I was at a party over the weekend with a number of clinical Fellows from a major academic medical center. They were all very nice, but I had a very strange conversation with a couple of the Fellows.

The conversation became strange when one of them asked me about what I thought was the biggest healthcare spending problem.  Rather than let me fully explain what I thought, they somehow quickly pronounced that pharmaceuticals were the largest cost in the US healthcare system, implying that this was the biggest spending problem.  The strange part of this conversation was that one of them had just taken a health policy class at the public health school affiliated with their Fellowship program.

After “discussing” this with them for what seemed like 20 minutes, (but it was probably actually only 10 minutes), I convinced them that the reality was that hospitals and clinical services each represented about 30% of healthcare spending, and that pharmaceuticals were only about 10-11%.  (That 10-11% is only outpatient prescription drugs, but inpatient medicines don’t represent a major cost for hospitalizations.  And besides, payers don’t pay for inpatient pharmaceuticals as a separate cost, they pay hospitals a global fee based upon the patient’s diagnosis and severity of illness.)

Anyhow, after this conversation, the party’s host (who had been listening to our conversation from afar) came up and asked me if they were wrong – and I confirmed to him that they were – which is what he suspected.  (He’s a very smart computer scientist guy!)

So, after the party I decided to look up the actual numbers - since I can’t keep them exactly correct in my head - and according to the National Health Expenditure Data collected by the Center for Medicare and Medicaid Services,  the following pie charts display various categories for where health spending in the US went in 2006 (the latest year data is available), 1980, and the projections for 2012:

[Note – In my conversation with the two clinical Fellows, my memory wasn’t far off. In 2006 spending was: Hospitals = 30.8%, All Professional Services = 31.4%, and Prescription Drugs = 10.3%]

While this data is illuminating, I’m still bothered by these two young physicians insisting that prescription drugs are the biggest piece of health spending in the US – especially since one of them had just finished a 2.5 credit class called “Current Issues in Health Policy.”  And if these medical professionals have that magnitude of misunderstanding about our healthcare system’s finances, it’s no wonder that the average American, legislator, or media professional, is confused.  But at least it seems the computer scientists know what’s going on.

I couldn’t resist witting something about this when I saw today’s press release from HHS which announced that Terry Cline, Ph.D., the administrator of HHS’ Substance Abuse and Mental Health Services Administration is leaving that post, and starting August 31st he will be the HHS Health Attaché and representative at the U.S. Embassy in Baghdad, Iraq.

On the serious side, I’m sure he will do good things to help improve the healthcare system in Iraq.  But on the less serious side, someone (maybe Jon Stewart?), needs to ask how did this happen?  How bad did he step on someone’s toes to get moved from Rockville, MD to Bagdad? Or was he just doing intensive and personal research into abusing substances, which led him to believe that Bagdad would be a nice place to be for a while?

While I certainly hope that Dr. Cline has a safe and productive time in Iraq…. but while he’s over there, given his expertise in substance abuse, maybe he can get over to Afghanistan too, since I understand they have a bit of an issue with poppies and heroin.

One of my interests in health communications is how the findings from scientific research are presented to various stakeholder audiences.  Because of this, I was interested to see how the titles of several reports about one study of an investigational compound highlighted different perspectives.

The compound being investigated in this research was resveratrol, which has been shown to replicate the life-span extending effects of dietary restriction in lower animals.  (Resveratrol is also the component of red wine that is believed to provide various health benefits.)  The new study looked at the effects of resveratrol in mice.  The titles of the journal article of the study’s findings, the NIH’s press release and the company’s press release were:

• “Resveratrol Delays Age-Related Deterioration and Mimics Transcriptional Aspects of Dietary Restriction without Extending Life Span” (From Cell Metabolism’s web-site)
• “Resveratrol Found to Improve Health, But Not Longevity in Aging Mice on Standard Diet” (From National Institute of Aging’s web-site)
• “Long-Term Study of Middle-Aged Mice Shows Resveratrol Improves Health and Mimics Some Benefits of Dietary Restriction” (From Sitris’ web-site)

Looking at these titles it is interesting to note that the scientific journal only includes a general statement about life-span.  Conversely, the NIH’s press release specifies the study found that only the mice on the standard diet did not see any great life span.  And lastly, the title of the company’s press release doesn’t mention life-span changes and only points to the positive effects in biochemical markers of disease. However, the text of the company’s press release states, “The study also found a significant increase in lifespan in both the resveratrol treated group on a high-calorie diet and the resveratrol treated group on a calorie restriction diet, but the treatments did not extend lifespan of mice on a standard diet when started at one year of age.” But, looking at the study’s data tables, it appears that the research only found an extended life-span in the calorie restricted mice if they were given a lower dose of resveratrol, this extended life span was only significantly greater than the mice given a standard diet, and it wasnot significantly greater than the life span of the calorie restricted mice given either a higher dose of resveratrol or none at all - see supplemental table S3.

The differences in these titles isn’t surprising considering their sources, but they do illustrate the challenge facing reporters trying to communicate the results from scientific research to the general public. That is why I focused on the life-span results, since that would have the most public interest and “news worthiness.”  Thus, in this case, if reporters relied on the company’s press release, they could end up writing a story slanted one way, whereas if they relied on the NIH’s press release their article could tilt another way.  And of course, a more fundamental challenge is how many reporters have the time and scientific background to read and understand the actual journal publication.

Anyone have other perspectives or examples on this topic?

According to my calculations, sometime this month research and development spending in the United States by pharmaceutical companies will pass the $100 million per day mark.

The $100 million/day figure assumes R&D spending seven days a week, and it doesn’t include R&D spending outside the US, or spending by smaller biotech, medical device, diagnostic, or health IT firms.  By comparison, the National Institutes of Health spends about $79 million a day.

With all the reports about the slowdown in the industry’s output, higher barriers for FDA approval of new medicines, and the criticism of the industry and the FDA, I hope that the industry’s ongoing R&D investments do produce new medicines that are valuable to individual patients and society overall.

I was recently asked what I would advise the next President to make his number one public health priority.  I said exercise, and here’s why:

Increasing the physical activity of Americans will have tremendous public health benefits, since it will fundamentally help address many conditions that significantly reduce overall public health, including obesity, diabetes, cardiovascular disease, cancer, arthritis, and mental illnesses.  In addition, exercise initiatives can be constructed as public-private partnerships, built collaboratively with a number of advocacy groups, and would require minimal Federal spending.

I was reminded about the importance of exercise when I recently ran across a reference to a December 2006 Archives of Internal Medicine article reporting on a study that found weight loss in overweight 50-60 year old men and women would lead to significant bone loss in the hip and spine if it was accomplished through dieting, but not when exercise was the primary route for the weight loss.

What do you think the next President should make his highest priority for public health?

A couple of months ago I wrote about how one percent of adults in the US get free government health care.  While the statistics in the February Pew study were very interesting (and somewhat shocking), I saw a report in a local Connecticut newspaper (The Day, June 26th) that put a face on these statistics.

The Day’s story was about Jihad Abdulshaheed, a 36-year-old man who had been incarcerated since November 2007.  The judge was prepared to sentence to a one year sentence, and since he had already served at least 50% of his time, under the Department of Corrections guidelines for nonviolent prisoners he could have been released the next day.

However, this is where the story gets very interesting.  The man asked the Judge to hold off his sentencing “because he is waiting for the Department of Correction to schedule his surgery for a groin hernia.”  The newspaper also noted that the DOC’s health care budget for its 23,000 prisoners was $99.3 million.  This works out to a little more than $4,300 per prison.  It seems that finding a way to release this man, and still pay for his hernia surgery would make more sense than keeping him locked up until the DOC can pay for the surgery……. I also wonder about his follow-up care? Where will he get it - in prison or outside?  And how will that be paid for?

This man’s situation and the Pew study illustrates how communicating the essence of a healthcare story can involve statistics, analyses, and anecdotes.  The first two provides a framework if the issue, and the anecdote puts a face on that skeleton.  Each one can be powerful, but together they create a remarkable picture that can change policies, attitudes and actions.

The focus on Medicare payments to physicians for the last six months has been on the 0.5% increase Congress enacted for the first 6 months of 2008 to replace the 10.1% reduction that would have occurred under Medicare’s Sustainable Growth Rate (SGR) formula. Legislation to continue this rate for the rest of the year failed a required procedural vote in the Senate last week.* This leaves Medicare physician payments after June 30th uncertain – although it is expected that Congress will do something in the next week, or three.

However, beyond the impending Medicare 10.6% reimbursement reduction for all physicians, the Graham Center of American Academy of Family Physicians published a short report on June 13th that expands the analysis to include pending change in how Medicare reimburses physicians in Physician Scarcity Areas (PSAs), and Health Professional Shortage Areas (HPSAs). As the report’s summary table below shows, the PSA 5% reduction would effect about 25,000 primary care physicians and over 7.5 million Medicare beneficiaries. And these payment reductions would be on top of the impending 10.6% Medicare payment reduction.

With the general consensus being that we have a shortage of primary care clinicians, cutting Medicare payments to physicians in underserved areas seems truly unwise. And doing it at the same time that Medicare’s overall reimbursement formula for physicians is being so contentiously debated is really a bad idea.

If the PSA and HSPA programs would benefit by being adjusted to redefine their geographic or other targeted goals, then that should be done as part of comprehensive strategies and plans for improving Medicare’s payment system to ensure Medicare beneficiaries have continued access to physicians – particularly those providing primary care services. Making reductions to the PSA and HSPA programs right now seems like the right and left hands of government don’t know what they are doing.

* This legislation would have also implemented a 1.1% increase for 2009 instead of the SGR formula’s reduction of 5%

I’ve been following the controversy about the tax-exempt status of non-profit organizations* since several hospitals (including the major teaching hospital affiliated with my alma mater) were chastised several years ago for charging uninsured patients more than insurance companies would have paid, and then sending collection agencies after these people. This was follow-up by Congressional hearings and investigations. More recently a bill was introduced here in Massachusetts to tax college and university endowments that are over $1 billion (which includes my undergraduate alma mater), and a few days ago the New York Times had an article about this issue and a state court case denying the tax-exempt status of a daycare center.

The rationale for these inquiries, court cases and public discussions is that because these non-profit organizations are tax-free, donations to them cost the government in the form of lost taxes, so they are effectively partially supported by the government, and by extension tax-payers - and therefore, the public should expect to get some benefits in return.

Having done a fair amount of work with non-profit organizations (including Bread for the City - a great community health provider in Washington DC where I served on the Board and chaired their fundraising committee), I’ve learned a bit about non-profit finances and rules.

There are two points that I would like to point out on this issue. First, most (if not all) large non-profit organizations work out financial arrangements to the cities where they are located to help pay for municipal services like fire and police. These are called PILOTs - which stands for Payments In Lieu Of Taxes. Universities and Hospitals are major payers of PILOTs to local communities. Of course, that doesn’t in any way make up for foregone State or Federal taxes.

Second, when people donate to non-profits they do so for many reasons - often because someone they know has asked them to donate. However, what many people do not know is that non-profits are required to provide anyone who asks a copy of their annual report AND a copy of their Form 990 TAX RETURN. (The organization can charge a reasonable copying fee, and smaller non-profits may not be required to file a 990.) And with the age of the internet, it is possible to get 990 Forms on-line from GuideStar. (Registration is free.)

One key piece of information to look at in the Form 990 is how much the organization is spending on fundraising and overhead.  For example, many telephone solicitations for organizations that sound like they are helping injured veterans or your local fire and police may actually be just fundraising machines - with only a tiny bit of the funds raised actually going to provide services or benefits. (I always ask, and often they claim to not know, but sometimes they tell me the number - which is generally below 10%)

The other key factor to look at is how much does the senior staff of the organization make? I did some work for a non-profit, (which I’ll decline to identify), that plead a scarcity of funds (despite having many corporate supporters), but according to their 990, out of budget of about $2 million, their President was being paid almost $500,000 a year - so this person was getting about 25% of their entire budget. This might not be too bad, except what they haven’t produced very much, most of their meetings are closed to the public, and their major goal seems to be providing a venue for senior people from member organizations to get to know each other.

Compare this organization’s financial compensation structure and productivity with another health care related entity - Health Care for All in Massachusetts. HCFA’s head (John McDonough) was paid a bit over $100,000 in 2006 (out of a total budget of about $2.5 million), they have dozens of employees, operate a help-line for individuals seeking public benefits like health insurance and food stamps, and were a major driving force behind the passage of the Massachusetts health insurance expansion law.

This comparison also reminds me of one I did in the mid-1990s between an average major pharmaceutical company and a very well known AIDS education and advocacy organization. The pie charts showing the percentages of their spending looked almost identical - with profits being about equal to retained revenue, marketing being about equal to fundraising, and administration/overhead, research and educational spending percentages also being about the same. (I showed the non-profit’s spending pie chart to an AIDS activist - with retained earnings and fundraising relabeled as profit and marketing - and he wanted to know which Pharma company it was from.)

I make these comparisons to illustrate two point. First, before donating to any non-profit you should look into their finances - if they are reluctant to share that information, then don’t donate and run away. And second, because not all non-profits are alike, whatever legislative or regulatory changes may be considered, we shouldn’t throw the hard-working baby out with the murky bath water.

OK - I’ve vented enough for one posting. I guess the bottom line, is that both Congress and individuals should be looking at where the money from non-profit organizations is going and what good the public is getting for that money.

* There are many types of non-profit organizations under the Federal tax code, but for simplicity I’m referring to the most common - the 501(c)(3) - which is the part of the tax code for community service organizations.

Placing health reform in an historical context shows how the debate has evolved. For example, the National Bipartisan Commission on the Future of Medicare was formed to address Medicare’s projected insolvency - at a time when the overall focus for health reform was on cost containment. However, while the Commission met and deliberated, the booming economy shifted the debate away from cost containment towards access and coverage expansion, and the Commission’s 1999 final report, proposed adding an expensive outpatient drug benefit to Medicare.

Comparing two more recent perspectives on the future of the US healthcare system also illustrates how thinking about health reform evolves.

In June, 2003, (6 months before Congress passed the Medicare Modernization Act), I gave a presentation to the Presidents of the State Medical Associations about the future of the US health care system. My conclusions were:

1. We will continue to have a patchwork system of private and public delivery and financing
2. Innovations – primarily genetics/individualized medicine and information technology – will change how medicine is practiced
3. Budgetary pressures will be a prime driver of change
4. Individual empowerment will continue to increase the role patients play in their own healthcare
5. There will be growing emphasis on demonstrating actual clinical and economic outcomes as a prerequisite for payment or regulatory approval.
6. There are (were) three directions the US healthcare system can go:
   A. “Consumer Opportunity”
   B. “More Medicare”
   C. “Comprehensive Care Management”

I posited that “Comprehensive Care Management” was the most likely outcome, and that integrated care management organizations that would be responsibile for the cost and quality of a patient’s entire range of healthcare services would become more prevalent and be the best way to improve the healthcare system.

I recently had the opportunity to reflect on this presentation while listening to Dr. David Blumenthal (Director of the Institute of Health Policy at Massachusetts General Hospital) give brief keynote remarks about the future of US healthcare to a group of policy interested medical residents. His top-line comments about where the US healthcare system is heading in the next several decades were:

1. The economy is a key indicator of healthcare spending – countries with higher per capita GDP spend a higher percentage of their GDP on healthcare.
2. Technology is changing the nature of clinical medicine as well as patient-physician interactions and relationships. In the future, these relationships will likely be more collaborative.
3. The private insurance market will change over the coming decades, with movement away from the current employer-based model to more individual based insurance decisions.
4. Making changes in Federal laws and programs will be very different after the 2008 election, and changes in Congress may be more important than changes at the Presidential level
5. Globalization will affect medicine, with more international delivery of medical care.
6. Change is going to be more of a constant feature of healthcare. Success in the future will require being ready for change, embracing change, and managing change.
   

First, Dr. Blumenthal’s comments where much more coherent than mine. And second, although I disagree with his views on the eventual demise of the employer based insurance system, it is valuable to see how the health reform debate has evolved because of real-world changes over the last 5 years:

• The use of information technology by physicians in care delivery is no longer speculation
• Genomics-based diagnostics and therapies are now realities
• Safety and quality are much more prominent issues in the public debate
• Budgetary issue are still important, and the pendulum is in the process of swinging from how do we pay for universal coverage to how do we contain costs as part of an overall strategy for promoting economic growth.

There will continue to be lots of debate about health reform – particularly during this election year, and in the next Congress. I don’t think we’ll see the singular focus on health reform like we had in 1991-94, but it will certainly be a big topic for the President, the Congress and the Country, and as Dr. Blumenthal noted (and I wrote last month), the economy will be a major influence on public and private health reform discussions and actions.

What do you think will happen, and when?

Cost Containment
Controlling Healthcare Costs
Reducing Health care Spending
Eliminating Waste, Fraud and Abuse
Creating More Value from Healthcare Spending
Increasing Cost Effectiveness for the Healthcare Dollar

These are the types of headlines and catch phrases that we are going to see over the next 6 months as the healthcare focus in the 2008 elections zeros in on spending and costs.

A couple of weeks ago I wrote about how the economy has become the #1 issues of concern for the 2008 elections. Because of this, costs and spending will be the major focus for the political debate about healthcare reform. The two main traction points within these political messages and speeches will be about how healthcare spending is:

• Draining resources from the rest of the economy
• Increasing the public’s concern about becoming unemployed because it could mean losing their health insurance

As CNN recently pointed out, how to actually reduce spending – or at least lower the growth rate for spending – is the $2 Trillion puzzle. One of the harsh realities is that there is often very little connection between a candidate’s proposals for solving a problem and their ability to actually use those proposals to address the problem – because either the solutions won’t do much, or the politics won’t let them implement their proposals. As H.L. Menken said, “For every complex problem there is an answer that is clear, simple, and wrong.”

While each of the three remaining major candidates’ healthcare proposals has been widely discussed, it will be informative to see how they reposition themselves around reducing costs and spending. The Democratic candidates in particular have focused on increasing coverage, so how they add to or modify their positions will be particularly interesting to see.

It will also be worth watching how different advocacy groups position themselves along the continuum from increasing access to controlling spending ­– and what their proposals actually say.

For example, I noted an ad from the American Medical Association (AMA) that ran in the National Journal a couple of weeks ago, (and I presume in other policy oriented publications), that laid out 4 things they support for “controlling rising healthcare costs”:

1. Disease prevention and wellness programs
2. Comparative effectiveness research
3. Eliminating excessive administrative costs
4. Value-based decision making

These all sound good, but how effective would they be to actual control rising healthcare costs? This obviously would depend upon what time frame you’re using to measure costs, and whose costs you’re measuring. Nevertheless, Professor Stuart Altman – one of the very best health policy people I know – last fall laid out in ranked order ways to limit the growth in health spending. (See page 41 of his presentation) According to his assessment, the effectiveness of the AMA’s proposals range from “Very Limited Impact” for #1, to the better end of “Limited Impact” for #2 and #3, and possibly “Greater Impact” for #4, but I’m not really certain what the AMA means by “Value-based decision making,” because value to whom is always an important question.

Before I leave this issue (for now), I also want to point out that one of the easiest political message points in this area is to propose “reducing waste, fraud and abuse.” Since nobody is for “waste, fraud and abuse” this has great traction with voters, but it is important to remember that eliminating any part of the up to 50% of healthcare spending that is estimated to be wasted, is a lot harder than it sounds for two fundamental reasons. First, these waste calculations often don’t account for the healthcare delivery system’s need for “surge capacity.” For example, rarely do hospital emergency rooms run at truly full capacity, but they need to be staffed most of the time to do so, since emergencies aren’t planned and their treatment can’t be rescheduled for a slower time. Second, what may be considered waste in one analysis is generally someone’s salary, and is represented by an advocacy organization that will resist efforts to reduce the size of their piece of the pie.

I have a friend who thinks that the situation has gotten so bad that the political barriers to a single-payer healthcare system will be breached - since that’s the “best” way to control costs – and that’s what we’ll have in a few years. I don’t agree with his perspectives, and think we’ll have continued rationale migration towards a more efficient and coordinated system – particularly once the economy picks up again.

What are your favorite proposals for reducing healthcare spending?