Paradigm Lost: Provider Concentration And The Failure Of Market Theory

By Bruce C. Vladeck
Health Affairs, May 19, 2014 (online)

The belated rediscovery of provider prices as a significant contributor to the high costs of US health care (although the data were there in the literature all along), coupled with the presumed role of provider concentration in producing some of the upward pressure on prices, has created a serious conundrum for those who seek to apply conventional economic reasoning to matters of health policy. The conundrum arises from the conflict between the presumed per se undesirability of increased concentration and the fact that many of the causes of that increase may themselves be highly desirable — or at least practically unavoidable.

The dilemma posed for policy makers and analysts arises from the assumption that increased concentration is intrinsically a bad thing, even though many good things seem to be happening as provider concentration progresses. On the one hand, the number of independent health care providers appears to be decreasing as a result of hospital mergers and acquisitions, the agglomeration of physicians into larger and larger group practices, and the alignment of physician practices with hospitals. The relationship between increased provider concentration and increased prices has long been conventional wisdom (even if recent data and analyses have called that wisdom at least partially into question). Ergo, such increases in concentration should be opposed.

On the other hand, at least some of the factors driving increased concentration are widely believed to improve care and population health, or at least to encourage greater efficiency in the delivery of health care services. These factors include growing clinical integration across previously atomized providers; the dramatic reduction in use of inpatient services, which decreases the number of full-service hospitals needed in any given market; the mandatory adoption of expensive information technologies; and the growing experimentation with payment schemes in which providers bear at least some degree of financial risk.

Sage: ‘Getting The Product Right’

Sage is trying to address the very real and very significant costs of the inefficiency that permeates the US health care system. Recognizing that the power to influence prices that comes with increased market power theoretically reduces the incentives for efficiency, Sage proposes to reduce that power by redefining what health care payers buy. This, in turn, would presumably give consumers greater ability to make informed, price-sensitive decisions about which health services they wished to consume.

Antitrust analysis is generally complicated in markets with differentiated products. Sage’s proposal would either exacerbate that problem or require the creation of a new authoritative regulatory structure to determine exactly how new products should be defined.

Ginsburg And Pawlson: Let Consumers Decide What To Buy

The authors’ theory seems to be that if increased provider consolidation limits the ability of insurers to exert downward pressure on prices, then the solution to high prices is transferring an increasing share of the purchasing function to individual consumers through higher out-of-pocket liabilities and the development of tiered networks, which offer different prices to consumers with ostensibly different preferences. However, this prescription only exacerbates the underlying problem. No matter how much information — the magical potion in many market-based approaches to health policy — atomized consumers may have, it is almost certainly less than that of even the most indolent insurance company.

Ginsburg and Pawlson also appear to be in favor of narrowing provider networks as a way of reducing providers’ leverage in negotiations with payers and thereby holding prices down. They note that in the 1990s such policies engendered significant consumer resistance because of the restrictions they imposed on access to providers. However, they seem not to mind the fact that such resistance may be minimized in the future by the growing inability of many households to afford the kind of health care they prefer. Such an approach not only fails to counteract the growing economic inequality in this country but also appears to legitimate it.

The Myth Of The Sovereign Consumer

One effect of changes in health financing in the past two decades is unavoidably clear, if too often overlooked or minimized in importance by the health policy community: The average individual with health insurance is considerably worse off now than twenty years ago. Out-of-pocket payments are much higher, for both premiums and copayments; cash on the barrelhead is increasingly required for services that used to be provided first and billed for afterward; and the numbers of avaricious debt collectors and medically related bankruptcies continue to soar.

At the same time, consumers are regularly inundated with self-serving or downright erroneous information from health insurers, providers, and entrepreneurs alike about health care services and their use that carries the implicit message that any illness or financial difficulty is essentially the fault of the consumer.

It is ironic that the increased unaffordability of routine health care is exactly the problem that historically led to the creation of health insurance programs in both the public and private sectors. Those who are quick to applaud the expected demise of employer-sponsored coverage in the United States overlook the extent to which large employers, eager at least to not offend their employees, historically used their purchasing power with insurers to protect those employees (as well as to maintain an enormous de facto cross-subsidization of the less healthy employees and family members by the healthier ones).

Of course, government insurance programs wield this purchasing power more directly, more openly, and—when it comes to the effect on provider prices and the minimization of out-of-pocket liabilities for individual households—far more effectively. In other words, Medicare and Medicaid, and their beneficiaries, are much less at risk of increased prices resulting from provider concentration than are most private insurers or privately insured people.

Those who are uneasy about further increasing the government’s role in minimizing price growth in health care might do well to compare today’s high-deductible plans to the historical experience of Blue Cross plans with private-sector monopoly control (which hardly ever paid hospitals more than their actual costs) and first-dollar coverage.

As a proud former rate setter in both state and federal governments, I confess to an absence of alarm at these authors’ recognition that if none of their nostrums work, rate regulation may become increasingly unavoidable. But I am skeptical of the political likelihood of a return to rate setting; nor am I entirely convinced of its desirability. The exercise of government power is one way to constrain sellers in concentrated markets, but not the only one.

It is conceivable, for instance, that one explanation of the relatively low rate of hospital price increases in recent years is that private insurers, in response to some of the first- and second-order pressures generated by the Affordable Care Act, are actually negotiating aggressively with hospitals, instead of just passing on increases to their customers or enrollees, as was standard practice in the past.

Instead of continuing to try to impose axiomatic and solipsistic theories on a reality to which they increasingly fail to apply, we need to figure out what kind of health care system we really want and how much we are prepared to pay for it. Then we need to invent or reconfigure the social institutions that we will have to have to get that system.

http://content.healthaffairs.org/content/early/2014/05/13/hlthaff.2014.0336

Comment:

By Don McCanne, MD

In health care, there is plenty of evidence that cooperation benefits patients much more than does competition. Working together to provide the best care for the patient is far better than competing to obtain the best business outcome for the health care providers. The current increasing consolidation in the health care delivery system shines light on these conflicting dynamics.

In this paper, Bruce Vladeck provides a perspective in response to different views of this topic released in online papers and presented at a Health Affairs briefing this morning, sponsored by The Commonwealth Fund. Although the discussion was primarily about the impact of provider concentration in the health care marketplace, the issues go well beyond that.

As Vladeck mentions, historically the Blue Cross plans exerted private sector monopoly control while providing first dollar coverage. Now the coverage has deteriorated, impairing access to care and leaving patients exposed to major costs. The dynamic that we need to be looking at is not the balance between the market clout of the consolidating health care providers and the purchasing power of insurers as representatives of the payers, rather the important dynamic, again according to Vladeck, should be configuration of the social institutions that will allow us to pay for the health care system that we really want.

Although Vladeck suggests that insurers may have become more aggressive price negotiators, he nevertheless makes it clear that the government price setters – Medicare and Medicaid – have had much more clout.

Consolidation that improves efficiency, effectiveness and access for the benefit of the patient is great. Other nations have shown that you do not need to limit consolidation or concentration to prevent overpricing in such imbalanced markets. All you need is government price administration such as we would have with a single payer financing system. That would eliminate the superfluous private insurers with their wasteful administrative excesses and inefficiencies that stem from our dysfunctional fragmentation of health care financing.

Paradigm Lost: Provider Concentration And The Failure Of Market Theory

By Bruce C. Vladeck
Health Affairs, May 19, 2014 (online)

The belated rediscovery of provider prices as a significant contributor to the high costs of US health care (although the data were there in the literature all along), coupled with the presumed role of provider concentration in producing some of the upward pressure on prices, has created a serious conundrum for those who seek to apply conventional economic reasoning to matters of health policy. The conundrum arises from the conflict between the presumed per se undesirability of increased concentration and the fact that many of the causes of that increase may themselves be highly desirable — or at least practically unavoidable.

The dilemma posed for policy makers and analysts arises from the assumption that increased concentration is intrinsically a bad thing, even though many good things seem to be happening as provider concentration progresses. On the one hand, the number of independent health care providers appears to be decreasing as a result of hospital mergers and acquisitions, the agglomeration of physicians into larger and larger group practices, and the alignment of physician practices with hospitals. The relationship between increased provider concentration and increased prices has long been conventional wisdom (even if recent data and analyses have called that wisdom at least partially into question). Ergo, such increases in concentration should be opposed.

On the other hand, at least some of the factors driving increased concentration are widely believed to improve care and population health, or at least to encourage greater efficiency in the delivery of health care services. These factors include growing clinical integration across previously atomized providers; the dramatic reduction in use of inpatient services, which decreases the number of full-service hospitals needed in any given market; the mandatory adoption of expensive information technologies; and the growing experimentation with payment schemes in which providers bear at least some degree of financial risk.

Sage: ‘Getting The Product Right’

Sage is trying to address the very real and very significant costs of the inefficiency that permeates the US health care system. Recognizing that the power to influence prices that comes with increased market power theoretically reduces the incentives for efficiency, Sage proposes to reduce that power by redefining what health care payers buy. This, in turn, would presumably give consumers greater ability to make informed, price-sensitive decisions about which health services they wished to consume.

Antitrust analysis is generally complicated in markets with differentiated products. Sage’s proposal would either exacerbate that problem or require the creation of a new authoritative regulatory structure to determine exactly how new products should be defined.

Ginsburg And Pawlson: Let Consumers Decide What To Buy

The authors’ theory seems to be that if increased provider consolidation limits the ability of insurers to exert downward pressure on prices, then the solution to high prices is transferring an increasing share of the purchasing function to individual consumers through higher out-of-pocket liabilities and the development of tiered networks, which offer different prices to consumers with ostensibly different preferences. However, this prescription only exacerbates the underlying problem. No matter how much information — the magical potion in many market-based approaches to health policy — atomized consumers may have, it is almost certainly less than that of even the most indolent insurance company.

Ginsburg and Pawlson also appear to be in favor of narrowing provider networks as a way of reducing providers’ leverage in negotiations with payers and thereby holding prices down. They note that in the 1990s such policies engendered significant consumer resistance because of the restrictions they imposed on access to providers. However, they seem not to mind the fact that such resistance may be minimized in the future by the growing inability of many households to afford the kind of health care they prefer. Such an approach not only fails to counteract the growing economic inequality in this country but also appears to legitimate it.

The Myth Of The Sovereign Consumer

One effect of changes in health financing in the past two decades is unavoidably clear, if too often overlooked or minimized in importance by the health policy community: The average individual with health insurance is considerably worse off now than twenty years ago. Out-of-pocket payments are much higher, for both premiums and copayments; cash on the barrelhead is increasingly required for services that used to be provided first and billed for afterward; and the numbers of avaricious debt collectors and medically related bankruptcies continue to soar.

At the same time, consumers are regularly inundated with self-serving or downright erroneous information from health insurers, providers, and entrepreneurs alike about health care services and their use that carries the implicit message that any illness or financial difficulty is essentially the fault of the consumer.

It is ironic that the increased unaffordability of routine health care is exactly the problem that historically led to the creation of health insurance programs in both the public and private sectors. Those who are quick to applaud the expected demise of employer-sponsored coverage in the United States overlook the extent to which large employers, eager at least to not offend their employees, historically used their purchasing power with insurers to protect those employees (as well as to maintain an enormous de facto cross-subsidization of the less healthy employees and family members by the healthier ones).

Of course, government insurance programs wield this purchasing power more directly, more openly, and—when it comes to the effect on provider prices and the minimization of out-of-pocket liabilities for individual households—far more effectively. In other words, Medicare and Medicaid, and their beneficiaries, are much less at risk of increased prices resulting from provider concentration than are most private insurers or privately insured people.

Those who are uneasy about further increasing the government’s role in minimizing price growth in health care might do well to compare today’s high-deductible plans to the historical experience of Blue Cross plans with private-sector monopoly control (which hardly ever paid hospitals more than their actual costs) and first-dollar coverage.

As a proud former rate setter in both state and federal governments, I confess to an absence of alarm at these authors’ recognition that if none of their nostrums work, rate regulation may become increasingly unavoidable. But I am skeptical of the political likelihood of a return to rate setting; nor am I entirely convinced of its desirability. The exercise of government power is one way to constrain sellers in concentrated markets, but not the only one.

It is conceivable, for instance, that one explanation of the relatively low rate of hospital price increases in recent years is that private insurers, in response to some of the first- and second-order pressures generated by the Affordable Care Act, are actually negotiating aggressively with hospitals, instead of just passing on increases to their customers or enrollees, as was standard practice in the past.

Instead of continuing to try to impose axiomatic and solipsistic theories on a reality to which they increasingly fail to apply, we need to figure out what kind of health care system we really want and how much we are prepared to pay for it. Then we need to invent or reconfigure the social institutions that we will have to have to get that system.

http://content.healthaffairs.org/content/early/2014/05/13/hlthaff.2014.0336

In health care, there is plenty of evidence that cooperation benefits patients much more than does competition. Working together to provide the best care for the patient is far better than competing to obtain the best business outcome for the health care providers. The current increasing consolidation in the health care delivery system shines light on these conflicting dynamics.

In this paper, Bruce Vladeck provides a perspective in response to different views of this topic released in online papers and presented at a Health Affairs briefing this morning, sponsored by The Commonwealth Fund. Although the discussion was primarily about the impact of provider concentration in the health care marketplace, the issues go well beyond that.

As Vladeck mentions, historically the Blue Cross plans exerted private sector monopoly control while providing first dollar coverage. Now the coverage has deteriorated, impairing access to care and leaving patients exposed to major costs. The dynamic that we need to be looking at is not the balance between the market clout of the consolidating health care providers and the purchasing power of insurers as representatives of the payers, rather the important dynamic, again according to Vladeck, should be configuration of the social institutions that will allow us to pay for the health care system that we really want.

Although Vladeck suggests that insurers may have become more aggressive price negotiators, he nevertheless makes it clear that the government price setters – Medicare and Medicaid – have had much more clout.

Consolidation that improves efficiency, effectiveness and access for the benefit of the patient is great. Other nations have shown that you do not need to limit consolidation or concentration to prevent overpricing in such imbalanced markets. All you need is government price administration such as we would have with a single payer financing system. That would eliminate the superfluous private insurers with their wasteful administrative excesses and inefficiencies that stem from our dysfunctional fragmentation of health care financing.

California consumers say duped by Blue Shield’s limited Obamacare plans

By Terry Baynes
Reuters, May 15, 2014

Consumers who purchased new health plans from Blue Shield of California have sued the insurer, claiming they were misled into thinking the insurance would cover their desired doctors and hospitals.

In their complaint filed in California state court on Wednesday, San Francisco residents John Harrington and Alex Talon accused Blue Shield of misrepresenting that their plans, sold on California’s health exchange, would cover the full provider network advertised on the company’s website.

They sued on behalf of a class of people who had purchased so-called “preferred provider organization” plans from the insurer only to realize that the doctor and hospital networks for their plans were limited.

Harrington bought a so-called silver plan on California’s online exchange while Talon bought a platinum plan through the insurer’s website. They said they made their choices based on Blue Shield’s alleged representations that their doctors would be covered.

After receiving medical treatment numerous times between January and March, Harrington and Talon later discovered that their providers were not covered, forcing them to pay the charges out-of-pocket, the complaint said.

http://www.reuters.com/article/2014/05/15/us-usa-healthcare-blueshield-idUSBREA4E0VN20140515

****

Recording seems to refute claims made by Anthem

By David Lazarus
Los Angeles Times, May 15, 2014

David Cienfuegos said his wife was told by Anthem Blue Cross that his doctor was part of the insurer’s coverage network, but then was left with the tab for about $5,800 in medical costs after Anthem insisted that it never said any such thing.

In this case, though, Cienfuegos, 40, has a digital recording of the Anthem rep clearly saying his surgery would be covered.

And he’s suing to hold the insurer accountable.

In its Feb. 19 letter rejecting Cienfuegos’ appeal, Anthem said the company’s own records show that “no specific provider was mentioned in the conversation nor was it noted you were misinformed about participating status for this specific provider in question.”

That’s just b-i-z-a-r-r-e.

Cienfuegos’ wife can be heard on the recording spelling out the provider’s name, and the Anthem rep can be heard confirming both his in-network status and that the procedure would be covered.

http://www.latimes.com/business/la-fi-lazarus-20140516-column.html

****

Comment:

By Don McCanne, MD

One of the more important reasons given for using private health plans as a basis of reform was that they were working well and people were happy with them. The Blues – Blue Cross and Blue Shield – were held out as prime examples of well functioning plans. Although patients did not like being restricted to provider networks, the lists were quite comprehensive, so it worked. But now…

Both the Blue Shield and the Blue Cross plans in California are using more restricted networks in Covered California – the insurance exchange under the Affordable Care Act. Even the plans with the highest coverage – the platinum plans – are using these narrower networks.

It is a problem enough for the patients who are having difficulty finding out which physicians and hospitals are on the plan, but these anecdotal accounts confirm that the insurers are not a reliable source of that information either. And when the insurers are wrong, they still have the chutzpah to try to make their own clients absorb the losses.

Not only do individuals frequently change their coverage, the provider lists also frequently change. Since the lists are now narrower, there is a much greater probability that patients will lose continuity of care because of the unstable coverage and unstable networks.

There will be many more lawsuits like these, which may then cause the insurers to relax their restrictions. Yet far too many will still be caught in this out-of-network trap. And the insurers will not stop there. They will introduce yet more market innovations that will be designed to reduce their obligation to pay for health care. After all, they are businesses, not public service organizations.

Enough. Time for a single payer national health program.

California consumers say duped by Blue Shield’s limited Obamacare plans

By Terry Baynes
Reuters, May 15, 2014

Consumers who purchased new health plans from Blue Shield of California have sued the insurer, claiming they were misled into thinking the insurance would cover their desired doctors and hospitals.

In their complaint filed in California state court on Wednesday, San Francisco residents John Harrington and Alex Talon accused Blue Shield of misrepresenting that their plans, sold on California’s health exchange, would cover the full provider network advertised on the company’s website.

They sued on behalf of a class of people who had purchased so-called “preferred provider organization” plans from the insurer only to realize that the doctor and hospital networks for their plans were limited.

Harrington bought a so-called silver plan on California’s online exchange while Talon bought a platinum plan through the insurer’s website. They said they made their choices based on Blue Shield’s alleged representations that their doctors would be covered.

After receiving medical treatment numerous times between January and March, Harrington and Talon later discovered that their providers were not covered, forcing them to pay the charges out-of-pocket, the complaint said.

http://www.reuters.com/article/2014/05/15/us-usa-healthcare-blueshield-i…

****

Recording seems to refute claims made by Anthem

By David Lazarus
Los Angeles Times, May 15, 2014

David Cienfuegos said his wife was told by Anthem Blue Cross that his doctor was part of the insurer’s coverage network, but then was left with the tab for about $5,800 in medical costs after Anthem insisted that it never said any such thing.

In this case, though, Cienfuegos, 40, has a digital recording of the Anthem rep clearly saying his surgery would be covered.

And he’s suing to hold the insurer accountable.

In its Feb. 19 letter rejecting Cienfuegos’ appeal, Anthem said the company’s own records show that “no specific provider was mentioned in the conversation nor was it noted you were misinformed about participating status for this specific provider in question.”

That’s just b-i-z-a-r-r-e.

Cienfuegos’ wife can be heard on the recording spelling out the provider’s name, and the Anthem rep can be heard confirming both his in-network status and that the procedure would be covered.

http://www.latimes.com/business/la-fi-lazarus-20140516-column.html

One of the more important reasons given for using private health plans as a basis of reform was that they were working well and people were happy with them. The Blues – Blue Cross and Blue Shield – were held out as prime examples of well functioning plans. Although patients did not like being restricted to provider networks, the lists were quite comprehensive, so it worked. But now…

Both the Blue Shield and the Blue Cross plans in California are using more restricted networks in Covered California – the insurance exchange under the Affordable Care Act. Even the plans with the highest coverage – the platinum plans – are using these narrower networks.

It is a problem enough for the patients who are having difficulty finding out which physicians and hospitals are on the plan, but these anecdotal accounts confirm that the insurers are not a reliable source of that information either. And when the insurers are wrong, they still have the chutzpah to try to make their own clients absorb the losses.

Not only do individuals frequently change their coverage, the provider lists also frequently change. Since the lists are now narrower, there is a much greater probability that patients will lose continuity of care because of the unstable coverage and unstable networks.

There will be many more lawsuits like these, which may then cause the insurers to relax their restrictions. Yet far too many will still be caught in this out-of-network trap. And the insurers will not stop there. They will introduce yet more market innovations that will be designed to reduce their obligation to pay for health care. After all, they are businesses, not public service organizations.

Enough. Time for a single payer national health program.

Measuring Low-Value Care in Medicare

By Aaron L. Schwartz, BA; Bruce E. Landon, MD, MBA; Adam G. Elshaug, PhD, MPH; Michael E. Chernew, PhD; J. Michael McWilliams, MD, PhD
JAMA Internal Medicine, May 12, 2014

Abstract

Importance:  Despite the importance of identifying and reducing wasteful health care use, few direct measures of overuse have been developed. Direct measures are appealing because they identify specific services to limit and can characterize low-value care even among the most efficient providers.

Objectives:  To develop claims-based measures of low-value services, examine service use (and associated spending) detected by these measures in Medicare, and determine whether patterns of use are related across different types of low-value services.

Design, Setting, and Participants:  Drawing from evidence-based lists of services that provide minimal clinical benefit, we developed 26 claims-based measures of low-value services. Using 2009 claims for 1 360 908 Medicare beneficiaries, we assessed the proportion of beneficiaries receiving these services, mean per-beneficiary service use, and the proportion of total spending devoted to these services. We compared the amount of use and spending detected by versions of these measures with different sensitivity and specificity. We also estimated correlations between use of different services within geographic areas, adjusting for beneficiaries’ sociodemographic and clinical characteristics.

Main Outcomes and Measures:  Use and spending detected by 26 measures of low-value services in 6 categories: low-value cancer screening, low-value diagnostic and preventive testing, low-value preoperative testing, low-value imaging, low-value cardiovascular testing and procedures, and other low-value surgical procedures.

Results:  Services detected by more sensitive versions of measures affected 42% of beneficiaries and constituted 2.7% of overall annual spending. Services detected by more specific versions of measures affected 25% of beneficiaries and constituted 0.6% of overall spending. In adjusted analyses, low-value spending detected in geographic regions at the 5th percentile of the regional distribution of low-value spending ($227 per beneficiary) exceeded the difference in detected low-value spending between regions at the 5th and 95th percentiles ($189 per beneficiary). Adjusted regional use was positively correlated among 5 of 6 categories of low-value services (mean r for pairwise, between-category correlations, 0.33; range, 0.14-0.54; P ≤ .01).

Conclusions and Relevance:  Services detected by a limited number of measures of low-value care constituted modest proportions of overall spending but affected substantial proportions of beneficiaries and may be reflective of overuse more broadly. Performance of claims-based measures in supporting targeted payment or coverage policies to reduce overuse may depend heavily on how the measures are defined.

Excerpts from the Discussion

In this national study of selected low-value services, Medicare beneficiaries commonly received care that was likely to provide minimal or no benefit on average. Even when applying narrower versions of our limited number of measures of overuse, we identified low-value care affecting one-quarter of Medicare beneficiaries. These findings are consistent with the notion that wasteful practices are pervasive in the US health care system.

Although these findings suggest that direct approaches to measuring wasteful care may be tractable and informative, other findings underscore potential challenges in developing and applying direct measures of overuse. In particular, the amount of low-value care we detected varied substantially with the clinical specificity of our measures. Estimates of the proportion of Medicare beneficiaries receiving at least 1 measured low-value service decreased from 42% to 25% when we used more restrictive definitions that traded off sensitivity for specificity, and the contribution of low-value spending to total spending decreased from 2.7% to 0.6%.

Thus, the performance of administrative rules to reduce overuse through coverage policy, cost sharing, or value-based payment (eg, pay for performance) may depend heavily on measure definition. Such strategies may be appropriate for select services whose value is invariably low or whose low-value applications can be identified with high reliability. For other services, however, more sensitive measures could result in unintended restriction of appropriate tests and procedures by coverage and payment policies, whereas more specific measures could substantially limit the effect of these strategies. Provider groups seeking to minimize wasteful spending — for example, in response to global budgets — may be able to distinguish appropriate from inappropriate practices at the point of care without having to use rigid rules derived from incomplete clinical data.

Although our analysis suggests that common drivers of low-value care exist, our study did not identify specific determinants of wasteful care. Factors associated with low-value care may also be associated with high-value care.

http://archinte.jamanetwork.com/article.aspx?articleid=1868536&utm

****

Comment:

By Don McCanne, MD

As we look for methods of slowing the increases in health care spending, much attention is being given to devising methods of identifying and reducing the amount of unnecessary care provided today. This article contributes to that discussion by showing the potential impact of measuring low-value care in Medicare patients. The results are quite disappointing.

When more sensitive versions of the measures were used, a very large number of Medicare beneficiaries were found to be receiving services categorized as low-value, but they were unable to determine whether or not the care provided was actually wasteful in the various clinical circumstances. Thus policies that would reduce these services could result in “unintended restriction of appropriate tests and procedures by coverage and payment policies.”

When more specific versions of the measures were used, the potential cost savings were very small, thus “substantially limit(ing) the effect of these strategies.” Adjusting between sensitivity and specificity trades off the inappropriate labeling of beneficial care as being of low-value, with the failure to identify enough of the clinical instances that were truly of low-value. Regardless of the sensitivity or specificity, mistakes will be made in classifying what truly is or is not low-value care.

As a cost saving measure, it would appear that such an approach would be administratively complex with costs that could offset a significant proportion of the very modest gains in recovery of charges for low-value care.

The authors note that health care professionals working within global budgets “may be able to distinguish appropriate from inappropriate practices at the point of care without having to use rigid rules derived from incomplete clinical data.” Clinical judgement trumps empirical computer algorithms.

It is not as if the policy community does not already know how to recover some of the profound waste in our system. Just the administrative savings alone recovered by adopting a single payer system would be enough to pay for the care that people are not now receiving that they should be. But our policymakers don’t seem to be giving up in their anything-but-single-payer pursuit of cost containment in health care. Their obsession is pathological.

Measuring Low-Value Care in Medicare

By Aaron L. Schwartz, BA; Bruce E. Landon, MD, MBA; Adam G. Elshaug, PhD, MPH; Michael E. Chernew, PhD; J. Michael McWilliams, MD, PhD
JAMA Internal Medicine, May 12, 2014

Abstract

Importance:  Despite the importance of identifying and reducing wasteful health care use, few direct measures of overuse have been developed. Direct measures are appealing because they identify specific services to limit and can characterize low-value care even among the most efficient providers.

Objectives:  To develop claims-based measures of low-value services, examine service use (and associated spending) detected by these measures in Medicare, and determine whether patterns of use are related across different types of low-value services.

Design, Setting, and Participants:  Drawing from evidence-based lists of services that provide minimal clinical benefit, we developed 26 claims-based measures of low-value services. Using 2009 claims for 1 360 908 Medicare beneficiaries, we assessed the proportion of beneficiaries receiving these services, mean per-beneficiary service use, and the proportion of total spending devoted to these services. We compared the amount of use and spending detected by versions of these measures with different sensitivity and specificity. We also estimated correlations between use of different services within geographic areas, adjusting for beneficiaries’ sociodemographic and clinical characteristics.

Main Outcomes and Measures:  Use and spending detected by 26 measures of low-value services in 6 categories: low-value cancer screening, low-value diagnostic and preventive testing, low-value preoperative testing, low-value imaging, low-value cardiovascular testing and procedures, and other low-value surgical procedures.

Results:  Services detected by more sensitive versions of measures affected 42% of beneficiaries and constituted 2.7% of overall annual spending. Services detected by more specific versions of measures affected 25% of beneficiaries and constituted 0.6% of overall spending. In adjusted analyses, low-value spending detected in geographic regions at the 5th percentile of the regional distribution of low-value spending ($227 per beneficiary) exceeded the difference in detected low-value spending between regions at the 5th and 95th percentiles ($189 per beneficiary). Adjusted regional use was positively correlated among 5 of 6 categories of low-value services (mean r for pairwise, between-category correlations, 0.33; range, 0.14-0.54; P ≤ .01).

Conclusions and Relevance:  Services detected by a limited number of measures of low-value care constituted modest proportions of overall spending but affected substantial proportions of beneficiaries and may be reflective of overuse more broadly. Performance of claims-based measures in supporting targeted payment or coverage policies to reduce overuse may depend heavily on how the measures are defined.

Excerpts from the Discussion

In this national study of selected low-value services, Medicare beneficiaries commonly received care that was likely to provide minimal or no benefit on average. Even when applying narrower versions of our limited number of measures of overuse, we identified low-value care affecting one-quarter of Medicare beneficiaries. These findings are consistent with the notion that wasteful practices are pervasive in the US health care system.

Although these findings suggest that direct approaches to measuring wasteful care may be tractable and informative, other findings underscore potential challenges in developing and applying direct measures of overuse. In particular, the amount of low-value care we detected varied substantially with the clinical specificity of our measures. Estimates of the proportion of Medicare beneficiaries receiving at least 1 measured low-value service decreased from 42% to 25% when we used more restrictive definitions that traded off sensitivity for specificity, and the contribution of low-value spending to total spending decreased from 2.7% to 0.6%.

Thus, the performance of administrative rules to reduce overuse through coverage policy, cost sharing, or value-based payment (eg, pay for performance) may depend heavily on measure definition. Such strategies may be appropriate for select services whose value is invariably low or whose low-value applications can be identified with high reliability. For other services, however, more sensitive measures could result in unintended restriction of appropriate tests and procedures by coverage and payment policies, whereas more specific measures could substantially limit the effect of these strategies. Provider groups seeking to minimize wasteful spending — for example, in response to global budgets — may be able to distinguish appropriate from inappropriate practices at the point of care without having to use rigid rules derived from incomplete clinical data.

Although our analysis suggests that common drivers of low-value care exist, our study did not identify specific determinants of wasteful care. Factors associated with low-value care may also be associated with high-value care.

http://archinte.jamanetwork.com/article.aspx?articleid=1868536&utm

As we look for methods of slowing the increases in health care spending, much attention is being given to devising methods of identifying and reducing the amount of unnecessary care provided today. This article contributes to that discussion by showing the potential impact of measuring low-value care in Medicare patients. The results are quite disappointing.

When more sensitive versions of the measures were used, a very large number of Medicare beneficiaries were found to be receiving services categorized as low-value, but they were unable to determine whether or not the care provided was actually wasteful in the various clinical circumstances. Thus policies that would reduce these services could result in “unintended restriction of appropriate tests and procedures by coverage and payment policies.”

When more specific versions of the measures were used, the potential cost savings were very small, thus “substantially limit(ing) the effect of these strategies.” Adjusting between sensitivity and specificity trades off the inappropriate labeling of beneficial care as being of low-value, with the failure to identify enough of the clinical instances that were truly of low-value. Regardless of the sensitivity or specificity, mistakes will be made in classifying what truly is or is not low-value care.

As a cost saving measure, it would appear that such an approach would be administratively complex with costs that could offset a significant proportion of the very modest gains in recovery of charges for low-value care.

The authors note that health care professionals working within global budgets “may be able to distinguish appropriate from inappropriate practices at the point of care without having to use rigid rules derived from incomplete clinical data.” Clinical judgement trumps empirical computer algorithms.

It is not as if the policy community does not already know how to recover some of the profound waste in our system. Just the administrative savings alone recovered by adopting a single payer system would be enough to pay for the care that people are not now receiving that they should be. But our policymakers don’t seem to be giving up in their anything-but-single-payer pursuit of cost containment in health care. Their obsession is pathological.

High Cancer Drug Prices in the United States: Reasons and Proposed Solutions

By Hagop Kantarjian, MD, David Steensma, MD, Judit Rius Sanjuan, Adam Elshaug, MPH, PhD and Donald Light, PhD
Journal of Oncology Practice, May 6, 2014

The increase in cancer drug prices in the last 15 years has many contributing factors and is harming our patients and our health care system. It represents to many cancer experts a crossing of a moral line between reasonable profits and profiteering, in a situation involving a human catastrophe: patients who have developed cancer, and who may die because they cannot afford the treatment. With typical out-of-pocket expenses of 20% to 30%, the financial burden of cancer treatment would be $20,000 to 30,000 a year, nearly half of the average annual household income in the United States. Many patients (estimated 10% to 20%) may decide not to take the treatment or may compromise significantly on the treatment plan. This difficult situation poses three relevant questions: (1) Are cancer drug prices too high? (2) Are they hurting patients and our health care system? and (3) Can we do something about it? The answer to each is affirmative. It is also our obligation as cancer doctors to keep patients from “harm and injustice.” If high prices make drugs unaffordable and inaccessible, thus causing harm, then we should voice our concerns and advocate for solutions.

What would be a just price for a cancer drug? A simple answer would be a price that recognizes that most risks and costs of development are borne by the public through tax breaks and public funding, so that cancer drugs are affordable. The prices would maintain reasonable profits to drug companies but remain fair, accessible and affordable to patients and to the health care system.

What are some potential solutions? The United States is on the precipice of great change in how we measure value in health care. In a recent survey of US oncologists, 80% favored more use of cost-effectiveness data in coverage decisions. In 2011, the American College of Physicians outlined the position that “There should be a transparent and publicly acceptable process for making health resource allocation decisions with a focus on medical efficacy, clinical effectiveness, and need, with consideration of cost based on the best available medical evidence.” Several solutions could help reduce cancer drug prices. Reviewing and reducing the research bureaucracy and burdens could eliminate unnecessary steps that increase cost, delay timelines, and shorten drug patent times. Allowing Medicare to negotiate drug prices, eliminating pay-for-delay strategies; allowing importation of drugs from abroad for personal use; and allowing PCORI and other cancer advocacy groups, experts, or committees to consider cost in their recommendations, would all enhance the capacity of market forces to produce more reasonable cancer drug prices. Professional societies representing cancer specialists and advocating for cancer patients should be involved in reducing the hype around new cancer drugs that do not have a major impact on patient outcomes. They could also develop pathways and guidelines that incorporate estimates of a drug “value” (benefit, toxicities, cost, etc). A broad-based group representing cancer experts, PCORI, patients and their advocates, regulatory bodies, and pharmaceutical and insurance companies could review the new drugs for their cost and benefit after US Food and Drug Administration approval, and formulate cancer treatment pathways that incorporate the costs and benefits of cancer drugs. Such structures are in place in many other countries. These include, for instance, the Pharmaceutical Benefits Scheme in Australia, the Pharmaceutical Market Restructuring Act in Germany (AMNOG; affects prices in 31 countries), and others (Canada, United Kingdom, New Zealand, France, etc). These structures have been documented to result in more reasonable cancer drug prices (based on expected benefits), which improves affordability and promotes high levels of access for the population. For manufacturers, this creates predictable markets with strong drug penetration, and ultimately generates better profits to drug companies.

http://jop.ascopubs.org/content/early/2014/05/06/JOP.2013.001351.abstract

Comment:

By Don McCanne, MD

As this article indicates, there are many things that could be done to reduce prices of, not just cancer drugs, but all new drugs that enter the market with exorbitant pricing. Just think how much easier this would be under a single payer system.