Health, Healthcare, and Government Spending (and a Culture of Health)

Why governments care about health and healthcare, how they are connected to government spending and priorities, and why addressing social determinants of health is so important for making lasting improvements, were the subjects I covered in a presentation at George Mason’s graduate policy school in September. My goal was to provide the soon-to-be policy analysts and advisers with a framework for understanding those issues so they will be able to provide useful recommendations to their future decision making bosses. (See the slide below for the topics covered in the presentation.) Links to videos of the talk are below, along with short descriptions – I think that Part 6 is particularly good. (Embedded views of the videos are at the end.)

I’ve had discussions with policy makers and corporate executives about these issues since their organization’s value propositions increasingly require demonstrating individual and population outcomes with specific metrics. Those requirements are part of the broader rapid movement of the U.S. healthcare system towards more accountability. Consequently, the connections among health, healthcare delivery, spending, community organizations, and social determinants of health are becoming a top priority for healthcare and life science leaders in companies and government agencies as they seek to increase value for their organizations and the people they serve.

Any thoughts you have about this talk, the connections among health, healthcare, spending, and community health factors (a.k.a. social determinants of health), would be greatly appreciated. And if there are any aspects of these issues where I can be of help to you or your colleagues – or you know of organizations or audiences that would also benefit from a similar presentation – please just let me know as I’d be happy to discuss that with you.

GMU - 9-29-16 Overview Slide

Part 1: Introduction. Why Governments care about health and healthcare. What is health. What is healthcare. https://youtu.be/KvDVcBGOePc

Part 2: Insights into healthcare spending with a particular focus on the Medicare and Medicaid programs. https://youtu.be/6Onuae2c0Xw

Part 3: Why spending on (and budgeting for) health and healthcare programs are unlike almost all other Federal programs, and why projecting spending is so challenging. https://youtu.be/lyaAjRzD0ic

Part 4: How government and private payers are seeking greater value and better clinical outcomes from their healthcare spending, and how data and analytics are increasingly important components of developing and evaluating those initiatives. https://youtu.be/7abj14xIcMw

Part 5: Examples of value based pricing initiatives and the importance of data and analytics for managing such programs, determining “success”, and sharing savings with physicians, other providers, or patients. https://youtu.be/MeLZA5wcpG8

Part 6: How health, healthcare, and spending on government health programs (and private insurance reimbursements) connect to each other, and how social determinants of health can drive clinical and economic outcomes, i.e., how a culture of health can be so important for transforming health in a community. This Part concludes with a brief discussion of the Affordable Care Act and the future of that program and the U.S. healthcare system. https://youtu.be/66zt_Rqf9hA

Enjoy. Pass along to your colleagues and friends. And as always, constructive comments are welcome!

Medicare and U.S. Healthcare Spending

The second video from my guest lecture at George Mason University about Medicare and U.S. Healthcare Spending in now available – see below. (The first was an overview of Health Spending in the United States, and is in the previous blog and also on the HealthPolCom YouTube Channel.)

The other video segments from my guest lecture that I’ll be posting over the next week or so will be on the following subjects:

  1. Challenges for Estimating Future Healthcare Spending
  2. Medicaid: Federal and State Fiscal Issues
  3. Changing U.S. Healthcare System: New Payment and Delivery Models

Enjoy. pass along to your colleagues and friends. And as always, constructive comments are welcome!

 

Specialty Drugs: Getting What We Asked For

The cost of so-called specialty drugs has become a major health policy issue largely because of spending projections for new medicines for chronic hepatitis C infection and cancers.  Having worked on issues related to the development, approval, availability, use, and cost of medical treatments for more than 25 years, I’ve noted with concern and bemusement how cost and value issues are being discussed and presented in public debates and policy circles.

The Intense Debate About New Biopharmaceuticals Was Predictable

The introduction of significant new specialty medicines is reasonably predictable because information about biomedical research and the developmental status of new drugs and biologics is publically available from the FDA and company press releases. And while the specific list prices of new medicines can’t be precisely known before they are approved and launched, with a basic understanding of healthcare economics approximate price ranges are reasonably predictable. (Both of these are discussed below.)

So how does something that was predictable also become so contentiously inflammatory?  The intense debates and diatribes about the price and value of new biopharmaceuticals is not surprising because of the rancorous politics surrounding healthcare in the U.S., and the apparent lack of research and foresight by organizations involved with paying for medical care.  (Neither of these are discussed below.)

The overall situation seems to boil down to that, as a society, we’ve gotten what we’ve asked for in terms of new treatments based upon billions of public and private dollars invested in biomedical R&D, but we are now very upset with the result. An analogy might be someone who wins a new car on a game show, but is then very surprised and upset because they have to pay income taxes on the value of the car, pay to register the car, pay for insurance, pay for gas, pay for maintenance, etc.

To examine this situation more deeply, let’s step back and look a bit closer at what the new (so-called) specialty medicines are, how we’ve been asking for them, and why they are not generally the fiscal crisis many have been Chicken-Littleing about.

What are Specialty Medicines?

Specialty medicines are not a specifically defined category of medicine or medical therapy.  The FDA approves and regulates medicines for human uses in the general categories of pharmaceutical drugs (which are mostly small molecules), biologics (which are mostly proteins or other very large compounds produced in living cells), insulins, vaccines, and blood and tissue products. Across those categories the FDA recognizes orphan medicines as therapies for conditions that affect less than 200,000 people in the U.S. The FDA also has pathways for more rapidly approving new medicines based upon clinical need, as well as for expanding access to experimental compounds prior to FDA approval. There is no category for “specialty drugs.”  (And as an aside, there is also no category for “biotech drugs”. Biotechnology is a technology, process or method for conducting research or creating new molecules.)

Similarly, the Centers for Medicare and Medicaid Services (CMS) has extensive provisions for how medicines are covered and paid for under various parts of Medicare (Parts B, D, and C), and Medicaid, but none of those include specific requirements related to “specialty drugs” based upon their molecular structure, method of production, medical use or need, patient population, or any other clinical factor. However, many health insurance plans (including Medicaid programs and Medicare Part D plans), have tiers for expensive therapies labelled “Specialty Drugs.”  This bottom line perspective was aptly described in an article[i] in Health Affairs’ October 2014 themed issue on “Specialty Pharmaceutical Spending & Policy”:

“There is no uniform definition of specialty medications. However, there is a consensus that all of them are high cost (Medicare Part D uses a $600 per month threshold for the “specialty” designation), are relatively difficult to administer, require special handling, or require ongoing clinical assessment—or have some combination of these four characteristics. All of the characteristics are routinely used to define specialty medications. However, one recent survey indicated that cost is the dominant factor, with 85 percent of respondents at health plans rating cost as very or extremely important in their decision to assign the specialty designation to a medication.6

The medications that have received that designation are a heterogeneous group. They include small molecules that are produced on an industrial basis, such as dimethyl fumarate (Tecfidera), which is used in the treatment of multiple sclerosis; manufactured human proteins, such as growth hormone; and exquisitely designed monoclonal antibodies (such as trastuzumab) that target cancer cells or help control an inappropriately stimulated immune system (for example, infliximab).”

So the bottom line is the bottom line: Specialty drugs are expensive drugs for which health insurance plans are requiring patients to pay higher co-pay/co-insurance amounts. And those higher financial requirements may be in addition to health plans’ other utilization management requirements such as quantity limits, prior authorization programs, and step therapy (a.k.a. “fail first”) protocols.

Why Specialty Medicines are The Same as Older New Medicines, Only Different (and Potentially Better)

Specialty drugs are expensive medicines – more expensive than medicines approved 10, 20, or 30 years ago, e.g., Prozac®, Epogen®, Invirase®, Lipitor®, Gleevec®, Avastin®. But they are also more likely to be effective, and/or treat conditions that did not have very good therapies. These newer medicines are generally the result of the evolution of biomedical science that is producing more molecularly targeted therapies. This advancement has been supported by public policy to promote more basic and applied research at the National Institutes of Health, academic research organizations, and biopharma companies, which in the U.S. totaled about $120-130 billion in 2012. (Why was has there been longstanding broad political and public support for increasing the NIH’s budget if not to push forward to create new treatments?)

Below is a graphic from the late 1990s that illustrates how biomedical advances have led to newer treatments.

Process of Discovery & Development - (c) HealthPolCom Blog

We are now in that period beyond 2005 represented in the upper panel by the large red “?” and the cornucopia of capsules in the bottom panel. That is, we have gotten in the 2000s what we had been asking for and paying for in the 1990s and earlier: Better treatment options.

And to expand upon this picture, the graphic below illustrates the major types of organizations involved with biomedical research, and how they interact and influence each other through the exchange of information.

Major Biomedical Resarch Stakeholders - (c) HealthPolCom Blog

How New Medicines Fit Into Clinical Care

With the newer targeted, molecularly based medicines, there is – by design – a greater match between the pharmacology and the patient’s physiology leading to better outcomes. This means there is a greater likelihood that the treatment will produce a good clinical outcome.  More precise matching of pharmacology to physiology also often means that the number of people who should be using the particular medicine is smaller than would have been the case for untargeted medicines developed when there was less understanding of physiology and pharmacology.

Below is a simple diagram (starting in the lower left corner) depicting how clinical decisions are made, and how more effective treatments can improve clinical outcomes.

Role of Therapeutics in Healthcare - (c) HealthPolCom Blog

Overall Value of Innovative Therapies

While any individual medicine may be innovative and provide value, as the “Process of Discovery & Development” figure above illustrates, these advances often involve treating a disease through a new mechanism of action, i.e., moving from one “therapeutic revolution” to the next.

Below is a simplified picture illustrating how the value of medical innovation can increase in several ways:

  • By developing a better medicine using an already targeted mechanism of action, e.g., a medicine with reduced or fewer side effects;
  • By developing a new medicine that targets a new mechanism of action, a.k.a. a new class of medicine to treat a disease; and
  • Research that discovers how an existing medicine can be used to treat another disease, e.g., methotrexate for autoimmune diseases.

The Value of Innovation - (c) HealthPolCom Blog

Discussed below is how a new medicine’s higher success rate for treating an illness often translates into a greater value and a higher price. Also discussed is why we shouldn’t be surprised that these medicines are expensive, and how our imperfectly regulated market-based healthcare system is responding.

Why Price and Cost of Specialty Medicines are of Concern, but Not Catastrophic

How are prices of medicines determined?  In much of the ongoing public debate, basic economic principles are often ignored: Prices in the United States are almost never determined by a product’s or service’s input costs. (The exception for this would be some commodities and highly regulated utilities like water and electricity – but I suspect not cable TV.) Rather, prices – particularly for research intensive products – are determined by fallible humans who model what markets will bear and how intersecting curves and equations parse out an answer for how to maximize short and long-term profits from a new product. This is sometimes referred to as the Net Present Value (NPV), which tries to capture the value of the product taking into account the expected changes in sales and price going forward along with the expected inflation rate and costs associated with production and sales etc. Those calculations include the expected effective life of the product in the market due to replacement by better versions (e.g., computers or cell phones), patent expiration, or, in the case of something unusual like new medicines that can cure chronic hepatitis C infections, the rapid decline in the number of people with the disease.[ii]

Those calculations for biopharmaceuticals are further complicated by the reality that there is no single price for a medicine in the U.S. where legally required discounts to government programs interacts with private sector rebates and reductions.  In addition, projected global prices – which may be linked to one another in various ways – must also be considered along with the volume of sales in various countries and regions.

So how is a “price” for “what the market will bear” determined? The calculations leading to a general range for this price (a.k.a. “list price”) includes:

  • How the condition is currently being treated or cured, and the price of those treatments (both pharmaceutical and non-pharmaceutical such as surgery), not only for an individual but for successfully treating one person in a population?[iii];
  • What other treatments and complications will be avoided, reduced, or encountreed with the new treatment?;
  • How many people are expected to use the new treatment?; and
  • The seriousness of the condition and how it impacts the lives of people, i.e., is it fatal or not? Does it seriously compromising their quality of life? etc.

All those factors (and others) are included in a description of “what is the value of the new treatment?”  That is, the greater the value (particularly compared to other treatment options) the greater the price for a course of treatment because competition between different treatment options does occur – it is just a particularly challenging assessment since it likely includes many personal issues and preferences related to both biology as well as life circumstances. In addition, because of Federal laws that limit price increases after launch, the initial prices for new medicines may be pushed to the higher end of the range described above.

The Good News, Bad News, Good News – and Other Good News Looking Forward

The good news for the health system is that as more targeted medicines with higher success rates are developed for smaller populations, the total cost is probably no more than if the medicine had been priced lower but used by more people – many of whom would have found it ineffective.  The corollary good news is that those new medicines are improving and saving lives. (If that wasn’t the ultimate reason for the spending billions and billions on biomedical research, then someone please tell me what it was.) The bad news is that because of the decades of investment in biomedical research, more and more of these new medicines are being developed and approved by the FDA – and the cumulative cost of those new medicines is increasing at a rapid rate compared to overall spending on healthcare and other medicines.[iv]

The other good news is that the increase in spending on healthcare overall has slowed dramatically in recent years, as has spending on medicines in general, which is not surprising since now more than 80% of medicines dispensed are generics. And the ongoing good news is that our imperfect healthcare system is working: As new medicines are approved they compete with their innovative predecessors for market share and on price. (An example of this for chronic hepatitis C started in late 2014 with the introduction of a new multi-pill regimen.)

Similarly, other good news (sort of) is that there is now a regulatory pathway being developed for approving biosimilar medicines that will compete with innovator biologics, which represent a large portion of the so-called specialty drugs.  The reason this is only sort of good news is that biosimilar medicines will likely cost 70-80% of the price of the original biologic medicine because biologics are expensive to produce since they are grown in living cells rather than chemically synthesized.

More good news looking forward is that biomedical science is still progressing and the future will likely see better and simpler medicines that will be higher value for patients and society.  Some of that value will be in better quality lives for people, and some of that value will be in reduced spending for other healthcare and related services. For example, a medicine that halted progression of Alzheimer’s disease – or any of the other neurodegenerative diseases such as Parkinson’s, ALS, or MS – (or prevented it from occurring, or cured it) would likely be expensive on a per person basis, but it would prevent the need for many other healthcare services, e.g., other medicines with limited effectiveness, services such as physical therapy, medical devices for physical assistance, and nursing and home care. (An historical example of this was how the polio vaccine dramatically reduced expected acute and long-term care costs.)

In addition, while biosimilar medicines are expected to be only 20-30% less expensive than the original biologic medicine, scientists are working on developing small molecule pill-type medicines that are targeted like biologics. (This is already happening for some conditions, such as certain cancers and rheumatoid arthritis, and one report indicated that over 50% of the specialty drugs in the pipeline are high-cost oral medications.[v])  While those targeted pill type medicines are expensive, because they are small molecule medicines, generic forms will eventually be available, which will be 80-90+% less expensive than the original medicine, i.e., significantly less than biosimilar medicines.  And of course, oral medicines have less delivery costs compared to injections or infusions – which sometimes require visits to a doctor’s office of clinic. So even if the patient can inject the medicine themselves, a pill also makes taking the medicine easier and eliminates the cost and hassle of disposing of used needles and other materials involved with the injection.  (Reducing the hassle – and pain – associated injections may also increase patients’ adherence to the medicine and thus increase its effectiveness.)

However, with the advancement of good news also comes some bad news. For example, with the new hepatitis C treatments, there are some people and programs that are initially in a no-win situation – and this is most clearly seen with people with chronic hepatitis C who are in jails and prisons. These individuals have a right to medical care, the rate of chronic hepatitis C infection in this population is very high (15-20%), and the risk of transmission from one person to another is higher than average (as is the risk of reinfection if someone is successfully cured). All those factors make strong clinical and public health arguments for rapid and universal treatment for all infected individuals in any non-short term corrections populations – as well as treatment for new inmates with chronic hepatitis C.  However, corrections organizations have limited and generally fixed budgets making the provision of this care for all the individuals in their facilities over a short time period a fiscal tsunami.

Corrections facilities that are privately run under contract with state and local governments face a particular challenge because, unlike government owned and operated corrections facilities, they are unable to negotiate much lower prices for the new hepatitis C treatments since those discounts wouldn trigger automatic price reductions for state Medicaid (and other ) programs that have legislatively proscribed best price requirements. This means that state and local governments that have contracted out the operations of their corrections’ medical facilities may actually be facing higher costs in the future – at least for medical care for the inmates.

Generating More Good News for the Future

The general relationship between how we pay for medicines today and what treatments and cures we end up with tomorrow is also often missing from debates and analyses of biopharmaceutical costs and treatments.  Below is a simple graphic illustrating some of those relationships.

Incentives for Innovation - (c) HealthPolCom. Blog

Appreciating these factors is important as we seek to translate basic research into new treatments, and is particularly salient because of the current situation with Ebola treatments – or the lack of them. Specifically, Ebola hasn’t been an illness in a geographic region where there has been extensive access to medical care or doctors, or a way for the people affected to pay for those treatments. (Bottom two items in the top portion of the graphic). Thus, until Ebola became a global and first-world health concern, there has been very low financial incentives for anyone (government or industry) to invest in discovering or developing new/better treatments for Ebola. (Third item in the bottom portion of the graphic).

Conclusions

  1. Specialty drugs should be called what they are: expensive medicines, treatments or cures.  Giving them a group name implies that they have some unique or differentiating characteristic – aside from price or cost – particularly with a word root indicating that these medicines are somehow “special.”
  2. Healthcare is complicated. Biomedical science is complicated. Healthcare economics is complicated – particularly when many health plans have five (or more) cost-sharing tiers for medicines.
  3. Biomedical research has produced some incredibly effective new treatments. (Thank you!) However, there are still many serious, chronic, and life-threatening illnesses with few (or zero) good treatment options.
  4. Prices and value in healthcare are as complicated concepts as biomedical science. And value assessments almost always involve personal factors. For example, would Steve Jobs have paid $1 billion for a cure for his pancreatic cancer? I think so.
  5. Society has invested billions in biomedical research and development (probably close to a Trillion dollars over the past 20 years), and received significant benefits. The ongoing challenge is how to maximize those and future benefits by making difficult financial, resource, clinical, and ethical decisions within our imperfect healthcare system run by fallible biological beings.

 

 

p.s. Sorry for the long post.


[i] “Specialty Medications: Traditional and Novel Tools Can Address Rising Spending on These Costly Drugs,” Lotvin et al., Health Affairs 33, No. 10 (2014) 1736-1744.

[ii] A similar situation happened in the early 1990s with the introduction of new flexible lenses for cataract surgery.  There was a tremendous upswing in the number of operations, which cost Medicare much more than expected, due to pent up demand. And after that surge, the number of people getting cataract surgery (and the costs) dropped to a much lower steady state – although one that continued to increase at a small growth rate because of the aging demographics in the U.S.

[iii] For example, if a new treatment successfully treats 50% of people with a serous condition, and the older treatment only successfully treats 10%, the clinical value would be 5-times as great, which would also translate into an economic value that is multiple times the older treatment. Other factors that would affect the value would be the route of administration, side effects, and other services and products required or avoided with the new treatment.

[iv] Studies have estimated that per year spending growth for non-specialty medicines is now less than 4% range, while annual spending for “specialty” medicines is growing in the 10-15% range.

[v] “The Growth of Specialty Pharmacy: Current trends and future opportunities, “ UnitedHealth Center for Health Reform & Modernization, Issue Brief, April 2014, citing: Atheer Kaddis and Stephen Cichy, “Payer Tactics to Manage High-Cost Specialty Drugs in the Pipeline,” AIS Webinar – Specialty Pharmaceuticals, September 2013.

New Direction for Health Reform Book

In 2005 I started writing a book about health reform.  As I was working on it, the structure and framework of the U.S. healthcare system kept shifting. I am now returning to work on this book, with the new working title, “Pivoting the U.S. Healthcare System: A Guide to Making Health Reform Work.” Below is a brief overview of the background about the book, which can also be found on my main website.

Comments, suggestions, and general inquiries about this project are welcome.

Overview – “Pivoting the U.S. Healthcare System: A Guide to Making Health Reform Work”

In my very first class in medical school, one of the first things the Professor said was, “Half of what we’re going to teach you is wrong. We just don’t know which half.”  That admission is not something you will hear in political or policy pronouncements, even though in the rapidly evolving U.S. healthcare systems situations change, preliminary data is corrected, projections turn out to be wrong in meaningful ways, and “solutions” fix problems but also lead to new ones.

To provide people with a framework for improving the quality of care and controlling costs for themselves and their communities in this shifting world, this book will examine important ideas, issues, and trends, and the steps individuals can take to help achieve better health, access, and affordability. To do that, I will provide my synthesis of observations and information focusing on policy, political, scientific, and medical changes that are building upon one another. Thus, the book will not be an academic treatise, nor adhere to specific ideological, philosophical or political lines. Rather, it will reflect what I have learned in in more than 25 years of clinical, scientific, and health policy work, and my vision for achieving a better, stronger, more vibrant, and healthier healthcare system.

Long Look Forward

In June 2003, I was invited to address the Presidents of the State Medical Societies about “The Future of the US Healthcare System.” To help these physician leaders see the future more clearly through murky waters, I discussed how the trajectories of the major US healthcare programs (including Medicare and employment-based insurance) were leading to greater transparency and accountability for both clinical and economic outcomes.  I then described a future where clinicians and providers would be responsible for the outcomes their care was producing, how payments would be tied to those outcomes, and how documenting those outcomes would be facilitated by electronic medical records and population-based analytical systems.

The reaction of the assembled physician leaders was one of dismissive disbelief. This was 2003. The world had come through Y2K unscathed, the dot-bomb recession was over, and the stock market was rising every week.  Their primary question was ‘who will pay us to put in electronic medical records and to provide information about quality and costs?’ They didn’t believe my answer that those who wanted the information – such as health insurance companies and government agencies – would pay them to provide data and information about quality and costs. Those reactions were not unreasonable at the time, since I suspect most of this group was planning to retire within the next 10 years. (This was before the Great Recession turned their 401k accounts into 101k amounts.)  However, while 2003 was generally a time of great uncertainty for the U.S. healthcare system, the year ended with the passage of a new law – the Medicare Modernization Act (MMA) – that included the new Medicare prescription drug benefit, and it was the first of several major laws driving fundamental transformation of the US healthcare systems.

Slow Turns

The 2003 passage of the MMA, the 2008 election of President Obama, the 2009 stimulus law (ARRA) that included the HITECH Act to support the implementation of electronic health records, and the 2010 passage of the Affordable Acre Act (ACA, or ObamaCare), have all promoted significant changes in the U.S. healthcare system.  But since it is a huge and extensively connected but disjointed set of enterprises, turning the U.S. healthcare system is a slow process. Even policy focused physicians and senior health managers have been slow to accept or react to those changes.  For example, in March 2009, I gave a Grand Rounds presentation at a hospital in Boston. Like my 2003 presentation to the Medical Society Presidents, I described a future with greater transparency and accountability, and the increased use of electronic health systems – particularly since the HITECH Act had become law the month before. The responses included a “rebuttal” from the Canadian-born Department Chair arguing for a single payer system, and a Resident who felt that the Geisinger model in Danville, PA wasn’t replicatable or relevant because – unlike most of the rest of the U.S. – Geisinger dominates its geographically insulated area.

But the more things change, sometimes they don’t.  For example, I recently heard about a senior manager at a large integrated health system that refused to consider planning for the implementation of the ACA’s many provisions: First, Congress would repeal it. Then, it wouldn’t be implemented because Mitt Romney would win the 2012 election.  And lastly, the Supreme Court would overturn the entire law.  Of course, none of those things happened, so this large health system is now playing catch-up with their regional competitors.  Similarly, in early 2014 I spoke with the physician leadership from a state that has not embraced improvements in their clinical care systems or changing incentives for physicians, hospitals, or patients to improve the quality of care or control spending.  Their attitudes reflected a strong desire to maintain their status quo of autonomy, and particularly to not be held accountable (or responsible) for their patients’ clinical outcomes or the health of their communities. Basically they had healthcare delivery and insurance structures that hadn’t changed much since the 1980s, and such physician-centered care is much better for physicians than patient-centered care.

Health Reform Pivots at the Local Level

While my 2003 presentation to the Medical Society Presidents was in many ways a nexus for the work I’d been doing for more than 15 years, it also led me to start writing a book that had the working title “Fixing the US Healthcare System.” The 2008 election of President Obama (and the subsequent passage of the ACA/ObamaCare) led me to change the title to “Making Health Reform Work.”

Now in mid-2014, with many of the major components of the ACA having begun to be implemented – and their effects starting to be seen – I’ve returned to the book and the pieces I’ve been writing for almost 10 years. With the dramatic shifts that have occurred in that time, I’ve pivoted the book’s focus to explore more directly the important changes occurring at the local level and within healthcare delivery. Therefore, I’ve also changed the working title to “Pivoting the U.S. Healthcare System: A Guide to Making Health Reform Work.”

Goal of the Book

The goal of the book will be to provide readers with insights and greater understanding of how to evaluate and influence the rapidly changing healthcare world that encompasses delivery, financing, public health, and information technology – particularly at the local and personal level. The book will explore how initiatives at the local level are what will primarily improve the health of people and communities in the coming years. Specifically, while ObamaCare and governmental activities are changing the framework and the contours of the playing field, how local leaders, organizations, and communities are allocating their resources, setting their priorities, and improving their practices involving health benefits, clinical services, and public health activities are what will most dramatically effect the lives of people and communities.

The book will enable and empower people to alter and accelerate those important changes based upon their personal and local perspectives by working with different groups to make improvement more meaningful for them and their communities. This local multi-stakeholder engagement and alignment is increasingly recognized as crucial for improving healthcare quality and controlling costs: Large employers, insurance companies, and government programs now appreciate that they are not large enough to drive major changes in any market or at any provider organization. Similarly, large hospitals, health systems, payers, and public health agencies increasingly understand that their work and goals are interconnected so that their actions needs to be aligned, and at times even directly coordinated.

Physicians are also an important group to include in this process since physicians (and other clinicians) are primary guides for patients in making healthcare decisions, and greatly influence healthcare spending and quality.[1] And of course patients – and their indirect advocates in the media, government, non-profits, and foundations – need to be part of these intertwined dialogues and decision-making.  The bottom, middle, top, left, and right conclusions all indicate that in the struggle against rising healthcare costs and burdens of disease and disability brought on by aging populations and other factors, united we can succeed, but divided we shall continue down the same failing path.

p.s. To see an old version of the working summary click “Making Health Reform Work.” The latest summary and outline are on my whiteboard and computer.  Please contact me if would like more information about my progress, focus areas, and conclusions.


[1] As an old axiom states, “the most expensive piece of medical technology is the pen in the physician’s hand.”  Today, that prescribing and referring pen is being replaced with a keyboard, a mouse, and a touchscreen, but the effect is similar, even as electronic medical records and systems are raising their own concerns about costs and quality.

Sovaldi® and Curing Hep C – Myths and Other Facts

The introduction of new oral medicines that can cure chronic hepatitis C infections (including Sovaldi®) have led to some intense discussions permeated with misleading information about the pricing of new medicines, how such medicines are “game changers,” and the implications for budget-crunched payers.  Below I summarize some key points about those issues.

1.  Myth #1: How Medicines are Priced

One of the perpetuating myths about biopharmaceuticals is that medicines are priced to recoup research and development costs.1 It’s a myth. As I’ve written about elsewhere prescription medicine prices are set like everything else in a regulated free market: Companies set prices to maximize revenues and profits based upon the market opportunities and the value the new medicine provide compared to the consequences of the disease and other treatment options – including no treatment at all.  (See more about this in #4 below.)

2.  Myth #2: There is A Price

While the price of Sovaldi® has been widely written about in the press, in reality, there is no single price in the U.S. for almost all medicines. Rather, every medicine has a range of prices that include the discounts required by law to Medicaid, VA, DoD and other government programs, and the discounts negotiated by private insurance companies. The widely reported price of Sovaldi®, which is the starting point for those discounted prices, has been widely criticized, but a high-level examination of the situation illuminates a relatively logical picture as discussed below. Furthermore, an understanding of the overall situation with chronic hepatitis C infection and those new medicines leads to a reasonable strategic framework for payers facing significant costs for treating people with chronic hepatitis C infection.

3.  Situation with Chronic Hepatitis C Infection

A.  Most of the roughly 4 million people with chronic hepatitis C in the U.S. were infected before 1992 when a test to screen donated blood started to be used.

B.  Today, the rate of new infections is about 45,000 people per year, and those infections are acquired primarily through intravenous drug use.

C.  The older treatments for chronic hepatitis C infection largely depended on activating the patient’s immune system to clear the virus from the body, which is why the medicines in those treatment regimens, (e.g., interferon) make people feel like they have a bad flu for several/many months.

D.  Assuming patients can tolerate the side-effects and complete their course of therapy, the older treatments for hepatitis C had cure rates2 as low as 20% depending on the strain (genotype) of the virus and certain patient characteristics.

E.  The new medicines for chronic hepatitis C infection are “game changers” since they have reported cure rates of 90-95+%. Ray Chung, MD, a hepatitis C expert, has described these new medicines as a clinical paradigm shift from treating a liver disease to curing hepatitis C infection.

F.  These medicines are also “game changers” because this is the first time biomedical science on earth has developed a cure for a chronic viral infection. (I can’t speak for other planets, galaxies, or other spatial dimensions.)

G.  The low rate of new infections in the U.S. means that if people currently infected with hepatitis C are treated and cured (and the new medicines seem capable of curing people by eliminating the virus from their bodies), then – in theory – hepatitis C infections could be eliminated, or at least driven down to very low numbers.

H.  Physicians (particularly gastroenterologists and hepatologists) were aware that new – and much better – medicines to treat (and hopefully cure) hepatitis C infections were expected to be approved in late 2013/early 2014. Therefore, many patients weren’t started on the older therapeutic regimens that had significant toxicities and low cure rates.

I.  The people who deferred treatment in 2013 were lined up to be treated in early 2014, and this produced a large wave of new patients (and sales) for the new medicines in early 2014.

4.  Rationale for Pricing of Hepatitis C Cures

I stated above that companies price new medicines to maximize revenues and profits.  That’s only sort of true. New medicines are really priced to maximize the value the company will get from selling the medicine over the entire effective life of the product.  Economists refer to this as the “Net Present Value” (or NPV), which takes into account expected revenue in future years, discounted by how much less a dollar in the future will be worth than it is today because of inflation, and other factors such as competition from other treatment options. For Sovaldi® the most significant factors are competition and substitution due to other medicines expected to be approved in 2015 and beyond, AND the limited number of people with chronic hepatitis C infection.

The relatively finite pool of patients means that NPV calculations for Sovaldi® do not look like other medicines to treat chronic diseases or to keep cancers in remission, because those types of medicines have large (and probably growing) patient populations that will be taking those medicines on an ongoing basis. Therefore, the “value” of Sovaldi® in the latter years of its 14-year effective patent life3 will be much, much, much less compared to those other medicines. This front-loaded fiscal/value situation means that setting a ceiling price at the higher-end of the comparable range for treatments for a serious illness that will be taken as a single course for a shrinking population is a logical outcome.

5.  Path Forward for Budget-Crunched Payers

Because Medicaid programs, the VA, and state/local prison systems have significant numbers of people with chronic hepatitis C infection – and they have fixed or semi-fixed budgets – treating everyone infected with hepatitis C all at once would be a significant budget buster. Below I describe a framework for logically approaching this situation.

But first, it is also important to recognize some other factors about chronic hepatitis C infections and Sovaldi® and other medicines that are expected to be approved to treat/cure hepatitis C in the coming months/years:

A.  Of the estimated 4 million people in the U.S. with chronic hepatitis C infection, most do not have significant liver disease characterized by changes in the structure and function of the liver that ranges from various degrees of fibrosis and cirrhosis to full liver failure or liver cancer.

B.  People with more advanced disease are already costing the health system significant amounts and have the most health and quality of life problems.

C.  While the exact percentage of people with chronic hepatitis C who have advanced disease is unknown, a reasonable guess might be about 20-30%.

D.  People who do not have advanced disease will most likely progress to advanced disease, and there are known risk factors that increase the likelihood of more rapid progression.

Given those factors, a reasonable approach for payers with limited resources would be to put those people with advanced disease in the front of the queue for the cure. Other people who should be included in this “first to treat” group would be individuals who have certain criteria that increase their risk for rapid progression of liver problems, or are having health problems from the infection outside the liver (i.e., extra-hepatic manifestations) such as renal, hematologic or rheumatologic problems, or are symptomatic.

Other groups that could be considered for priority treatment could include people in prisons (or being released from prisons) who might be at increased risk of transmitting the virus to others.  (People who are cured of their chronic hepatitis C infection can be reinfected.)

After this first group’s treatment is addressed, the next group of individuals with risk factors for more rapid progression to advanced disease (such as longer time since their estimated date of infection) could be eligible for treatment.

This “triaging” of priorities would spread costs out over a longer period of time in a rational way. In addition, because of real-world barriers to identifying and engaging all potential patients, not all the people in those first to treat categories would get treated in the first few months or year. Therefore, the actual first year costs would be below the results from a simple calculation of the number of people multiplied by the treatment costs per person.

Such triaging would give budget-crunched payers time to plan for future budget years with the realization that the number of people with chronic hepatitis C infection will be decreasing over time.  After a few years of treating people with chronic hepatitis C infection (depending on how the triaging/staging is done, along with the effectiveness of public health outreach and screening) the annual costs for medicines for people with chronic hepatitis C infections should become relatively low even before generic versions of the new medicines are available.

6.  Cures for Chronic Hepatitis C Infection Are Not Game Changer

Some people have angsted about how the new treatments for chronic hepatitis C are harbingers of more expensive, budget-busting medicines. However, looking at the pharmaceutical industry pipeline, there are not medicines in clinical development to cure other chronic viral diseases.  Nor are there medicines to cure other serious chronic diseases.  I certainly wish there was a $100,000 cure for MS, Parkinson’s, Alzheimer’s, ALS, HIV/AIDS, or many other debilitating or degenerative conditions – but there aren’t, and there don’t seem to be any on the near horizon. Thankfully, there are compounds in clinical trials to better treat those conditions by preventing or slowing progression, as has already happened for rheumatoid arthritis and some other autoimmune diseases. Therefore, while the new cures for chronic hepatitis C are game changers for people with that specific condition, unfortunately, cures for other serious chronic illnesses do not appear like they will be available very soon.

7.  Caveats & Other Notes

I apologize for this rather lengthy post – particularly after the long time since my last post.  But there are a few other points to note:

  • These thoughts are my own, nobody has paid me to write this, and only one person reviewed it for gross factual correctness.
  • My projections and estimates of infection and cure rates etc. are derived from conversations with knowledgeable people and reading the literature, but there is clearly a significant level of uncertainty about many of those estimates, including the numbers of people infected and their stages of disease.
  • Even the best projections are off by some significant percentages.
  • The price of other medicines for chronic hepatitis C infection that are expected to be approved in the next 6-36 months are unknown, but the price range for Sovaldi® should set an upper limit based on a course of treatment to achieve a cure. Therefore, for example, if another compound is approved that achieves a similar cure rate with similar side-effects, etc., but only needs to be taken once a week for 8 weeks (i.e. 8 pills), it would likely have a higher per pill price than Sovaldi®, but a lower total cost for a course of treatment.

 Footnotes:

  1. While, the risk of biopharmaceutical R&D is borne by companies, they cannot bake the R&D costs of individual medicines (and dead ends) into the prices of those medicines.  Rather, a company’s profits are the source of funds for future R&D. Specifically, companies makes decisions about how to use their financial resources (primarily derived from profits) for R&D and other activities. R&D opportunities are evaluated based upon the projected market potential combined with the company’s expertise and capabilities that would enable the company to successfully develop a new medicine in a specific disease area of need, i.e., where there is a market opportunity.
  2. Cure is defined as no detectable virus six months after the conclusion of treatment.
  3. http://www.accessdata.fda.gov/scripts/cder/ob/docs/patexclnew.cfm?Appl_No=204671&Product_No=001&table1=OB_Rx

CER, HIT, and Women’s Health Research

Below is a video of my discussion with Phyllis Greenberger, President and CEO of the Society for Women’s Health Research, about the implications of comparative effectiveness research (CER) and information technology for women’s health and quality improvement.

What are your thoughts about CER and HIT?  Will they lead to higher quality, lower cost, or more efficient/better healthcare?  And if so, how soon?


FYI – The SWHR’s July 18-19 meeting mentioned in the video is “What a Difference an X Makes: The State of Women’s Health Research.”

Health Reform and Low-Income People in Washington DC

I recently sat down with George Jones, Bread for the City’s CEO, to talk about health reform and the challenges low-income people in Washington DC have accessing healthcare. The video of our discussion is below.  A couple of notes: 1. George’s title changed from Executive Director to CEO about a year ago.  I’ve known George for more than 15 years, so my bad when I introduce him as the Executive Director. 2. Please excuse my verbal stumbles and be impressed by George’s answers – we filmed this in one take in his small, hot office at Bread for the City.  I’m confident there will be improvement in future videos – and of course, your feedback is always welcome!

Accomplishments v. Activity in Healthcare

The phrase “Paying for Value not Volume” has been health reform’s mantra for several/many years.  But the concepts embodied in “Paying for Value not Volume” are problematic on two levels.  First, the term “Value not Volume” doesn’t convey a clear picture of the specific changes health reform is trying to achieve. This creates problems communicating the benefits of health reform and healthcare transformation to people who are not steeped in health policy, including most clinicians and patients.

And second, the “Paying for” part of the phrase indicates that the focus is on financial reforms. This creates a barrier to people (i.e., patients) embracing the underlying principles of “Value not Volume” because, from their perspective, changing how doctors and hospitals are paid seems unlikely to benefit them – and could potentially harm them by decreasing access or increasing their costs.  In addition, “Paying for Value not Volume” seems disconnected from the important access and clinical improvements that people care about as much as they care about cost control – if not more so.

Accomplishments Trumps Value
Therefore, rather than “Value not Volume” a better phrase would be “Accomplishments not Activity.” This phrase more directly represents what people and society really want from health reform, i.e. accomplishments in the form of better clinical and economic outcomes.

While it could be argued that “Value” captures the same intent as “Accomplishments,” “Value” is more ambiguous and less specific. For example, employees are often paid partially on the value they deliver for their company, but the specific factors used to determine that “value” are quantifiable measures such as sales or actions that produce revenue generating goods or services.

Thus, paying for healthcare accomplishments is a simpler and more direct concept. It avoids the rhetorical and cognitive extra step of translating “value” into specific accomplishments. In addition, the concept of paying for accomplishments could also include incentivizing patients for specific achievements related to improving their health or reducing their risk of illness.  In this way, “Paying for Accomplishments” is a broader term than “Paying for Value” because it connects innovations in provider and clinician payments to the expanding array of new provisions health insurance plans are adopting to motivate and help individuals achieve certain wellness goals, e.g., smoking cessation classes, weight loss incentives, etc.

Goals of Health Reform
Similarly, “Achieving Accomplishments” could be a good phrase for describing the goals of health reform, e.g., “The goal of health reform is to achieve accomplishments in three areas: improving health for populations, improving health care quality, and lowering health costs. And the accomplishments we expect to achieve this year for our [community, region, state, country] are……”

Conclusion
“Accomplishments not Activity” is a term that people can more easily understand, and this greater understanding could help the public embrace innovative payment models and insurance plan designs that – by rewarding accomplishments – are creating linked incentives for providers, clinicians, patients, and communities to collaboratively build higher performing healthcare delivery systems.

8 Variables Fueling Increasing Healthcare Costs

At a recent meeting about implementing the Accountable Affordable Care Act, Karen Ignagni, (President and CEO of the America’s Health Insurance Plans), listed 8 variables that are fueling increasing healthcare costs – and thus need to be addressed to “bend the cost curve”:

  1. Prices of services (Not insurance premiums, which mostly reflect input prices, i.e., the cost of healthcare services and products.)
  2. Variations in care delivery practices and how that impacts safety (She also suggested that transparency and reporting measurements for 10-12 key conditions would significantly help reduce care variation – which can improve quality and drive down costs)
  3. Measurement (Alignment between public and private sector reporting requirements to make #2 more feasible for healthcare delivery systems already struggling with data collection, analysis, and reporting.)
  4. Value Based Benefits (Particularly getting people with chronic conditions into stable, care coordinating systems)
  5. Impact of consolidation – both horizontal and vertical (See the recent Synthesis Project Brief on this topic)
  6. Scope of practice (Enabling clinicians at all levels to practice at the top of their capabilities, which will help address growing clinician shortages)
  7. Building and Construction (Other people at the meeting noted the problem with building and infrastructure.  Don Berwick noted “stranded capital” is a challenge for delivery systems, and another speaker noted that most healthcare organizations were literally designed and built to maximize revenues under the volume incentivizing fee-for-service system rather than prioritizing value or community health status)
  8. Power of States (Non-Federal government officials and regulations are important determinants of public health activities, clinicians scope of practice, and collaborations among local stakeholders)

Karen’s list – like Don Berwick’s list from my previous post – is a very valuable tool that I’ll keep in mind when evaluation local, regional, and national proposals for controlling healthcare spending.

P.S.
I’ve known Karen for about 20 years, since she was the health lobbyist for the AFL-CIO and we were on a panel taking about how to improve primary care. The discussion mostly focused on how to increase the number of primary care clinicians and access in the era of emerging managed care. I particularly remember that part of the discussion involved the hazards of calling primary care clinicians “gatekeepers v. “care coordinators.” It all sounds a bit familiar doesn’t it?

Accountability in Healthcare – What People Think of the Coming Changes

Following up on my pre-Thanksgiving post, I’m reporting back on what friends and relatives think about some of the terms for new healthcare delivery entities, e.g., Accountable Care Organizations (ACOs) and Patient-Centered Medical Homes (PCMH).

What I heard is consistent with my previous conversations: People think that ACOs are like HMOs, and Medical Homes might be nursing homes, home health, or hospice, etc.  One great insight came from my cousin who is a teacher.  She told me that teachers react negatively to the word “accountability” because of the No Child Left Behind (except those who don’t measure up) law – which according to a RAND analysis from the summer of 2010 is “encouraging teachers to focus on some students at the expense of others, and discouraging the development of higher-thinking and problem-solving skills.” (Yikes! That doesn’t sound good for long-term innovation, economic growth, and international competitiveness.)

Solutions for Engaging the Public with Healthcare Transformation

I’ve been talking to a variety of people involved with health transformation at the national and local level about this information/perception gap, and am looking for ideas for raising the public’s understanding about why more team-based and coordinated care will improve quality and efficiency for them as individual patients.  If you have any thoughts on this, please feel free to comment.  In addition, I’ll be talking to more friends and families during the remainder of the holiday season about their impressions of the new terms, (such as ACOs and PCMHs), as well as the benefits of the healthcare delivery changes that are on the horizon, e.g., why the iconic one-on-one relationship with a solo Dr. Welby-like primary care physician may not be the way to get the highest quality care.