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!

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