are against the patient and that our system is aimed at fixing problems.  Many may see that the idea of a hip replacement the day or week before death as laughable, a gross improbability.  But it happens.  Not only does it result in deeply unnecessary discomfort to the patient, it gobbles up resources and generates bills.  And this, perhaps, is where we start talking about costs.

It has become easy to critique the practice and business of healthcare as the sole domain of irrational business decisions.  In discussing costs, we often say that manufacturing companies know every cost and that there is much to be learned from other industries.  Unfortunately, healthcare may have learned too much from other industries.  Sidelined resources beg to be used, empty operating rooms scream to be filled, idled imaging machines demand utilization.  The machine just wants to be turned on, and the statistics that drive the business of healthcare are all about utilization- surgery per physician, hours of OR usage, procedure growth, new patients.  Since the general logic is that a procedure delivered is revenue gained, there are few constraints.  As a patient who wants that service delivered promptly, I applaud this.  I want to be first in line, I want to be seen quickly and I want that surgery done promptly.

However, the equation shifts dramatically in the last 6 months of life.  Depending on which study you read, this is where a quarter or more of our healthcare dollar is spent.  Regardless of the specific number, the real issue is that our bent is to treat.  And this is not based on a personality or behavioral deficiency for physicians.  Most physicians would choose less aggressive care for themselves, which naturally means that they would want to treat their patients in the same way.  I'm certain that physicians find themselves grimacing as they prescribe that third round of chemo (Siddhartha Mukherjee's discussion of this in The Emperor of All Maladies is superb) or as they follow the patient's wishes and perform that questionable surgery.  So why do we do it?

We don't want to die and we don't want our loved ones to die.  Hence, physicians follow guidelines to present options to patients that they wouldn't want if they were the patient and patients (and their families) choose those same options because they don't want to look like they are quitting.  We've made "he fought hard" the standard stuff of eulogies.  We don't want costs to be a consideration, and the moment that end of life care decisions come to the fore as a cost management issue, we launch public campaigns decrying "Death Panels".

On the way to work I've noticed a billboard for a local hospice group that says "It's not giving up".  The picture is of a woman making dinner with a child who is presumably her grandson.  The picture is a positive view of hospice, but the defensive tone of the message illustrates the challenge.  Despite studies that indicate that many serious illnesses are better treated with palliative care and hospice, and that hospice care could save billions of dollars a year, hospice organizations have to convince people that they aren't throwing in the towel.  But, wouldn't a eulogy that said, "he lived and died well, and he cared about other's until the end" be just as compelling as "he fought hard"?

Monday, June 6, 2016

Costs, Day 9

A brief comment today, with more substantial discussions later in the week.

Many of our healthcare initiatives today presuppose that the absence of primary care is a major driver of costs.  Most frequently, the contrast is between care delivered in a doctor's office and care delivered in the emergency room.  When you compare these treatment options, particularly for non-emergency services like treating mild flu or when comparing the absence of primary care for treating chronic disease resulting in an emergency room visit, the difference in cost is obvious.  And it is not just more expensive for insurers.  Invariably, the cost to patients is much higher as well.

But that isn't the only use of primary care.  We often cite preventive care as a key element of the value of primary care visits.  Moreover, we assume disease prevention or early intervention lead to better care at lower cost.  The entire Primary Care Medical Home (PCMH) model is based on these assumptions.

Simple question- have you ever wondered what would happen if you didn't get an annual physical?  Do you think the cost of care over your lifetime would be higher or lower?  Do you think skipping annual physicals would result in longer or shorter life or better or worse quality of life?

Food for thought- we will explore this more.

Friday, June 3, 2016

Costs, Day 8

As much as we try not to revert to discussing pharmaceuticals, it continues to be the most visible issue is healthcare costs today.  However, "high drug costs" are not a single problem, nor is every market easily described by saying that drug costs are too high.   Take this article for example.  The author's premise is that, while the cost of drugs is a constant source of both economic and political discussion, there are cases where drugs are not priced highly enough:

The drugs most prone to shortage are generic injectable ones, administered to patients in the hospital or a doctor’s office. They include anticancer agents, heart attack medications and anesthetics, many used in life-threatening, emergency situations. When such drugs are in short supply, they cause dangerous delays in care as hospitals seek alternatives. Even when good substitutes can be found — and sometimes they cannot — they may be less familiar to doctors, come with different side effects or not work as well, all of which pose risk to patients.
For example, when morphine is in short supply, doctors might switch to hydromorphone, an alternative opiate painkiller. Hydromorphone is seven times more powerful than morphine. Failing to account for that difference can kill. In 2011, during a morphine shortage, two fatalities were linked to the accidental dosing of hydromorphone as if it were morphine. This year, the generic injectable form of nitroglycerin — used to treat serious heart attacks in emergency departments — is among the drugs in shortage, prompting the Food and Drug Administration to seek additional supplies overseas.

The premise is that the economics of certain drugs are so unfavorable that maintaining production and adequate supply is an ordeal for generic drug manufacturers.  Furthermore, based on the author's perspective, the dynamics of supply and demand seem not to work here.  These drugs are off patent, have been in the market for decades, and are subject to negotiation pressure by group purchasing, resulting in shortages.

This seems like compelling logic- so compelling that none other than Martin Shkreli used it as his primary business model.  He proposed that commodity drugs that have been in the market for a very long time often dwindle in interest, leading to only a few or even only one manufacturer remaining for the product.  If one can find such a drug, you have a perfect business plan.  Since the demand is inelastic, as it likely is a necessary drug for one or more conditions, you can hike the price with impunity.  Negotiated prices will be irrelevant and it will take some time for the market, including the FDA, to respond to create manufacturing to offset the advantage.  For a few years at least, you can make a killing.

The question is why this problem exists.  The explanation in the original article is correct, but incomplete:
Generic injectables are prone to shortage because of low profit margins and high production costs. Except in unusual circumstances, generic drugs — whether injectable or oral — have low profit margins because no manufacturer retains exclusive rights to produce them. Were prices and profit margins to rise high enough to justify the upfront investment of drug production, other manufacturers would enter the market. The additional competition would then push prices and profit margins back down again.
A huge shortage in supply should result in an increase in price.  That's supply and demand.  They are correct that an increase in margin will attract entry and drive prices down.  But, as Martin Shkreli discovered, that doesn't happen overnight.  So, the manufacturers should merely raise price, not worrying about the effects of attracting entry.

The problem isn't really one of low profit margins as much as it is one of relative pricing margin.  The dominant trend in generic drug trends today is rising prices.  The industry is recognizing that to get preferentially status on drug formularies, it doesn't require that you be priced 10X less than the branded manufacturer.  Half as much is good enough, so why give away that margin?  Furthermore, most generic drug manufacturers manage a large portfolio of drugs.  Interest, and manufacturing capacity, will preferentially be given to those drugs with the highest margins, which invariably means small molecule, orally administered drugs.  Even if the price of an injectable doubles, it doesn't begin to match the profit of these drug categories.

With consolidation of generic manufacturers, there is no relief.  No competitive entity exists to enter the space and the FDA approval barriers make it unattractive to do so.  Even if the drug prices were to rise, none of these problems go away.

This is a great article, but last sentence is the greatest concern.  The last thing we want is for the FDA to start setting price floors.  Well-meaning initiatives like this almost invariably backfire.  Here are two specific examples:

When Medicare was established, Congress mandated that Medicare would always get the best pricing for any service.  It was a useful clause, and worked in line with the way that the rest of government procurement worked.  Lowest bidder wins, and the largest buyer in the market should get the best pricing.  However, what it inadvertently did was set a price floor.  If a private insurer enters a market and wanted to negotiate an MRI contract, they are basically forced to accept Medicare plus something.  The reason is that if the private insurer negotiates a rate better than the current Medicare pricing, by law the Medicare rate will have to beat that rate.  Then all other prices reset.  No provider will accept that formula, so no real negotiation can take place.

The other example, more directly applicable to this drug discussion, is the Orphan Drug Act of 1983. Again, Congress acted to address a hole in the market that was preventing rare diseases from receiving R&D dollars.  We've talked about the economics of drugs and the need for drugs to have large markets.  So, Congress created a mechanism and incentive for investment.  When President Reagan signed the bill:
Margaret Heckler, then health and human services secretary, predicted orphan drugs "will make nobody rich, but they will help treat a small group of tragically handicapped people."
Today, over 260 drugs have been developed through orphan drug status.  Genzyme last year posted  $840 million in sales on a drug for Gaucher's Disease which affects 10,000 people- worldwide.  And Representative Henry Waxman, who was the chief sponsor in Congress for the initiative, said, "The [pharmaceutical] industry has taken advantage of the incentives to charge excessive profits and to reap windfalls far in excess of their investments in the drug."  Some might say that the explosion in the cost of pharmaceuticals is directly attributable to the after effects of this bill.

All of these are unintended consequences of governmental intervention into the economics of healthcare.  If anything is true it is that we need more market activity in healthcare, not less.  Beware the government program that is designed to address shortages or intervene in market pricing.  It rarely works as expected.