Adventures in Health Care Cost Cutting

March 17, 2013 by · Leave a Comment
Filed under: Health Reform, Medicaid 

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Expect to keep hearing more talk about health care cost cutting, despite charts like this. It’s an idee fixe of the Wall Street/Washington corridor, and will only be implemented more vigorously over time.  So perhaps we should take stock of a few cost cutting initiatives. Medicare Part D, it seems, is coming way under its projected budget.  But maybe that’s because of ”a sharp fall in the number of breakthrough drugs,” a sign that innovation in pharma is stalling.  Cost cutting triumph, or logical outgrowth of a system that fails to reward actual contributions to health?

There’s also been a lot of pressure on skilled nursing facilities to hold the line on costs.  What are we getting in return? Here’s a summary from OIG:

Skilled nursing facilities (SNF) are required to develop a care plan for each beneficiary and provide services in accordance with the care plan, as well as to plan for each beneficiary’s discharge. . . For 37 percent of stays, SNFs did not develop care plans that met requirements or did not provide services in accordance with care plans. For 31 percent of stays, SNFs did not meet discharge planning requirements. . . . [R]eviewers found examples of poor quality care related to wound care, medication management, and therapy. These findings raise concerns about what Medicare is paying for. They also demonstrate that SNF oversight needs to be strengthened to ensure that SNFs perform appropriate care planning and discharge planning.

I’m sure the health care cost cutters will use this evidence to demand the SNFs be paid even less–rather than, say, investing real funding in proper training and pay in this vital service sector.  At some point, though, costs get cut so much that Medicaid will become little more than a meaningless plastic card, and “SNF” will stand for “Scarce Nursing Forever.”

This post first appeared on HealthLawProf Blog.
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RUC-rolled

February 19, 2013 by · Leave a Comment
Filed under: Health Care Economics, Health Law 

pasquale_frank_lg11A few years ago, I noted that the American Medical Association/Specialty Society Relative Value Scale Update Committee (RUC) has a dominant role in suggesting payment levels to CMS.  It raises hard questions about price-setting in the health care sector, many of which cannot be answered because its processes are opaque.  Now we know that judicial relief will not improve things any time soon.  As Brian Klepper reports, “On January 7, a federal appeals court rejected six Georgia primary care physicians’ (PCPs) challenge to the Centers for Medicare and Medicaid Services’ (CMS) 20-year, sole-source relationship with the secretive, specialist-dominated federal advisory committee that determines the relative value of medical services.”  What was the complaint?

The core of the … physicians’ legal challenge was that the RUC is a “de facto Federal Advisory Committee,” and therefore subject to the stringent accountability requirements of the Federal Advisory Committee Act (FACA). This law ensures that federal bodies have panel compositions that are numerically representative of their constituencies, that their proceedings are open, and that methodologies are scientifically credible. In other words, FACA ensures that advisory practices are aligned with the public interest.

The RUC adheres to none of these and is an object lesson in how special interests can be insinuated into and capture regulatory processes, displacing the public interest. For example, when the legal challenge was first filed, only 3 of 29 RUC panelists (10 percent) represented primary care, even though some 30 percent of US physicians practice primary care. RUC meetings are closed to the public, unless an invitation is extended by the Chair, and admission is tied to the guest signing a nondisclosure agreement. Determination of a procedure’s value has been based on as few as 30 survey responses by physicians who know that their reimbursement will be linked to how they have answered the questions.

This is a sad example of opacity in health pricing. In ordinary markets, publicity would tend to narrow the price differential between similar quality services.  In health care, however, there is a triple layer of agency between care and patients whose physicians’ recommendations are often constrained by an insurer that is chosen by the patient’s employer or government. Even if we assume away the agency problems in such an arrangement, it is difficult for buyers and sellers to truly understand “market” dynamics, or even the governmental processes that underlie them.

Originally posted at Health LawProf Blog.
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Seton Hall Law Review Issue on Accountable Care Organizations

seton hall law reviewJust a quick note to commend this issue to readers of HRW. As I note in an introduction to the volume, the articles are uniformly insightful contributions to very topical issues in health law and policy.

Volume Forty-Two E-Board

Editor-in-Chief
Temi Kolarova
Executive Editor
Daniel E. Bonilla
Managing Editor
Desiree L. Grace
Symposium Editor
Gianna Cricco-Lizza
Business Editor
Michael C. Smith
Senior Articles Editor
Jason S. Cetel
Articles Editors
Christopher Fox
Meghan McSkimming
Elizabeth C. Ralston
Lauren Winchester
Comments Editors
Eric M. Dante
Melissa M. Ferrara
Brandon M. Fierro
Rebecca Garibotto
Terrance Romasco Gallogly
Joseph K. Jakas
Submissions Editors
Robert S. Garrison Jr.
Ryan P. Montefusco
Andrew L. Van Houter

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Sunder on Patents and Access to Medicine

September 30, 2012 by · Leave a Comment
Filed under: Global Health 

pasquale_frank_lg11Last week, the blog Concurring Opinions featured a symposium on Madhavi Sunder’s new book, From Goods to a Good Life: Intellectual Property and Global Justice. A chapter relevant to health law scholars is available online, here.  The chapter focuses on access to drugs in less developed countries (LDCs), and makes the following case:

Not too long ago, an HIV-positive diagnosis was tantamount to a death sentence — for people in the East and the West, in the South and the North. The drug companies that perfected the antiretroviral therapies invested princely sums to find these miracle cures. To justify their investment, they rely on the promise of a patent . . . . Thus patents have saved countless lives. But this structure has its limits. Indeed, the evidence is mounting that in crucial ways patents fail to promote the health of people in the developing world, and in some cases in the developed world as well.

The chapter begins by telling the moving story of Thembisa Mkhosana, one of thousands of South Africans who cannot afford the third-line antiretroviral treatments needed to survive AIDS.   “My blood test results have worsened dramatically,” Mkhosana told a reporter, “And now I suddenly have fever and am in pain. I’m really worried.”  ”I know that I’m going to die,” she said, but “who is going to look after my children?”  Her story appears in this video.

Mkhosana’s plight raises difficult interpretive issues.  Is she “collateral damage” from a patent system that depends on the strict rules that deny her access to the medicine she needs? Or is this an entirely avoidable tragedy, a consequence of misapplied and misinterpreted laws?  Sunder makes the case for the latter view very convincingly, while providing a compact and accessible account of the development of international patent policy over the past 20 years.

Sunder acknowledges the importance of patent law to incentivizing the development of new drugs. However, as she wisely notes, one can’t squeeze blood from a stone, however important the “skin in the game” ideology has become to advocates of “free-market” healthcare.  According to Sunder, “creation of generic drug markets for the poor ought not significantly impact the bottom line of Big Pharma, which derives only 5 to 7 percent of its profits from this part of the world.”  It may well be possible to make up for some of that figure by cutting back on promotional budgets in the developed world. It’s also a rather trivial figure compared to tax avoided or evaded on the tens of trillions now hidden away in tax havens.

On the other hand, Big Pharma has a number of justifications and excuses for aggressive assertion of their patents. Spokesmen aver that they are only concerned about what would happen to their profit margins if drugs circulated in an uncontrolled manner. They claim that, if poor countries are permitted to manufacture vast quantities of their drugs, those countries may sell them on the black or grey markets. That, in turn, would reduce the return on such drugs in the developed world, leaving less money for research in the future. Sunder responds that, “The grey-markets concern is a valid one—but . . .the World Trade Organization has begun to craft creative solutions to this problem (requiring generic drugs made for developing world markets to be distinctively labeled, for example).”  As surveillance of both people and goods is better perfected by state security apparatuses and RFID technology, the grey market concern should also become more technologically manageable, enabling finer-grained and more effective price discrimination.

Access to drugs is a key area where ordinary markets simply can’t be expected to achieve humane and rational results.  In 2008, the purchasing power of the average American dog was higher than that of forty percent of the world’s population. Given the extensive extant involvement of the U.S. government both in the domestic pharmaceutical industry and in the international negotiations determining its powers and duties abroad, there is a special moral obligation for U.S. citizens and politicians to assure the widespread and equitable distribution of lifesaving drugs. As Sunder states:

Economists call the millions of people who need a drug but cannot afford it “dead weight loss.” But the millions who die needlessly because of the patent system—a number that some scholars calculate as nine million in the developing world annually—are more than an inefficiency in the system. . . . We must both adopt alternative mechanisms for developing and distributing medicines to the poor (including prizes), and fully support the use of compulsory licenses by developing countries to treat their sick poor. Patent law cannot draw the line at rectifying market failure. Our law must contend with moral failure as well.

Sunder’s eloquent case for access to drugs commends respect and admiration for the Health Impact Fund, Knowledge Ecology International, Medecins sans Frontieres, and other groups for trying to close this gap.

X-Posted at Bill of Health.

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Finance vs. Financialization in Health Care

September 6, 2012 by · 1 Comment
Filed under: Health Law 

pasquale_frank_lg1I’ve noted the issues raised by financialization in nursing homes, billing & payment systems, and hospital chains before on blogs.  I wanted to present a few paragraphs from a recent book review (of Robert Shiller’s Finance and the Good Society), which explore the problems raised by the finance sector’s interaction with pharma:

A Ph.D. cancer researcher with ten years of experience tends to make about $110,000 to $160,000 annually; a banker specializing in mergers and acquisitions, about $2 million. Top hedge fund managers make billions of dollars annually. The disparity fails to rankle Shiller, since the “scientists are mostly living comfortably doing what they really want to do.”

Unless, of course, they’re among the thousands of drug developers laid off by pharmaceutical firms, which have been pressured by Wall Street to focus on “core competencies” and cut R&D. Last year, investment managers punished Merck for investing in research, while rewarding Pfizer for cutting it dramatically. Investors and analysts also questioned R&D levels at Lilly and Amgen. The constant pressure for quarterly earnings makes each cut to scientific investment seem rational when it occurs, but its consequences are devastating in the long run.

Shiller is eager to praise financiers for funding innovation, but barely mentions the asset-stripping and short-term thinking that have devastated many industries over the past two decades. A study from the New Economics Foundation recently estimated that leading London bankers “destroy £7 of social value for every pound in value they generate.” In the United States, the Kauffman Foundation concluded that an “expanding financial sector” is “depleting [the] pool of potential high growth company founders.” Why go to the trouble of developing a new product or service when you can take on much less risk (and probably net a far bigger return) as a financier deciding which company merits investment? Whatever one thinks of their methods, at least the NEF and Kauffman are asking tough questions about finance’s role vis-à-vis the real economy of goods and services.

Whether we are contemplating drug shortages or lack of innovation in antibiotics, we should always complement critiques of policy failures with critical examination of the financial methods of those at the commanding heights of the economy.  Contemporary financialization is agnostic to human outcomes. We should not be surprised if it generates some troubling ones in health care.

The last thirty years have witnessed an exponential rise in financialization, the reduction of exchanged value in an economy (past or present, tangible or intangible) into financial instruments. Monetary promises that once seemed like fanciful bets were rationalized into derivatives (contracts that derived their value based on other price levels).   As these contracts and other forms of betting interact with advanced computing and telecommunications technology, they can cause volatility, instability, and a short-termist mindset that is inimical to the long-term planning necessary to rational public health and pharmaceutical policy.

On the other hand, there are some aspects of health care reform that will require financial skills.   Consider, for instance, risk adjustment among insurers, which can only be done well given complex modeling. There is a very good brief on the topic now available at Health Affairs.  The brief notes that, “Health insurance plans having costs at least 3 percent more than target projections will receive payments that have been assessed from plans having costs at least 3 percent less than projections.” As they explain,

Insurance market reforms under the Affordable Care Act are designed to . . . shed the current system in which health plans have an incentive to enroll healthier people while avoiding the sick. One of the arrangements that will make the new system workable is risk adjustment—-a process by which health insurance plans will be compensated based on the underlying health status of the people they enroll, and therefore protected against losing money by covering people with highcost conditions.

But implementing risk adjustment could prove challenging. The statistical methods used in risk adjustment are technically complex. There are questions about the ability of the states, which have to carry out the risk adjustment, to collect accurate data and implement methodologies that result in fair payments to plans.

Perhaps redundant Wall Street quants could step into these roles?  As Crotty has noted, the main negative consequences of financialization for some companies in the US are that “1) they cut wages and benefits to workers;  2) they engaged in fraud and deception to increase apparent profits and 3) they moved into financial operations to increase profits.”  Moving finance workers out of financialization, and into the workaday realities of risk adjustment in health, may be a way to direct those with quantitative skills toward more constructive ends. Risk adjustment is one more step toward a utility model for insurers–a welcome change that should be considered throughout the financial sector.

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