March 20, 2017

What We Pay

The Princeton health economist, Uwe Reinhardt, first said it in 2004. The private think tank, the McKinsey Global Institute, persuasively demonstrated it was true in 2008. But maybe now that the Wall Street Journal is saying the same thing, policy makers will listen. The elephant in the room, the main factor accounting for the high cost of health care in the US, is prices.

The spending gap between the US and other developed countries remains huge. We spend 17 percent of GDP on health care (that’s all spending, public and private combined); our closest competitor, Switzerland, manages to spend 11 percent. Other OECD countries, such as New Zealand and Norway, spend closer to 9 percent. And despite all the excess spending, we don’t have better outcomes across a broad range of measures, from infant mortality to life-expectancy.

The main culprit, the WSJ reports, is higher prices in the US. The average price of most prescription drugs is higher here—by a lot. Avastin (an expensive medication but not the most expensive medication there is) costs $4000 for a 400 mg vial in America and less than $2000 in western Europe. Ditto for procedures: the cost of coronary artery bypass surgery in the US is $80,000, compared to half that in other OECD countries. And so on, down the line.  Elsewhere in the world, the WSJ explains, state run health systems set limits on prices or refuse to pay a supplier if the cost is regarded as excessive. Our free market system, far from keeping costs down, drives them up.

The McKinsey Report, though a few years old now, makes further adjustments based on a country’s wealth. It argues that richer countries may want to spend a larger proportion of their income on health care. But even adjusting for greater GDP per capita, the US spent $650 billion more than “expected” in 2006. The fastest growing part of the excess, the study showed, was due to outpatient care, both office visits and ambulatory surgery. And what was driving up costs in these domains wasn’t the frequency of visits—Europeans tend to go to the doctor at least as often as their American counterparts—it was the cost per visit. Other major contributors to the high cost of American health care are drug pricing (McKinsey found, as did the WSJ, that we pay more in the US for a given drug than we would in other OECD countries) and the cost of health administration (all the spending on marketing and administration of multiple private health plans boosts costs way over what they would be with a single payer).

I think it’s fair to conclude that the high cost of American medicine isn’t solely—or even mainly—due to waste. Targeting the use of less-than-optimal therapies in outpatient practice, as the Choosing Wisely campaign does won’t solve the cost problem. Nor will targeting expensive, burdensome, and unwanted treatment near the end of life. These are important efforts to improve quality of care. But if we want to do something about cost, we need to have an impact on prices. That means cutting payments made by insurers (both Medicare and private insurance companies) to pricey specialists. It means allowing the biggest and most influential insurer of all, Medicare, to negotiate with drug companies about price. It means allowing insurers such as Medicare to pay for devices based on their cost-effectiveness, not based on what the manufacturer charges. 

Introducing single payer health insurance would help, too. It happens to be the only other way to cover all Americans and make health insurance affordable and get rid of pre-existing conditions riders without use of the “mandate” that Republicans find so very unpalatable. But that’s a topic for another day.


March 13, 2017

You Don't Get What You Pay For

The enormous interest in getting good “value” for every dollar spent on health care, whether by individuals, insurers, government, or anyone else neglects certain basic realities—for example, that medical care isn’t a consumer good like toasters: it’s a very sophisticated service provided by highly trained professionals;  and that health insurance by its very nature makes the operation of a free market impossible. There’s still another basic reality that is even more often neglected, and that is the widespread belief that “you get what you pay for.” Or, if you pay less for one treatment than another, the cheaper one is necessarily inferior. Any claims that the two are of equal quality are suspect. And claims that the cheaper one is higher quality are, on their face, deemed outlandish.

Translated into practice, this means that patients and doctors alike tend to assume that more is better. More x-rays (or, as plain radiographs, CT scans, MRIs, and PET scans are collectively known, “imaging studies”), more medications, more doctors is superior care and must result in better outcomes. As a result, I’m not at all surprised that changing physician behavior and patient expectations has proved difficult, even when professional guidelines assert that less is more. And unfortunately (unfortunate since, from a geriatric perspective, less often is more), a new study that purports to show that greater spending per hospitalized patient fails to improve outcomes is hardly convincing.

Previous retrospective studies, especially those comprising the Dartmouth Atlas of Health Care, have shown that expenditures on apparently similar patients differ by geographic region, by hospital, and within regions—without any measurable difference in outcomes. But the Dartmouth Atlas has been criticized for working backwards from death even though death could not have been predicted in advance, it has been criticized for failing to adequately consider differences between the patient population in different locales, and it has been critiqued for not acknowledging that patient preference might account for some of the observed differences in health care utilization and, as a result, in cost. The new study asks whether physicians working in the same hospital nonetheless exhibit differences in their pattern of test- and treatment-ordering and whether that variation results in different outcomes for their patients. Looking at over 1.3 million hospitalizations occurring at over 3000 hospitals and involving 72,000 physicians, they found large variability in expenditures and no difference in outcomes—just like the Dartmouth Atlas findings.

The authors were careful to look at Medicare Part B spending because this is involves services that are at the discretion of physicians (Part A spending is determined largely by the DRG, the reason for admission, and is set by Medicare) and is a “proxy” for the intensity of resource use by physicians. They were careful to confine their analysis to Medicare fee-for-service beneficiaries who were age 65 or older and hospitalized for an acute medical condition. And they examined separately the behavior of general internists and hospitalists. They made some adjustments to account for differences among patients, including age (in 5-year increments), sex, race/ethnicity, median income, and existing comorbidities, and other adjustments to account for differences among physicians, including age (also in 5-year increments), sex, and site of medical school education. They found that the variation in spending across physicians within a hospital was greater than across hospitals. Among hospitalists, adjusted spending was more than 40 percent higher among doctors in the highest spending quartile compared with the lowest quartile. And higher expenditures had no effect on either the 30-day readmission rate or mortality, the two measures of quality used to examine outcomes.

Regrettably, this study has a number of glaring weaknesses. First, there are the odd omissions: the authors report on the gap between the highest and lowest quartiles of hospitalists but not the corresponding figure for general internists, even though nearly twice as many patients were cared for by internists than by hospitalists. Next, it’s not clear that the two outcomes examined—mortality and readmission rate—are good indicators of quality. Or rather, even if the two groups were indistinguishable based on these two measures, perhaps one group fared far better than the other on some other measure that wasn’t looked at, say quality of life. Finally, the study wasn’t randomized and it wasn’t prospective, allowing for the possibility that there were important differences between the patients on whom much money was spent and those on whom less was spent. In fact, maybe the patients on whom more resources were expended were sicker. If they were sicker but had the same mortality rate and readmission rate as those on whom fewer resources were spent, then arguably they fared better than their counterparts!

So where do we go from here? Contrary to the prevailing wisdom, the answer may not lie with “big data.” Too many things are going on at once with these patients to be able to reliably conclude that ceteris paribus, all things being equal, overall expenditure on tests and treatments had no bearing on outcomes. I think it would make sense to look at a small number of detailed case examples—20 or 30 patients of the same age with the same admitting diagnosis, matched for severity of illness, co-morbidities, race, ethnicity, and socioeconomic class, some of whom are cared for by prolific test-orderers and some of whom are not—following them prospectively over time to see what happens to them. And the study would try to ascertain why various choices were made, perhaps by interviewing the patients and/or their doctors, perhaps by gleaning the answer from free text in medical records, and what their outcomes turned out to be.

March 06, 2017

A Piece of My Mind

Prescription medications cost more in the US than anywhere else in the world and costs have been skyrocketing each year for the past several years. To a growing extent, the burden of the high cost falls directly on consumers, either because their health plan has a tiered system for medications (charging ever larger co-pays for some drugs), because their health plan pays only a percentage of the charge for various drugs (and if the consumer has to pay 20 percent and it’s 20 percent of a very large number, that’s a major outlay), or because they have a high-deductible health plan and the insurer doesn’t pay anything until they have spent $3000—or $5000 or $10,000—on health care. 

By and large, pharmaceutical companies have been blamed for the high cost of medicines, with insurers shouldering some of the blame, thanks to complicated and ungenerous policies. Pharma has tried to justify its sometimes astronomical charges as necessary to support its research efforts, with the most recent industry-endorsed estimate for the cost of developing a new drug and bringing it to market now topping $2.6 billion. Other analyses attack the methodology used in this report to measure costs, arguing that it fails to take into account, for example, that NIH funds much of the research that goes into discovering a new drug, not the pharmaceutical industry. The result is a dramatic over-estimate of the cost borne by industry. Concerns about the role of drug companies and to some extent health insurers are entirely legitimate. But there has been little attention paid to the role of drug stores in contributing to the high cost of medicines.

I did a little bit of investigating today. I looked at what two commonly used medications would cost a family like mine who had exceeded the $4000 deductible for their health plan, what they cost today (given that it’s only early March and most people haven’t had the opportunity to spend $4000 on medical care this year), and what they would cost if they were obtained from a Canadian mail-order pharmacy. Here’s what I found for one of the medicines, the widely used nonsteroidal anti-inflammatory drug, Celecoxib.

Celecoxib is used as a treatment for arthritis in people with certain gastrointestinal conditions because it's a little less prone to exacerbate these problems than other anti-inflammatory drugs. It is available generically. The non-profit insurance company Harvard Pilgrim Health Care classifies generic Celecoxib as a “tier 1” drug. That means that the cost of a 3-month mail order supply of the medication (100 mg taken once a day) from Walgreen’s, the pharmacy with which Harvard Pilgrim has a contract, would be $10. But until the deductible is met, Harvard Pilgrim doesn’t pay for medications, so the cost would be a whopping $156.51 for 90 pills (which, incidentally, isn’t even quite a 3-month supply since last I looked, a year has 365 days, not 360 days). So I contacted a pharmacy in Canada, identifying one that is approved by CIPA, the Canadian association of licensed retailed pharmacies.  I found a drug store that will supply 120 pills for $25.99 (plus a small shipping charge). That comes out to $1.74 per pill at Walgreen’s compared to 22¢ at the Canadian competitor. Walgreen’s costs eight times as much as the Canadian pharmacy. And the medication isn’t manufactured in some shady country with questionable oversight. It’s made in the UK.

How can this be? Is Celecoxib a fluke? So I looked at another commonly prescribed medication, this time a drug classified as tier 3. I chose Vagifem, an estrogen suppository, used to treat post-menopausal atrophic vaginitis. The cost of a 3-month supply through the health plan—after using the entire $4000 deductible? $80. The mail order cost from Walgreen’s today, assuming the deductible hasn't been spent? $360. The cost from the Canadian pharmacy? $55. Made in the UK. Walgreen’s is 7 times more expensive.

What’s going on here? I’ll leave that to the policy wonks, but maybe they should look at the behavior of pharmacies as well as drug companies and health insurers. After all, this isn't just a case of generic drugs costing almost as much as their brand name equivalents, which is still another problem for consumers. Meanwhile, importing drugs from Canada is a valuable option. It's not legal to re-import medication for sale or to import restricted drugs such as opioids, but the law on medicines for personal use is a bit fuzzy, or at least its enforcement is. With consumers shouldering an ever increasing proportion of health care costs, and no prospect for relief in sight, there's a strong incentive to look north.