Just a quick FYI - Today’s Boston Globe reports that the Federal Government has approved a new 3 year Medicaid demonstration waiver for Massachusetts - with $10.6 billion to enable the continuation and growth of the state’s health insurance coverage expansion program.  The original 3 year waiver expired at the end of June, and the state and Federal officials had been discussing a new 3 year waiver for many months before that deadline.  Since the end of June, the state’s program has been running on a series of several week extensions to the old waiver granted by the Federal Government.

A couple of weeks ago in writing about ERISA, I included some data on the stability of health benefits provided by large companies.  The Kaiser Family Foundation just released their 2008 Employer Health Benefits Survey.  Below is the updated chart from my earlier post.

Large Companies (>199 employees) Offering Health Benefits:
Eligibility, Take-Up and Coverage Rates

The Kaiser Family Foundation’s Report also included an interesting table that provides some insight into what I wrote earlier this week about the differences in employer health benefits between high and low turn-over industries.  The relevant information from  the Kaiser report’s Exhibit 2.3 is below:

Percentage of Firms Offering Health Benefits by Industry in 2008
Agriculture/Mining/Construction                                                67%
Manufacturing                                                                           73%
Transportation/Communications/Utilities                                    89%*
Wholesale                                                                                74%
Retail                                                                                        40%*
Finance                                                                                    81%*
Service                                                                                     58%
State/Local Government                                                           97%*
Health Care                                                                              71%
ALL FIRMS                                                                          63%

[* Estimate is statistically different (p<.05) from all other firms not in the industry category.]

Given the findings of the research discussed in my other post, these industry differences shouldn’t be surprising.  However, I do wonder if after this week the Finance Industry will still be on the high end of providing health benefits.  Of course, it also raises the question of whether financial firms that survive through a federal “bailout” or “takeover” (whatever the end result is) will offer health benefits 97% of the time like state and local governments?  If so, then the number of employees that have access to health benefits may increase - although I also suspect that the number of employees in that industry may decline overall, and possibly add to the number of people without health insurance.

In any case, I’m confident that the issue of employees’ health benefits will not be a significant concern for those trying to work out stabilizing solutions for the upheaval in the financial industry.  This would be consistent with the priorities that led to the famous statement about the 1992 Presidential campaign, “It’s the economy stupid.”  Or was it, “It’s the stupid economy”?

After writing last week about Pitney Bowes’ experience in creating positive financial returns by providing quality health benefits for their employees, I attended a panel of alumni and faculty from the Yale School of Management that discussed the topic “Do Consumers Make Rational Healthcare Decisions?” (I’m told a video podcast will be available soon.)  While their consensus on this question was no, their discussion and Q&A included employer provided health benefits.

Professor Fiona Scott Morton noted that the value employers get from providing health benefits depends upon their industry - specifically whether the company retains employees or has a high turn-over rate.  This makes sense, since it would take time for employers to have a positive return on investing in employees’ health.  Professor Scott Morton also pointed me to a very interesting research article by professors at Duke and NYU that looked at this issue by analyzing data bases that included individuals occupations.*  By comparing workers in high and low turn-over industries they found several interesting things, including:

• Employers in low turn-over industries provide better health benefits
• Employees in low turn-over industries use more health care services while working
• Employees in high turn-over industries use more health care services when retired

This paper had many other interesting conclusions, and I’ll confess to not being able to fully assess all its conclusions because of some of the mathematical modeling used and the manner in which they presented their quantitative findings.  However, from what they said, I do wonder if much of the effect they observed could be due to higher wages in the lower turn-over industries.  This makes simple economic sense to me, because the researchers used average vocational preparation for the employees in the industry as a proxy for turnover (see footnote), and companies that depend on higher skilled workers would likely pay them more - which would also lead these companies to retaining their employees.   In addition, companies with lower skilled workers might also be less likely to provide paid sick leave as an additional form of compensation - which could account for the lower rate of doctor visits and preventive care the researchers found for the employees in the high turn-over industries.

What this means for health reform - and the future of employer-based insurance in the US - is that for some employers and employees the current situation works well, and seems to benefit society overall since retirees from higher skilled/low-turnover companies are less of a financial burden on Medicare.  However, for employees and employers in industries with high turn-over rates, the  employer-based insurance situation in its current form may not be working so well - although I’m still concerned about how much of the researchers conclusions are related to income -  either directly or as a proxy for less generous health benefits.  In any case, the findings from their paper point out some of the areas where our health system is working and others where it needs some fixing.  Hopefully reform initiatives in the coming months and years will address those realities.

* The researchers used the average Specific Vocational Preparation (SVP) - a Department of Labor categorization system used in the databases -  for each industry as a proxy for employee turn-over since other researchers have found an inverse relationship between average SVP and employee turn-over.

I recently heard Michael Critelli, Executive Chairman of Pitney Bowes Inc., talk about what the company has learned about the value of providing quality health benefits and services to their employees.

Because they have a workforce that is divided between their offices and customers facilities, Pitney Bowes has been able to conduct a natural experiment and see how providing access to different health and wellness services can effect their employees and the company’s costs.  What they found was that providing a good quality health benefits package in conjunction with healthy food and exercise options, etc., has reduced health care costs for their employees that work in their own offices compared to employees who work off-site.

I haven’t been able to connect with Mr. Critelli to get more data, but he did state that the saving have been around $2.3:1.  Pitney Bowes careers web-site states, “We recognize that our people are key to our success. Simply speaking, our business growth depends on the talent of our people.”  This sounds like the rhetoric that many companies use, but apparently at some level they actually put their money behind this statement.

Implications for Health Reform
At a time when some are proposing to shift the tax incentives for the purchase of health insurance from the employer to the employee - which would dramatically reduce the percentage of health insurance provided by employers - the experiences of companies like Pitney Bowes should be very informative.  Having grown up in the Insurance Capital of the World, I saw how companies that understand the value of employees health and satisfaction make extensive efforts to promote both.  Only time will tell what direction health reform will take in the US, and whether immediate cost reduction or longer-term health and productivity of the workforce will be the higher priority.

Two interesting and related items recently dropped into my inbox concerning the future availability of primary care clinicians.  As most people are aware, primary care services are becoming increasingly scarce - and has been seen here in Massachusetts expanding insurance coverage may only increase this strain.  In addition, there is some good evidence that a  major reason for our higher health care spending is having too many specialists and not enough primary care clinicians. So increasing the number of primary care clinicians might be part of the solution to controlling health care spending.

Incentives to Become a Specialist
The first article in my inbox was a Washington Post story stating that only 2% of graduating medical students were contemplating going into primary care.  However, what the JAMA study actually found is that 2% of those entering Internal Medicine residency programs were planning on going into primary care. The Wall Street Journal correctly noted that the study also found that 12% of students are planning on going into pediatrics, and 5% into family medicine.  However, that means that 8% of physicians in training who will be treating adults in the future are planning on being primary care clinicians…. And even if some of those specialists go into research or other non-clinical careers, the percentage of primary care clinicians for adults will likely not be more that 10%

The reason why so many graduating medical students were planning on becoming specialist was clearly stated in the opening sentence of the Wall Street Journal article: “Yes, higher pay is prompting many U.S. med students to choose lucrative specialties over primary care….”

Incentives to Become a Researcher
The second piece in my inbox was a notice from the NIH about their loan repayment programs for recent doctoral program graduates.  When I worked at the NIH in the early 1990s I helped start a loan repayment program for researchers working on AIDS related research.  At that time there was tremendous need for more people to focus on HIV and AIDS research, and that loan repayment program was restricted to NIH-based employees.  What struck me about the NIH’s notice was how much their loan repayment programs have grown: They now fund 1,600 researchers each year with a budget of $70 million.  While many of the individuals benefiting from these programs are not physicians, they do include pharmacists, psychologists and dentists.

Conclusions and Thoughts About Overall Priorities
What I found interesting – and somewhat concerning – is that if increasing the number of primary care physicians is a high priority, and Medicare is being advised to take steps increase financial incentives for primary care, (something I’ve written about previously), then why have the NIH’s loan repayment programs expanded to draw more clinicians into research?  Certainly research is a worthy endeavor and a great career, but the current structure of the programs given our national priorities, the expansion of NIH’s funding (which helps support researchers salaries), and the growth in the private biomedical research industry, all together beg the question about how these loan repayment programs fit into our overall national strategy and NIH’s funding priorities?

I’m sure that some people will criticize me for questioning these NIH programs, but I look forward to hearing their perspectives – both on the loan repayment programs and how incentives for primary care should be increased.

I’m also concerned about the JAMA study’s findings because they point out that changing financial incentives for primary care may not happen soon enough - and clearly today’s students haven’t gotten any messages that these incentives will likely change in the future.  However, they may be getting their information from their teachers - who likely directly and indirectly relate the financial and life-style attributes of primary care versus specialty careers.  While Medicare and other payers cannot make promises about how their reimbursements will be structured years or decades from now, perhaps there needs to be more educational efforts directed at medical students and residents about what the future financial incentives for physicians may look like.

Clearly there is much work to be done in this area to ensure a greater supply of primary care clinicians and to drive research efforts forward with appropriate priorities.

A recent Boston Globe article about a possible legal challenge to Masschusetts’ health reform initiative indirectly raised one of the most stubborn challenges in health reform:  The Federal ERISA law.  (See below for more about ERISA.)

The contentious issue in Massachusetts is a proposal to require employers to both pay at least 33% of full time employees’ health insurance premiums and ensure that at least 25% of their employees are covered by their health plan. (The current requirement is that they do one or the other.) So why should this difference be the basis for a law suit?  Actually, there isn’t really any legal difference.  In either case, an employer that provides health benefits to their employees by self-insuring, (rather than directly buying coverage from a health insurance company), could sue based upon the Federal ERISA law that regulates employee benefits.

The real difference between the proposal and the current law is political and philosophical rather than legal – employers are willing to live with the current either/or requirement, but don’t want to be pushed down a slippery slope where the coverage requirements and/or the small penalty of $295/employee for failing to meet the requirements are increased.  And their legal backup is ERISA.

So What is ERISA?  (Without going into too much detail.)
ERISA stands for the Employment Retirement Income Security Act of 1974, and it is a Federal law that governs how companies provide benefits to their employees.  The law is overseen by the Department of Labor, and was originally designed to ensure that pension benefits were properly managed and funded.  However, it also encompasses health benefits – but only for companies that provide the benefits themselves by self-insuring rather than purchasing health insurance for their employees from insurance companies.  The result is that ERISA mostly applies to larger companies which typically self-insure for several reasons:

• They don’t have to comply with state health insurance mandates – which is one reason why large companies can reduce their health benefit costs by self-insuring
• Since many large companies have employees in more than one state, by self-insuring, they can operate a single health benefits plan – under what is called an ERISA exemption – rather offer different health insurance options in each state based upon the states’ insurance laws
• By accepting the financial risk of self-insuring, they can also receive any financial rewards from controlling health care spending.  This also gives them incentives to keep their employees healthy as well as productive

ERISA is a Linchpin for Federal or State Health Reform
ERISA is a crucial part of health reform that is not very well appreciated and generally not discussed outside of very wonkish circles – which is probably why the Boston Globe article doesn’t even mention it.

At the State level – as in Massachusetts – ERISA theoretically precludes state governments from placing requirements on self-insured company’s health benefits programs.  However, ERISA does regulate how the benefits are provided, has requirements about providing information to employees about their benefits – aspects that are consistent with the law’s original focus on pension benefits – and has four coverage mandates:

• Non-discrimination against pregnancy as a medical condition
• Hospital length of stays for women following delivery: 48-hours or 96-hours following a Cesarean
• Parity between mental health and other benefits
• Reconstruction following mastectomy

ERISA has also been changed to require that companies continue to offer health coverage for a limited amount of time to employees after they leave the company (COBRA in 1986), and to limit or ban the exclusion of pre-existing conditions or other factors that might predict their need for future health care needs (HIPAA in 1997).

ERISA coverage requirements has rarely been modified because of the lack of any clear consensus for what changes should be made, and the concern that adding coverage mandates to ERISA would increase costs without expanding the number of people with insurance or improving quality. In essence ERISA is a major obstacle for health reform because it regulates one of the largest and most stable parts of the employer-based health insurance system. For example, the Kaiser Family Foundation’s annual survey of employers has shown that 98-99% of companies with more than 200 employees have offered health insurance to their employees every year since 1999.  Similarly, the percentages of employees who are eligible and who chose insurance coverage have remained relatively stable from 1999-2007:

Large Companies (>199 employees) Offering Health Benefits:
Eligibility, Take-Up and Coverage Rates

[It should also be recognized that health insurance costs are a significant factor for large companies to outsource jobs to small companies or independent contractors here in the US, or to send those jobs overseas to companies that have cheaper labor costs.]

The ERISA Chasm
ERISA is a huge uncrossed chasm for health reform because virtually any state law that places requirements on the health benefits provided by self-insured companies could be subject to a Federal lawsuit.  And at the Federal level – as noted above – nobody has come to a consensus as to what should be done, except for some chipping at the edges with worthwhile requirements.  In addition, the Committees with jurisdiction for ERISA generally have not made ERISA health benefit issues a high priority: In the Senate, jurisdiction for ERISA is shared between the Finance and the Health, Education, Labor and Pension Committees.  Each of these committees has significant other responsibilities, including Medicare, Medicaid, biomedical research and the FDA.  And in the House of Representatives, the Education and Labor in the House of Representatives has jurisdiction for ERISA, which is really their only health related area of authority.

ERISA’s Implications for Obama and McCain Health Reform Proposals
The importance of ERISA and its Federal oversight over all self-insured employer provided health benefits raises the question of how the plans of Senators Obama and McCain would be effected by ERISA?

Senator Obama’s plans clearly call for more Federal regulation of health insurance which could significantly change how health benefits are provided to employers.  This avenue for  creating a more stable system for health insurance/benefits changes would have to involve ERISA. However, his proposals explicitly state that individuals could keep the coverage they now have – which would likely mean limited changes to ERISA, and those changes might not raise too many objections from the large business community.

Senator McCain’s plans are based upon shifting the purchase of health benefits from the company to the employee by moving the tax deductibility from the company to the individual.  (It appears that there would also be a dollar limit on this deduction, and in essence also shifting from the general current situation of health benefits being a “defined benefit” to being a “defined contribution” – something that happened with many pension plans in the last ten years as a means for companies to control or limit their future financial liabilities.)  If a McCain plan required everyone buy their own insurance from insurance companies, then changes to ERISA wouldn’t be required, but it might lead to much more state legislative and regulatory action as millions more people become subject to state laws for both insurance company marketing and plan design.  In addition, one selling point used for McCain’s campaign positions, is that it would enable employees to take their health insurance with them as they went from job to job.  For that to be true across state lines, then tremendous changes to ERISA would be necessary – and probably much more than under the proposals that might come from an Obama Administration.

Conclusions
Sorry about the very long post, but as the title states, ERISA is truly an unbridged chasm.  Many health reform proposals have raced up to its brink only to suddenly stop short at the edge of the ERISA cliff – sort of like the comedy Westerns of the 1950s where the rider gets pitched over the head of the horse into the canyon.  In this analogy, perhaps the public and the politician are the horse, (I’ll let you decide which half is which), and the proposal is the rider – which gets lost in the depths of the canyon because the horse can’t find a way across.

For significant health reform to be achieved, all constituencies and stakeholder groups need to reach some consensus to build a bridge across the ERISA chasm.  Otherwise, no action will likely continue to be everyone’s second and fall-back option.

Cost containment is becoming an increasingly powerful force in shaping the environment for life sciences companies - as well as other parts of the healthcare system.  In addition, more sophisticated tools for analyzing and demonstrating the clinical and economic value of medical treatments are making it more challenging for life sciences companies to communicate the value of their new products to all types of audiences, including clinicians, payers, patients and regulators.

These new tools and the changing environment are requiring life sciences companies to think about developing more sophisticated messages to reach these audiences. I recently recorded a short 6 minute discussion about these topics with Jeff Sandman, CEO of Hyde Park Communications - where I am also a Senior Counselor.  Click on the icon-link below to listen to our discussion.

And as always - if you have any comments on this topic - please feel free to share them.

The August 16th Economist had an interesting article (and commentary) about patients traveling to other countries for medical treatments, a.k.a. “medical tourism.”  The article focused on the US healthcare system, and mentioned other parts of healthcare that are being exported, (such as transcription of medical records, reading of imaging studies), and imported, (such as physicians and nurses).  But there are two aspects of this issue that the article didn’t touch upon – chronic care and pharmaceuticals:

Medical Tourism Doesn’t Work for Chronic Care
Patients are traveling from the US to other countries for expensive procedures like heart surgery and joint replacements.  While savings from this medical tourism can be significant on a per procedure basis, it may only make a small dent in overall healthcare spending – and only produce a dip in cost while not significantly changing the growth rate in health care costs.  But more importantly, such medical tourism doesn’t address the expanding problems of providing care for patients’ chronic conditions – which is a major driver of increasing healthcare costs.

Importing Medicines – Safety
Importing medicines from other countries into the US has been a controversy for more than 10 years.  The US Congress has repeatedly authorized the importation of medicines from other countries provided the Department of Health and Human Services certified their safety.  But the HHS (under both Democratic and Republican administrations) has not made such certification – and that was before the deaths earlier this year from contaminated heparin manufactured in China.

Importing Medicines – Politics
While the Obama and McCain campaigns have very different positions on health care reform, their statements on importing medicines are very similar in that both include provisions for importing medicines only if they are safe:

• “Obama will allow Americans to buy their medicines from other developed countries if the drugs are safe and prices are lower outside the U.S.”
• “John McCain will look to bring greater competition to our drug markets through safe re-importation of drugs”

Healthcare Jobs and Economic Growth
The world is clearly becoming flatter for healthcare goods and services, and this could be a worrisome trend for the US economy since healthcare products, delivery and research are significant drivers of US economic growth. After all, healthcare jobs – in both delivery and biomedical R&D – are high skilled, high wage jobs that depend upon an educated workforce and an economical comfortable society that can devote a significant portion of its income to healthcare.  If the US starts shipping more and more healthcare jobs (and money) overseas, this could result in a downward spiral as the loss of those jobs undermines the strength of the US healthcare system and the country’s economic growth.  However, it is uncertain how much the loss of that part of economy could be offset by potentially lower healthcare spending – a cost that some economists believe is inhibiting economic growth in the US and our global competitiveness

An article in the July/August Health Affairs about Massachusetts health plans implementing Pay-for-Performance (P4P) incentives for physicians raised more questions than it answered.

The study found that P4P programs from 5 private sector payers “wasn’t associated with greater improvement in quality” compared to the overall upward trend in the factors measured.  But the study didn’t address some overarching questions and basic realities about P4P, such as:

• How the payers P4P incentives to the physician groups was actually translated into incentives for the individual physicians - or smaller groups of physicians inside the larger groups?
• How the P4P incentives compared to the other financial incentives the physicians are facing?  For example, seeing more patients or doing more procedures could increase their income more than meeting the P4P standards. (The Health Affairs article states that P4P incentives for Massachusetts physician groups averaged 2.2% of their income.)
• The quality measures used in the study were all performance based, rather than actual outcomes, e.g. cholesterol screening rates rather than patients’ actual cholesterol levels, HbA1C screening rates in diabetics rather than their actual HbA1C levels, or asthma medication use for children ages 5-17, rather than ER visits or hospitalizations for these same children.  What impact does that has on physicians’ behavior, and the value of changing their actions to meet these process standards?  Would physicians be more responsive to incentives tied to clinical outcomes?

Making Incentive Programs Successful:
While the study concluded that the P4P incentives program instituted in 2002 may not have produced dramatic changes in the HEDIS process measures, that does not mean  they were ineffective or that P4P is not a useful tool.

First, while collecting process measures data is easier, since clinical outcomes are what patients (and their physicians) should really care about, shouldn’t P4P incentives be based upon actual clinical outcomes? Process measures are easier to monitor by using billing data, but as the prevalence of quality electronic medical records systems grows, collecting and analyzing data about clinical outcomes will become much easier.  In addition, measuring a small set of any factors – process or outcome – presents the pitfall of driving physicians to focus on those diseases and measures to the exclusion of other important things.  For example, in the Health Affairs study, there are a number of preventive services in the process measures, but what about flu vaccinations, colonoscopies or smoking cessation?  This “managing what is being measured” behavior is why the number of factors used for P4P incentives should be as broad as possible.  (But this does not mean that they all have to be measured at every interval, or for every compensation period.)

Second, as any psychologist (or parent) will attest, the time between the actions and the reward (or penalty) is very important for changing behaviors. The Health Affairs article indicates that the bonuses are paid to the physicians groups annually.  Having the incentives paid annually, (or even quarterly), would be unlikely to provide adequate feedback to physicians to prompt them to change their behaviors.  An alternative blended methodology would be to provide physicians feedback on their actual performance against many of the possible measures on a weekly or bi-weekly basis, while making the P4P payments on a monthly or quarterly basis.

Third, many large companies structure their bonuses for their senior managers around a minimum of 20% of compensation.  If incentives for P4P programs only represent a small percentage of physicians’ income, then it would be unlikely to change their behaviors – particularly if they can make up for any lost income by increasing volume.  However, if physicians are being paid a fixed (capitated) amount per month to provide a certain set of services to a patient group – either primary or specialty care – then the volume part of the equation disappears, and P4P programs could be much more effective, even at a lower fraction of their potential income.

And lastly, and most simply, the insurers would not be spending time and money developing and implementing these programs if they didn’t think they provided some benefit – even if it is only financial - so they must be getting some benefits, or at least learning some things to make these programs beneficial in the future.

Conclusions:
18 years ago I wrote a book chapter that focused on structuring incentives for physicians.  Since then it has been hard to move payers and clinicians toward using more focused financial incentive systems.  But the P4P concepts are important, and to be successful they need to be implemented in a way that works for payers, physicians, and patients.  Unless these and other stakeholder groups buy-in to the purpose and practice of such incentives systems, they are unlikely to have the desired effects.  And the result will be more of the same – rising costs, variable quality, and limited access for many patients.

A political insiders poll conducted by the National Journal (and published in their August 2nd issue) shows that Republicans are not counting on health care to help their party in the November elections.

Among the 7 choices to the question, “Which two issues will most help your party in November’s election?” none of the 42 Republican insiders picked health care.  Compared to that 0%, Energy was chosen by 90%, and National security by 31%

The poll results were also interesting for what the Democrats chose.  It appears that they are giving up on Immigration and National security as the issues that will help them in the November election – those two issues were picked by none of the Democrats.  Rather, Democratic insiders chose Economy (87%), Energy (39%), Iraq (37%)…. And of course Health care (21%)

So what does this mean for the actual election?  Are these political insiders too myopic with inside-the-beltway perspectives?  I find it hard to believe that Republic voters won’t care at all about health issues – particularly many of the conservative physicians who may be peeved about the President vetoing the bill to avert the Medicare 10.6% cut - which Congress later voted to overide.

Well it seems that the Democrats and the Republicans both have some validity in their positions:  According to Gallop’s June 15-19 issues poll, the Democrats do have a big edge on healthcare and the economy:

And according to CNN’s issue tracker from June 4-5 polling, the most important issue for registered voters was:

• Economy 42%
• War in Iraq 24%
• Health care 12%
• Terrorism 11%
• Immigration 8%

Taking all this together it looks like Democrats have the edge in the issues that are most important to the voters.  How this changes between now and November 4th as voters respond to new events and the campaigns’ messages will likely determine the election – assuming neither candidate makes major missteps.