Health for life

The regulators go to work....

Fed up by pharmceutical, biotech and medical device manufacturers vulgar use of "honoraria," "consulting fees" cozy "investment" relationships and other financial sweeteners to buy physician loyalty, Congress included the "Physician Payment Sunshine Act" as part of the Affordable Care Act.

The initial proposed set of regulations appeared in the Federal Register on December 19, 2011.  Comments were invited and CMS reponse i.e., the"Final Rule," has just been released.  It can be found here.  This sample of the mainsteam news media reporting indicates generally positive reviews.

Case closed? 

Not quite.  Thats why you read the Disease Management Care Blog.

As the DMCB understands it, the idea is to notify patients and the public about potential physician conflicts of interest, especially if they are recommending one treatment versus another. The financial relationship data from August through December of this year has to be reported to CMS by March 31, 2014. CMS will, in turn, post the information on the web in September of 2014.

While the DMCB agrees with the intent, it also took the time to scroll through the Final Rule and found some interesting information on page 226. 

CMS estimates the manufacturers will each need to hire a compliance officer and bookkeeping personnel.  Based on prevailing hourly salary rates (page 228) for approximately 1,150 companies, the total cost in year 1 of the Sunshine Program will be $193,037,104.  After some systems automation kicks in and start-up costs are eliminated, the cost will decrease to $144,777,828 "annually thereafter" (p. 229).  There will also be "infrastructure costs" to the tune of just over $12 million in year one and just over $1 million for each subsequent year.

The DMCB thinks thats worthy of some sticker shock, especially when were all agreeing that the health care system is already too expensive. Ultimately, it remains to be seen if patients will use the internet as advocate-consumers and blunt their physicians conflicts of interest.  Based on data like these (the impact on consumer behavior) and these (on hospitals) we dont know if patients will vote with their feet or if physicians bad behavior will lessen. 

It could work, but once again, finding out is going to cost American health care consumers hundreds of millions of dollars.

Stay tuned!

The cost-shifting ghost!

The Disease Management Care Blog continues to welcome blog posts from outside authors. This is another one, courtesy of Erik Tollefson, who works in the health policy field. He can be reached at erikDOTmDOTtollefsonATgmailDOTcom.

Of all the mythologies in the arcane world of health economics, cost shifting holds a hallowed place. First conjured up by commercial insurers in the 1970s to warn against catastrophic Medicaid cuts on hospitals’ financial positions, the rhetorical phantasm of cost shifting continues to rise from the dead to haunt the public sphere, particularly when politicians propose to orm public insurance reimbursement levels or undertake large-scale orms.

The theory of cost shifting is fairly straight forward: hospitals raise prices on private insurance customers when public payments are cut in order to make up for lost revenue. For all the importance afforded to cost shifting, however, there still remains a (highly) inconvenient truth: Numerous academic studies over the past 20 years have failed to find systematic evidence of its existence.

A recent National Bureau of Economic Research paper by Dranove, Garthwaite, and Ody examines the phenomenon of cost shifting in a new light. While scholars traditionally have examined hospitals’ pricing responses to planned changes in Medicare and Medicaid reimbursement levels, the financial crisis of 2007 provided a unique opportunity to analyze how they responded to a one-time loss in wealth. That crisis had a substantive impact on most hospitals; Not only did consumer demand for services decline, but many hospitals lost a substantial portion of their endowments due to the ensuing market turmoil. Dranove and his co-authors wanted to explore if hospitals that lost a significant proportion of their endowment would “cost shift” in order to make up for lost wealth, compared to hospitals that did not suffer similar losses.

What the authors found was disconcerting. Only a small sample of hospitals raised prices in the aftermath of the crisis. Many more responded with another strategy: cutting costs. Hospitals axed planned and ongoing capital expenditure projects (e.g.,  electronic health records) and shut down low-profit centers, including resource-intensive trauma and psychiatric centers.

Although the paper’s results cannot necessarily be generalized to all health care markets, it does suggest that hospitals can and will respond to financial downturns by cutting vital services.
 
Since the concept of cost shifting offends widely held notions of fairness, the further subsidization of baby boomers’ Medicare benefits in the purported era of austerity might not be politically palatable. The paper by Dranove et al, however, shows that a far worse scenario is possible if Medicare payment rates are slashed: cuts to costly but high value clinical programs. That’s ironic, because many of the benefits ascribed to the Affordable Care Act were predicated on increasing access to crucial medical services, particularly in underserved areas.

The only good news is that if hospitals react to changes in reimbursement levels and wealth loss by cutting important services, policy makers will be unable to summon forth the spirit of cost shifting.  While skeptical economists everywhere may rejoice, that will be small comfort to communities that find that their local hospitals are cutting basic services.

This isnt going to surprise anyone: Diabetes is getting more costly to treat, both for individuals, and for the nation as a whole.

A study last month in the Archives of Internal Medicine reported that drug costs for type 2 diabetes just about doubled in the six short years between 2001 and 2007 (from $6.7 billion in 2001 to $12.5 billion in 2007).¹

The costs are increasing because more people are being diagnosed with diabetes, and because the cocktail of drugs patients are being prescribed is getting more complex. In 1994, 82% of patients were being treated with just one diabetes drug. In 2007, only 47% received one diabetes drug.

The cost of the drugs is rising too. The average price of a diabetes-related prescription rose from $56 in 2001 to $76 in 2007. Keep in mind, thats $76 per prescription and by 2007 more people were being written more than one prescription. (Those are averages. Many drugs are more costly, e.g. a one-month supply of Januvia is going for $181 at Drugstore.com.)

This study just looked at drug costs. According to Merck spokeswoman Amy Rose, drug costs represent less than one-fifth of the total public health costs of diabetes. The bulk of costs, more than 80%, were due to hospitalizations and outpatient care - areas of treatment that are also experiencing price increases.

Theres an alternative, but according to Dr. Stuart Weiss, an endocrinologist at New York University Medical Center, its not being embraced:²

"Diet and exercise is the best thing we can do for our diabetic patients, but they are not very comfortable accepting diet and exercise as the treatment for diabetes."

"There is no medication that cant be overwhelmed by a bad diet."

The findings in this report beg the question:²

"Are these changes going to lead to overall significant improvement in the outcomes that matter to patients and their doctors?"
- G. Caleb Alexander MD, lead author and associate professor of medicine at the University of Chicago

The jury is still out on that.
________
¹ National Trends in Treatment of Type 2 Diabetes Mellitus, 1994-2007, Archives of Internal Medicine

² Cost of Diabetes Care Has Doubled, Washington Post, October, 2008

According to the Kaiser Foundation, health care costs are continuing to go up. Assuming Uncle Sam is doing everything he can to "increase efficiency" and "reduce waste," what are the options that can quickly control costs?

Its simple: leverage the insurance companies or the providers or both.

1. Tell the insurance companies what they can charge: While the ability of the Feds to regulate insurance remains murky, the Affordable Care Act enables CMS to require that insurance companies "justify" a premium increase of 10% and keep their administrative costs below 15%.

What is less appreciated is that the Medicare premium support plan being championed by Republican Paul Ryan is a variation of this same strategy. Thanks to a voucher that is indexed to the rate of inflation, insurance companies would be essentially told what they can charge for the bulk of their insurance. If the health insurers need to charge more, theyll have to wrestle that out of the beneficiary.

2. Tell the providers what they can charge: For an excellent example of this at the state level, check out this article in JAMA that describes Massachusettss just-passed law that aims to control the Bay States $9278 per capita health spending. Large providers (with more than 15,000 patients or $25 million in revenue) are now subject to cost controls that are tied to the states inflation rate.  Enforcement mechanisms will include "performance plan" reviews for violators, public reporting and the threat of civil penalties.

Of course, Medicares fee schedule functionally dictates what providers can charge for their services at the federal level, but up until now, Congress has been unwilling to leverage that. While a softer and gentler approach of "upside risk arrangements" and "global fees" are being developed, the paranoid DMCB suspects that theyll be ultimately calculated to cover a predetermined charge that is supplemented with a small profit margin.

While Democrats and Republicans have been supportive of a limited number of options ultimately lecting their ideology, the DMCB predicts that, over time and with a worsening fisc, both parties will converge on using all of the options described above.  Thats because theyll have no choice.

Heluva way to achieve bipartisanship, but there you go.

In a prior posting, the Disease Management Care Blog noted that nurse-to-patient ratios in outpatient care coordination programs run between 1:750 to 1:1500. Based on 2010 Bureau of Labor Statistics data, the average annual salary of a registered nurse (RN) (in hospitals) is $68,610.  Fringe benefits for RNs add 46% for a total of $100,208.

Combine that ratio with the total compensation information and the per member per month (PMPM) cost for a care coordination nurse ranges from $5.57 to $11.13.
 
Obviously, a single RN does not care coordination make.  There are other overhead expenses, such as administration, documentation and supervision.  Assuming human resources account for the bulk of a program’s cost with an additional load of 25%, the total PMPM cost ranges goes from about $7 to $14, while 50% increases it to $8.35 to $16.70.

By my calculation, that puts monthly care coordination costs close to the CMS Innovation Center’s Comprehensive Primary Care Initiative (CPCi) within the “ballpark” of $15 to $20 per Medicare beneficiary per month (see page 3 here).
 
Based on these data:

1) CMS is being reasonable in offering a $20 monthly fee for care coordination.  It falls within industry benchmarks and supports a competitive compensation package for a typical RN.

2)  While CMS’ fee meets benchmarks, this is obviously meant to support a medical practice hiring additional personnel to take on the work of care coordination.  As a result, the fee may offer some additional margin depending on additional overhead.  Hopefully, the providers who participate in the initiative won’t assume that the $20 fee represents pure profit.  Expecting RNs currently on staff to manage care coordination on top of existing duties means that the existing duties or care coordination (and the RNs) will suffer.

3) As the Disease Management Care Blog pointed out in a prior post, this may also represent an argument for the “central” hiring and administration and the “peripheral” distribution of the care coordination nurses.  If administrative costs can be pooled and coordinated by a cluster of primary care sites, that could lower costs significantly.

4) Last but not least, this gives Accountable Care Organizations (ACOs) an important insight on one cost that they’ll need to take on if they are serious about care coordination.