It’s been recently reported in the NYTimes and by the AARP that drug prices have suddenly increased by as much as 9% on average since the beginning of the year. The increase is such a turnaround in trends that the pharmaceutical industry’s largest market surveillance organization had to re-issue its guidance for the year. This is while more and more drugs are being ADDED to the generic formularies, and retailers are implementing competing programs to WalMart’s $4.00 generic extravaganza. I was pleased to find my local Hannaford Brothers Pharmacy not only with a cheap generic program, but offering a list of oral antibiotics that are now FREE! We know that nothing is free so I dug further.

And, I wasn’t surprised when I randomly took one family member’s prescription to the test to see what I could find in pharmaceutical value.  The news may not be surprising to to the NYTimes, but let me just confirm for all of you value-conscious shoppers, it is becoming a “shell game”…even with the alleged transparency on pricing. Where is the value going?

The sample prescription is Accutane, a popular brand medicine for the treatment of acne. Anyone with a teenager might know this one. It comes in several generics, and is typically expensive they tell me because of the safety and compliance rules surrounding its use. The patient must agree to monthly blood tests, take a monthly on-line pledge screening and show their special membership card to prove they remain in compliance. Only then can the patient get the prescription. I’ll pay for that safety, because it is part of the value of what I get.  But what has changed recently to influence the price of that?

The retail price in the last 4 months has gone from $294.99 to $650.01 for a typical 30-day supply and the generic has gone from $222.78 to $412.21 for the same. That’s a whopping 200% increase!!! Wow!

I asked the pharmacists what was going on and they said that “prices were now changing daily, faster than they had ever seen”. So much so I found  that Web sites that once posted prices, now have the typical insurance company disclaimer that “prices are valid only at the time of dispensing, and subject to change”. One pharmacy chain is having so many people question the prices in their Healthy Saver Plus program that they won’t tell you the price until the drug is dispensed! Are we going backwards with pharmaceutical transparency and value?

I checked my trusty Canadian pharmacy and the Accutane brand was one half the US price and the generic was 40% of the US cost. Same products, same manufacturers delivered to my door via the U.S. Postal Service, now that is value!

I am not the only one who thought it was curious that the Pharmaceutical lobby was so quite on the new pharmaceutical industry tax imposed as part of the legislation moving through the House. I also thought it was interesting that the conditions the pharmaceutical industry would be placed under for price negotiations under health reform were also surprisingly without discord. So, the Secretary in her infinite wisdom is going to get the best price from the pharmaceutical industry? Right!

The pharmaceutical industry is shooting itself in the foot with this kind of behavior. It has recently echoed around Washington that “there are few statesmen when it comes to health reform”, and this is just one more example of how value is falling in healthcare. Shame on the pharmaceutical industry for being so callous, you are anything but statesmen, maybe our only real hope is WalMart.

John Morrow

At first glance, this would appear to be a significant and positive change for the future financial stability of hospitals. Under the old bill, the government plan would have had such an enormous advantage over private insurers in terms of what it paid providers in general and hospitals in particular that it was hard to see how the private insurers could survive. Their decline and eventual demise would have eventually reset provider rates across the country to Medicare rates, which do not cover the cost of operating hospitals by today’s standards.  Furthermore, the Health Choices Commissioner (HCC) was given power to restructure the payment methodology for providers that potentially could have caused even more havoc in the industry (the Bill still allows for experimentation with the Medicare payment methodology).

However, after reading the new House Bill that just got passed by the House, it appears there really is not much of a reprieve for providers if this Bill or something like it becomes law. The (HCC) was given even more powers to regulate the private insurance industry than the previous bill. These new powers in essence make all the private insurers de facto government run plans. The single most important new power is to approve annual premium increases. This gives the HCC the same power that the States have over their public utilities. There are several big differences however.  In my state, the Corporation Commission that has control over the public utilities rates is governed by an elected Board. They are not accountable to the State’s governor. The decisions of the Corporation Commission also do not significantly affect the State budget. As expensive as utilities can be, they do not make or break the State budget. By this bill, the HCC will be accountable only to the President and will have a powerful voice in how much the federal government pays for healthcare. The federal budget for this program will be significant and it will be very politically sensitive. 

The future HCC is going to face the inevitable squeeze of being between a rock and a hard place. As premiums continue to increase faster than inflation (as there are no cost reducing measures in this bill), the cost of the government provided affordability credits (subsidies to low income individuals and families to buy insurance) will rise as well. This will increase the pressure of the program on the government budget at a time when deficits are already projected to be high. One way to mitigate this budgetary pressure will be to fix the value of the affordability credits. If this is done however, the share of the premiums that lower income people will have to pay out of their own pocket will become unaffordable. This will be politically unacceptable. The other alternative will be to just tell the insurers that they cannot raise their rates as much as requested. This will be much more politically acceptable and reduce the pressure of the program on the government deficit.

By the time the above occurs, the insurers will also be restricted by the government’s target of maintaining at least an 85% medical loss ratio. As a result, they will not have the resources (or power) to implement tough new utilization standards that could help them reduce costs. They will not have any choice but to deny providers’ rate increase requests, the only cost they will be able to control (the government also dictates the benefit structure of each plan). Providers will not really have any alternative to accepting what the insurers offer because all the insurers will be forced to operate almost exactly alike. Providers could receive a double punch at this time. In recent years, providers have negotiated new rates with insurers to not only cover their increasing costs, but to also make up for the inadequate increases of Medicare and Medicaid. If the federal and state governments are limiting increases to providers through these programs at the same time, providers will feel enormous financial stress.

Eventually insurers and providers may again choose to experiment with capitation contracts (it is likely such a change would require government approval). Powerless insurers will want providers to take more risk for utilization and prices. Providers may prefer to take risk rather than accept pricing limits hoping that they can implement effective utilization and cost controls on their own. It seems that no matter what eventually occurs with healthcare reform, hospitals will have to become very innovative in lowering their costs.

(that are never properly considered)

Two healthcare reform proposals have dominated the debate to date; the public option and how to finance the additional cost for universal coverage. However, there are some other significant changes in the House Bill that the general public would find hard to understand that would nevertheless dramatically change the healthcare system if passed.

The new Health Commissioner that will oversee the Health Choices Administration will have enormous powers over the new healthcare exchange and private QHBPs (qualified health benefit plans). The healthcare exchange will act much as the Massachusetts Connector and provide a marketplace for individuals and small employers to purchase insurance. In essence, it will allow individuals and small employers to increase their purchasing power by forcing insurers to put them into large risk pools.

Some of the requirements in the House Bill for QHBPs are as follows:

• May not consider pre-existing conditions
• Guaranteed issue and renewability
• Premium rate variability:
  • Age – limited to 2-1 ratio from most expensive age group to least expensive
  • By area
  • By family make-up; ratio to individual premium must be consistent
• Parity in mental health and substance abuse benefits to medical benefits
• Must meet minimal medical loss ratio established by Commissioner; if does not meet it must make a refund to subscribers
• No annual or lifetime limitations
• No deductibles or co-pays for preventive services
• Limit to annual out-of-pocket expenses; $5,000  per individual, $10,000 per family
• Basic plan benefits must cover 70% of the expected cost of healthcare for the population; enhanced plan must cover 85% and premium plan must cover 95%

Some of the powers of the Health Commissioner are as follows:

• Commissioner has right to determine adequacy of network and force an insurer to pay in-network rates where their contracted network is deemed inadequate
• Commissioner can adjust premiums revenues among plans to adjust for adverse selection
• Under the public option, the provider payment mechanisms and policies may be changed from the Medicare methodology to include patient-centered medical home and other care organizations, value based purchasing, bundling of services, differential payment rates, performance or utilization based payments, partial capitation, and direct contracting with providers.

                The Unintended Consequences of Healthcare Reform – #1
                The Unintended Consequences of Healthcare Reform – #2
                The Unintended Consequences of Healthcare Reform – #3 Part 1
                The Unintended Consequences of Healthcare Reform – #3 Part 2
                The Unintended Consequences of Healthcare Reform – #4

Native defenders of the Canadian system are firing back at American critics. These Canadians defenders refute the allegations that there are long waiting lines for elective services, that many Canadians come to the US for care they cannot get or wait to receive in Canada, and that Canadians are unhappy with their system. They have some impressive statistics from a government study (Healthy Canadians: Canadian government report on comparable healthcare indicators) that back their arguments.  

• The median wait time in Canada to see a specialty physician is a little over four weeks with 89.5% waiting less than 3 months.
• The median wait time for diagnostic services such as MRI and CAT scans is two weeks with 86.4% waiting less than 3 months.
• The median wait time for surgery is four weeks with 82.2% waiting less than 3 months.
• The median wait time in Canada to see a specialty physician is a little over four weeks with 89.5% waiting less than 3 months.
• 85.2% of Canadians reported that they were “satisfied” or “very satisfied” with the way health care services are provided in their country and an even higher number (89.8%) rated their physician in the same way though slightly lower ratings were awarded to hospitals (79.9% being “satisfied” or “very satisfied”).
• Only an estimated .5% of Canadians get their care in the US (Canadian National Population Health Survey Study).

People in the US may be able to get services faster than described above, but for many people getting insurance authorization for different procedures increases the waiting time closer to what Canadians experience. It is also doubtful that the extra wait times in Canada are significant to their clinical outcomes.

In the hyperbole of the debate however, the real difference in the US and Canadian systems is being missed. A 2005 report  by the Canadian Institute for Health Information (Medical Imaging in Canada) comparing MRI and CT utilization in the US and Canada highlights the real differences in the two systems.

The U.S. performed more than three times the number of MRI exams, reporting 83.2 MRI exams per 1,000 population in 2004–2005, compared to 25.5 in Canada and 19.0 in England. When comparing CT exams per population, the U.S. performed nearly double the exams, with 172.5 CT exams per 1,000 population, compared to 87.3 in Canada (Medical Imaging in Canada; Canadian Institute for Health Information).

 A very old study shows a similar pattern for coronary artery bypass surgery (Use of coronary artery bypass surgery in the United States and Canada. Influence of age and income; Institute for Clinical Evaluative Sciences, Ontario, Canada 1993)

There is little doubt that there would be similar findings with other clinical services. The real debate then should be about the value of the “extra” tests and procedures being done in the US, who should decide what is valuable, and who is going to pay for those decisions? Currently, physicians and their insured patients decide what is valuable and then send the bill to the government or their employer who have little to no say in the decision. This is the most untenable of situations. Demand for services far outstrip the value they produce. A popular number in the literature is that 30% of all healthcare services provided in the US are unnecessary.

 In a single payer system run by the government, the government is going to decide what is valuable. In a true free market system, the patient decides with advice from his or her doctor and then pays for that decision. As employers cut back on insurance benefits for their employees and in the absence so far of a significant government takeover, the US is moving toward the free market approach by default.  No matter whether the US moves toward a free market system by default or a single payer system by law, the utilization of elective healthcare services per capita is going to eventually decline and that is something providers better start considering in their long term future plans.

   2009-2010 HospitalValueIndex™ Findings

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