Health for life

Dont worry so much!

Depressed? 

Dont be.  While the Disease Management Care Blog prays for the victims and families of the Aurora shooting and hopes that Penn States travails leads to greater protection of innocents, the DMCB is also an optimist. Humans are remarkably resilient. We rise above evil, We learn from mistakes. And then we carry on.

Itd also be tempting to let the last 72 hours cast a pall over the other Big Problems that beset us, including our sputtering economy, persistent unemployment and politicians who seem unequal to the task at hand. But if youre looking for a better spin on things, a recent The Economist editorial on the Comback Kid paints a different picture. American debt is being pared, family homes are now beginning to look like bargains, the banks are shedding bad loans, a weaker dollar and a nimble private sector (including the "app" factories of Silicon Valley) are driving U.S. exports up and natural gas is making energy cheap and plentiful. Oil imports are down and the U.S. is becoming a net exporter of hydrocarbons. 

Whats more, says the DMCB, the U.S. population birth rates and immigration levels are pointing to a sustainable demographic dividend, while our universities remain the envy of the world.  Assuming our politicians figure out a way to cut spending, increase revenue and keep inflation at bay without doing more harm, the longer term fundamentals are decidedly a cause for optimism.  Thats a big "if," but it could happen.

But if you think a another reason for economic optimism is the simple expansion of the health care industry, Drs. Baicker and Chandra, writing in the New England Journal about The Health Care Jobs Fallacy suggest you think again.  While politicians may like the prospect of the medical-industrial complex hiring lots of voters who pay lots of taxes, every dollar spent on patients is one less dollar spent by society on education, infrastructure, food, shelter, retirement savings and other government services. In addition, those dollars are not necessarily associated with meaningful gains in life quality or expectancy.  And while it could argued that "orms" will ultimately reduce costs, its possible that improved productivity combined with more persons with insurance will ultimately drive demand up.

Which raises a good point.

The economy may turn the corner sooner than we expect, and its long term prospects - despite our political class - are good.  In that setting, health care companies that run counter to the usual historical business cost-plus model by driving higher quality and lower costs will succeed.  Those will be the enterprises that attract customers that can increasingly afford their services. Itll be interesting to see how ACOs, population health companies, the PCMH and wellness offerings fare.

Stay tuned!

Image from Wikipedia

Some medical devices

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.

During the political maelstrom of the October government shutdown that enraged Americans and enraptured Tea Party alike, a curious proposal emerged as a possible eleventh-hour savior: a repeal of the medical device tax. 

The medical device tax, a substantial revenue source for ACA funding, was seen as a compelling political bargaining chip. Although not achieving a full “repeal” of the ACA, the vitiation of the tax would have given Republicans a symbolic victory (political cover) and the medical device industry a reprieve. Although the tax remained in force, it still serves as a potent symbol of how health care orm will need to align long-term financing mechanisms that also promote a more efficient health care system. 

A 2.3% excise tax on all medical devices was included in the ACA as a main financing stream for health care orm. Indeed, according to CBO estimates, the tax is estimated to bring in $29.1 billion in revenue from 2012-2022.  A repeal of the medical device tax would not cripple the ACA’s implementation; however, it would make it difficult to move forward, and perhaps more importantly, reopen the bill to legislative scrutiny (Note: President Obama’s announced  administrative fix for health insurance in the individual market assiduously avoided legislative action for similar reasons). 

Some supporters of the tax argue for the concept of “shared responsibility.” Building on the fiscal architecture of Massachusetts’ 2006 health orm legislation, proponents posited that stakeholders who potentially benefitted from health care orm should lend fiscal support.  The ACA followed a similar funding model: hospitals, insurers, and pharmaceutical companies all decided to participate; the medical device industry, although more obstinate, was ultimately written in the legislation.

More sophisticated repackaging of this argument has also emerged. Topher Spiro argued that the medical device tax served as a bulwark against the industry’s egregious pricing and anticompetitive practices. Although, to his credit, Spiro lays out more commonsense policies to increase transparency and address monopolistic concerns besides taxation, he ultimately adopts an odd “the ends justify the means” policy prescription.

Opponents of the medical device tax adopt a well-known line of reasoning: taxation on medical devices will hurt domestic innovation, eliminate jobs in research and development, and have a negative economic impact. This is textbook economic analysis. While some of these points are apposite, much like pharmaceutical companies, medical device companies could arguably make up lost revenue through discriminatory pricing abroad, although this may be (increasingly) difficult in areas such as “austere” Europe. 

Overall, one may be agnostic regarding the substantive points of both supporters and detractors and still be dismayed at the misalignment between the medical device tax and its intended purpose. Granted, medical device providers are leveraging the opportunity to lobby and maximize the industry’s interests in the ACA tumult. However, the tax is not ultimately intended to discourage purchase of medical devices, many of which have substantially improved quality of life for patients. Rather, it functions as a defacto “windfall” tax clawing back excess profits from an industry seen as anticompetitive and opaque with oligopolistic pricing power. 

This narrative works only so far: Medicare, a publicly funded entity, is one of the largest purchasers of medical devices.  However, Medicare is not able (or is politically prevented) from exercising greater pressure on medical device providers through conducting cost-effectiveness analysis or lowering payments on devices that have a suboptimal cost-quality profile. It is true that Medicare is developing bundled payments that will subsume the cost of the device as part of the total procedure; this move away from fee-for-service charges may reduce the “economic rents” (profits) of medical device firms over the long-term. Until then, however, the misalignment between financing mechanisms and policy incentives will likely continue, along with the distortions of second and third-best policies in an already bloated system. 

Medical image from Wikipedia