PNHP

Big Pharma's Hidden Business Model and How Your Company Funds It

Big Pharma's Hidden Business Model and How Your Company Funds It

By Donald W. Light
Harvard Business Review, Sept. 12, 2012

Business executives may not know it, but they are wasting billions of their gross profits on ineffective, even harmful drugs in their health plans. That’s one implication of the study Joel Lexchin and I just published in the BMJ (formerly British Medical Journal).

The study assembles considerable evidence about the hidden business model of major pharmaceutical companies: to devote most of their research budget to developing hundreds of drugs that provide few if any advantages over existing drugs and then market them heavily to doctors and patients. As a result, about 80 percent of increased expenditures for drugs goes to paying for these minor variations.

Even worse, testing for harmful side effects is minimal when new drugs are approved by the FDA as “safe.” And only 10-15 percent are clinically superior, according to independent review bodies. So employers and employees end up paying for treating the side effects as well as overpaying for new drugs with few advantages to offset risks of harms. The chances that a newly approved drug will get a severe, black box warning or be withdrawn for serious side effects is about 20 percent over its lifetime.

Drug companies also develop clinically superior new drugs, which enlarge the medicine chest of effective drugs that greatly benefit millions of people. But while they are waiting for the next big breakthrough, companies have to fill their product line with clinically similar drugs to market as “better” than their competitors’ similar drugs. Even new molecules are usually not clinically superior. Equating “innovative” with new molecules misses the point: to develop clinically superior new medicines.

The apparent business model of Big Pharma emphasizes the billions spent at great risk to find “innovative” and “breakthrough” new molecules that must be priced high to recover research costs that have become “unsustainable.” However, revenues have increased six times more than their increased costs for research—hardly “unsustainable.” This handsome return comes from the hidden business model that generates billions in costs for employers and employees.

The FDA approves new drugs as “safe” and “effective” with little evidence that they are either in regular medical practice. In fact, industry-friendly regulations prohibit the FDA from using comparative effectiveness to approve new drugs. That would be un-American because it would jeopardize “innovation” and high-tech research jobs. Of course, the opposite is true: requiring new drugs to be clinically superior would foster true innovation and stop rewarding pseudo-innovation.

Since companies test their own products—an obvious conflict of interest—they naturally design clinical trials to maximize evidence that they are beneficial and minimize evidence they are harmful. For example, they randomly sample from a pool that excludes people most likely to have adverse reactions, like patients with two or more health problems, women, children, and minorities. Many trials run for only a few months, long enough to gather evidence of a drug’s main effects but too short to pick up evidence of many harmful reactions.

Then drug companies retain teams of science writers and editors to shape the published medical literature in order to persuade doctors that new drugs are more effective and safer than they are. Systematic reviews find that sponsored scientific articles almost always conclude the company’s drug is better. Negative results are usually not published at all. Employees and their physicians thus get biased information about biased trials. At Harvard’s Edmond J. Safra Center for Ethics, some fellows study how these institutional practices corrupt medical science and clinical practice.

The bottom line is that prescription drugs have become the 4th leading cause of death and a leading cause of hospitalizations, accidents, and falls. See “The Risks of Prescription Drugs” (Columbia 2010). These cost employers even more in hidden ways. Most of the estimated 50 million adverse side effects suffered by Americans each year are minor: nausea, headaches, muscle and joint pain, itchiness and rashes, dizziness, depression, and feeling tired. But these decrease productivity and compromise good judgment on the job and off.

Driving all this are employers paying top dollar for new drugs that are little or no better than much cheaper, well-established drugs. Employers hold the key to sending clear market signals to Big Pharma—pay no more than generics for no better clinical value, a bit more for a bit more value, and only a lot more for significantly more value. The point is not to cut prices but to price to reward better patient outcomes.

It’s so obvious, and employers think they are managing drug costs through their pharmacy benefit managers (PBMs) and insurers. But PBMs and insurers profit from costs increasing, even as they talk a good game of holding down costs. And they do not draw on international review bodies to inform employers about the many new drugs with little added value.

No PBM (a uniquely American middleman who takes his cut) is doing what the Germans are doing for their employers—assessing the marginal gain of new drugs and paying only for greater value. The European trade association for pharmaceutical companies cries foul: how dare the new German agency for better value compare new patented drugs with older generics! But why not? Isn’t the point to see if the new ones are better than the old ones in the same class that cost a fraction as much?—How dare the new Germany agency undermine innovative research! But paying more only for better products is good business practice and rewards true innovation instead of pseudo-innovation.

Senator Bernie Sanders of Vermont has another proposal: reward research teams or companies with a large sum directly and quickly if they develop superior drugs for unmet needs and buy out the IP rights so that all drugs can be available at low generic prices from the start. It speeds up the innovation cycle (which otherwise has to wait for sales at patent-protected high prices), and it keeps health care costs down. Lower costs, more true innovation.

Donald W. Light is a resident fellow at the Edmond J. Safra Center for Ethics, Harvard University, and professor of comparative health care at the University of Medicine and Dentistry of New Jersey.

http://blogs.hbr.org/cs/2012/09/big_pharmas_hidden_business_model_and_how_your_company_funds_it.html

The BMJ article that professor Light refers to is titled “Pharmaceutical research and development: what do we get for all that money?” published on Aug. 7, 2012. BMJ 2012;345:e4348

Big Pharma’s Hidden Business Model and How Your Company Funds It

By Donald W. Light
Harvard Business Review, Sept. 12, 2012

Business executives may not know it, but they are wasting billions of their gross profits on ineffective, even harmful drugs in their health plans. That’s one implication of the study Joel Lexchin and I just published in the BMJ (formerly British Medical Journal).

The study assembles considerable evidence about the hidden business model of major pharmaceutical companies: to devote most of their research budget to developing hundreds of drugs that provide few if any advantages over existing drugs and then market them heavily to doctors and patients. As a result, about 80 percent of increased expenditures for drugs goes to paying for these minor variations.

Even worse, testing for harmful side effects is minimal when new drugs are approved by the FDA as “safe.” And only 10-15 percent are clinically superior, according to independent review bodies. So employers and employees end up paying for treating the side effects as well as overpaying for new drugs with few advantages to offset risks of harms. The chances that a newly approved drug will get a severe, black box warning or be withdrawn for serious side effects is about 20 percent over its lifetime.

Drug companies also develop clinically superior new drugs, which enlarge the medicine chest of effective drugs that greatly benefit millions of people. But while they are waiting for the next big breakthrough, companies have to fill their product line with clinically similar drugs to market as “better” than their competitors’ similar drugs. Even new molecules are usually not clinically superior. Equating “innovative” with new molecules misses the point: to develop clinically superior new medicines.

The apparent business model of Big Pharma emphasizes the billions spent at great risk to find “innovative” and “breakthrough” new molecules that must be priced high to recover research costs that have become “unsustainable.” However, revenues have increased six times more than their increased costs for research—hardly “unsustainable.” This handsome return comes from the hidden business model that generates billions in costs for employers and employees.

The FDA approves new drugs as “safe” and “effective” with little evidence that they are either in regular medical practice. In fact, industry-friendly regulations prohibit the FDA from using comparative effectiveness to approve new drugs. That would be un-American because it would jeopardize “innovation” and high-tech research jobs. Of course, the opposite is true: requiring new drugs to be clinically superior would foster true innovation and stop rewarding pseudo-innovation.

Since companies test their own products—an obvious conflict of interest—they naturally design clinical trials to maximize evidence that they are beneficial and minimize evidence they are harmful. For example, they randomly sample from a pool that excludes people most likely to have adverse reactions, like patients with two or more health problems, women, children, and minorities. Many trials run for only a few months, long enough to gather evidence of a drug’s main effects but too short to pick up evidence of many harmful reactions.

Then drug companies retain teams of science writers and editors to shape the published medical literature in order to persuade doctors that new drugs are more effective and safer than they are. Systematic reviews find that sponsored scientific articles almost always conclude the company’s drug is better. Negative results are usually not published at all. Employees and their physicians thus get biased information about biased trials. At Harvard’s Edmond J. Safra Center for Ethics, some fellows study how these institutional practices corrupt medical science and clinical practice.

The bottom line is that prescription drugs have become the 4th leading cause of death and a leading cause of hospitalizations, accidents, and falls. See “The Risks of Prescription Drugs” (Columbia 2010). These cost employers even more in hidden ways. Most of the estimated 50 million adverse side effects suffered by Americans each year are minor: nausea, headaches, muscle and joint pain, itchiness and rashes, dizziness, depression, and feeling tired. But these decrease productivity and compromise good judgment on the job and off.

Driving all this are employers paying top dollar for new drugs that are little or no better than much cheaper, well-established drugs. Employers hold the key to sending clear market signals to Big Pharma—pay no more than generics for no better clinical value, a bit more for a bit more value, and only a lot more for significantly more value. The point is not to cut prices but to price to reward better patient outcomes.

It’s so obvious, and employers think they are managing drug costs through their pharmacy benefit managers (PBMs) and insurers. But PBMs and insurers profit from costs increasing, even as they talk a good game of holding down costs. And they do not draw on international review bodies to inform employers about the many new drugs with little added value.

No PBM (a uniquely American middleman who takes his cut) is doing what the Germans are doing for their employers—assessing the marginal gain of new drugs and paying only for greater value. The European trade association for pharmaceutical companies cries foul: how dare the new German agency for better value compare new patented drugs with older generics! But why not? Isn’t the point to see if the new ones are better than the old ones in the same class that cost a fraction as much?—How dare the new Germany agency undermine innovative research! But paying more only for better products is good business practice and rewards true innovation instead of pseudo-innovation.

Senator Bernie Sanders of Vermont has another proposal: reward research teams or companies with a large sum directly and quickly if they develop superior drugs for unmet needs and buy out the IP rights so that all drugs can be available at low generic prices from the start. It speeds up the innovation cycle (which otherwise has to wait for sales at patent-protected high prices), and it keeps health care costs down. Lower costs, more true innovation.

Donald W. Light is a resident fellow at the Edmond J. Safra Center for Ethics, Harvard University, and professor of comparative health care at the University of Medicine and Dentistry of New Jersey.

http://blogs.hbr.org/cs/2012/09/big_pharmas_hidden_business_model_and_how_your_company_funds_it.html

The BMJ article that professor Light refers to is titled “Pharmaceutical research and development: what do we get for all that money?” published on Aug. 7, 2012. BMJ 2012;345:e4348

Medicare's failure to protect personal finances

Out-of-Pocket Spending in the Last Five Years of Life

By Amy S. Kelley, Kathleen McGarry, Sean Fahle, Samuel M. Marshall, Qingling Du and Jonathan S. Skinner
Journal of General Internal Medicine, September 5, 2012

Abstract

Background
 
A key objective of the Medicare program is to reduce risk of financial catastrophe due to out-of-pocket healthcare expenditures. Yet little is known about cumulative financial risks arising from out-of-pocket healthcare expenditures faced by older adults, particularly near the end of life.

Design

Using the nationally representative Health and Retirement Study (HRS) cohort, we conducted retrospective analyses of Medicare beneficiaries’ total out-of-pocket healthcare expenditures over the last 5 years of life.

Participants
 
We identified HRS decedents between 2002 and 2008; defined a 5 year study period using each subject’s date of death; and excluded those without Medicare coverage at the beginning of this period (n = 3,209).

Main Measures

We examined total out-of-pocket healthcare expenditures in the last 5 years of life and expenditures as a percentage of baseline household assets. We then stratified results by marital status and cause of death. All measurements were adjusted for inflation to 2008 US dollars.

Results

Average out-of-pocket expenditures in the 5 years prior to death were $38,688 for individuals and $51,030 for couples in which one spouse dies. Spending was highly skewed, with the median and 90th percentile equal to $22,885 and $89,106, respectively, for individuals, and $39,759 and $94,823, respectively, for couples. Overall, 25% of subjects’ expenditures exceeded baseline total household assets, and 43% of subjects’ spending surpassed their non-housing assets. Among those survived by a spouse, 10% exceeded total baseline assets and 24% exceeded non-housing assets. By cause of death, average spending ranged from $31,069 for gastrointestinal disease and $66,155 for Alzheimer’s disease.

Conclusion
 
Despite Medicare coverage, elderly households face considerable financial risk from out-of-pocket healthcare expenses at the end of life. Disease-related differences in this risk complicate efforts to anticipate or plan for health-related expenditures in the last 5 years of life.

http://www.springerlink.com/content/427m88565153p76k/

And…

Grappling With Details of Medicare Proposals

By Roni Caryn Rabin
The New York Times, September 17, 2012

The (Medicare reform) proposals keep changing, and some are short on details. No one is certain what health care costs will be in the coming years.

Still, it’s clear the proposed changes would shift costs from the federal government to retirees. “All scenarios will require seniors to pay more,” said Robert Moffit, senior fellow at the Heritage Foundation, a conservative research organization in Washington. To think otherwise, he said, “is a fantasy.”

http://well.blogs.nytimes.com/2012/09/17/grappling-with-details-of-medicare-proposals/

Comment: 

By Don McCanne, MD

In spite of having Medicare coverage, out-of-pocket health care expenditures can be devastating for seniors. Current proposals to reduce government entitlement spending on Medicare would shift even more costs to our seniors.

Premium support voucher proposals for Medicare would create a defined contribution which would shift more costs to all Medicare beneficiaries, when only the wealthier could afford the increase. That won’t work.

Since many already can’t pay their current out-of-pocket costs, proposals have been advanced to index costs to income by charging higher premiums, higher cost sharing and/or reducing benefits for the wealthier. That process has already begun with Part B and Part D premiums now based on income. That risks reducing support by the politically connected affluent, which could clear the way for enactment of destructive government policies, especially if the conservatives gained control. The threat from the liberals is bad enough.

On the other hand, lower income individuals could be given support beyond that of Medicare. Again, that is already happening through the dual-eligible program for both Medicare and Medicaid. The risk is that the dual-eligible program would be considered a welfare program for the poor, and would be budgeted accordingly. That is already happening as the federal and state governments are well along in the process of herding these victims into underfunded, low quality, private Medicaid managed care programs (see https://pnhp.org/news/2012/september/herding-dual-eligibles-into-low-quality-plans).

Obviously Medicare needs a lot of improvement before we convert it into a single payer national health program. We need to go in the opposite direction from where the politicians currently are headed. Instead of slashing it under the budget hawks’ call for cutting back on entitlements, we need to expand its coverage so that it doesn’t leave anyone with the devastating out-of-pocket expenses associated with complex and prolonged medical care.

Even though more would be spent through the Medicare program (i.e., through the tax system), the efficiencies of single payer would not increase our total health care costs, and, more importantly, would slow future health care cost increases to sustainable levels. It’s not that we can’t afford to expand Medicare; it’s that we can’t afford not to.

Medicare’s failure to protect personal finances

Out-of-Pocket Spending in the Last Five Years of Life

By Amy S. Kelley, Kathleen McGarry, Sean Fahle, Samuel M. Marshall, Qingling Du and Jonathan S. Skinner
Journal of General Internal Medicine, September 5, 2012

Abstract

Background
 
A key objective of the Medicare program is to reduce risk of financial catastrophe due to out-of-pocket healthcare expenditures. Yet little is known about cumulative financial risks arising from out-of-pocket healthcare expenditures faced by older adults, particularly near the end of life.

Design

Using the nationally representative Health and Retirement Study (HRS) cohort, we conducted retrospective analyses of Medicare beneficiaries’ total out-of-pocket healthcare expenditures over the last 5 years of life.

Participants
 
We identified HRS decedents between 2002 and 2008; defined a 5 year study period using each subject’s date of death; and excluded those without Medicare coverage at the beginning of this period (n = 3,209).

Main Measures

We examined total out-of-pocket healthcare expenditures in the last 5 years of life and expenditures as a percentage of baseline household assets. We then stratified results by marital status and cause of death. All measurements were adjusted for inflation to 2008 US dollars.

Results

Average out-of-pocket expenditures in the 5 years prior to death were $38,688 for individuals and $51,030 for couples in which one spouse dies. Spending was highly skewed, with the median and 90th percentile equal to $22,885 and $89,106, respectively, for individuals, and $39,759 and $94,823, respectively, for couples. Overall, 25% of subjects’ expenditures exceeded baseline total household assets, and 43% of subjects’ spending surpassed their non-housing assets. Among those survived by a spouse, 10% exceeded total baseline assets and 24% exceeded non-housing assets. By cause of death, average spending ranged from $31,069 for gastrointestinal disease and $66,155 for Alzheimer’s disease.

Conclusion
 
Despite Medicare coverage, elderly households face considerable financial risk from out-of-pocket healthcare expenses at the end of life. Disease-related differences in this risk complicate efforts to anticipate or plan for health-related expenditures in the last 5 years of life.

http://www.springerlink.com/content/427m88565153p76k/

And…

Grappling With Details of Medicare Proposals

By Roni Caryn Rabin
The New York Times, September 17, 2012

The (Medicare reform) proposals keep changing, and some are short on details. No one is certain what health care costs will be in the coming years.

Still, it’s clear the proposed changes would shift costs from the federal government to retirees. “All scenarios will require seniors to pay more,” said Robert Moffit, senior fellow at the Heritage Foundation, a conservative research organization in Washington. To think otherwise, he said, “is a fantasy.”

http://well.blogs.nytimes.com/2012/09/17/grappling-with-details-of-medicare-proposals/

Comment: 

By Don McCanne, MD

In spite of having Medicare coverage, out-of-pocket health care expenditures can be devastating for seniors. Current proposals to reduce government entitlement spending on Medicare would shift even more costs to our seniors.

Premium support voucher proposals for Medicare would create a defined contribution which would shift more costs to all Medicare beneficiaries, when only the wealthier could afford the increase. That won’t work.

Since many already can’t pay their current out-of-pocket costs, proposals have been advanced to index costs to income by charging higher premiums, higher cost sharing and/or reducing benefits for the wealthier. That process has already begun with Part B and Part D premiums now based on income. That risks reducing support by the politically connected affluent, which could clear the way for enactment of destructive government policies, especially if the conservatives gained control. The threat from the liberals is bad enough.

On the other hand, lower income individuals could be given support beyond that of Medicare. Again, that is already happening through the dual-eligible program for both Medicare and Medicaid. The risk is that the dual-eligible program would be considered a welfare program for the poor, and would be budgeted accordingly. That is already happening as the federal and state governments are well along in the process of herding these victims into underfunded, low quality, private Medicaid managed care programs (see https://www.pnhp.org/news/2012/september/herding-dual-eligibles-into-low-quality-plans).

Obviously Medicare needs a lot of improvement before we convert it into a single payer national health program. We need to go in the opposite direction from where the politicians currently are headed. Instead of slashing it under the budget hawks’ call for cutting back on entitlements, we need to expand its coverage so that it doesn’t leave anyone with the devastating out-of-pocket expenses associated with complex and prolonged medical care.

Even though more would be spent through the Medicare program (i.e., through the tax system), the efficiencies of single payer would not increase our total health care costs, and, more importantly, would slow future health care cost increases to sustainable levels. It’s not that we can’t afford to expand Medicare; it’s that we can’t afford not to.

Raise the eligibility age for Medicare? No, the price is too high

By Aaron E. Carroll, M.D.
The Wall Street Journal, Sept. 18, 2012

Whenever a debate begins on how to cut Medicare spending, someone “sensibly” suggests raising the eligibility age to 67 from 65. The reasons for this are always presented as obvious “facts”:

People are living so much longer than they did when Medicare was enacted that it only makes sense to raise the age at which Medicare begins; with other safety nets and programs in place, only relatively wealthy people would be affected; and, of course, it would save a whole lot of money.

The problem is that all of these things are wrong. Raising the eligibility age is a bad idea.

Disparity in Longevity

It’s a bad idea because it’s a regressive way to cut Medicare. Life expectancy at age 65 has gone up over the past four decades, but it hasn’t gone up equally. A 2007 study showed that while earners in the top half of incomes saw life expectancy at 65 increase more than five years since 1977, earners in the bottom half saw an increase of barely more than a year. So raising the eligibility age likely will result in a significant number of people receiving less years of Medicare overall than people did when the program was enacted. We’re punishing the poor, not correcting for improved health and longevity.

It’s a bad idea because it will raise the number of uninsured dramatically. Stating the obvious, if the Affordable Care Act is repealed and nothing replaces it, then most of those 65- and 66-year-olds won’t be able to get affordable insurance unless they’re employed. Many aren’t.

Even with the law, though, many will become uninsured. The Congressional Budget Office estimates that 95% of affected seniors will be able to get coverage from an employer or through the ACA. But some who qualify for Medicaid will fail to enroll. Some won’t be able to buy health insurance, even with government subsidies. According to estimates from the Kaiser Family Foundation, half of the affected seniors would have incomes too high to qualify for exchange subsidies, and since insurance companies can charge the elderly more under the ACA, their premiums could reach up to $12,000 annually for an individual. Many won’t be able to afford that. Yes, seniors making up to 300% of the federal poverty line may end up paying less, but that’s only one-third of the affected group. The other two-thirds will pay more.

It’s a bad idea because it will be bad for health. Studies have shown that uninsured adults nearly eligible for Medicare often forgo care until they get Medicare and then use more care once they get in. Looking carefully at people just before and after they turn 65, researchers found that uninsured adults with hypertension, heart disease, stroke or diabetes all had significant improvements in health after they got Medicare. Delaying eligibility means delaying these improvements.

It’s a bad idea because it will cost America money, not save it. This is the hardest reason to swallow, but it’s true. The CBO estimates that raising the eligibility age would save the federal government $148 billion through 2021. But that figure doesn’t take into account all the new spending that would occur.

New Spending

The Kaiser Family Foundation examined what would happen in 2014 alone if this idea was put into effect. Washington would see $24 billion in Medicare savings. But it also would see a rise of about $9 billion in Medicaid spending and another $9 billion in subsidy spending, which would reduce the overall savings to about $5.7 billion.

But all those 65- and 66-year-olds need insurance. Those who get it through their jobs would cost employers another $4.5 billion. Others would go to the exchanges. But, ironically, removing these people from the Medicare risk pool and adding them to the exchanges makes both groups less healthy, so everyone’s premiums would go up. This would cost all Americans another $2.5 billion. States have to cover a portion of the new Medicaid spending. That’s $700 million. Finally, there are the out-of-pocket costs to seniors, which may rise by $3.7 billion.

So to save the federal government $5.7 billion, the rest of America has to cough up $11.4 billion. That makes no sense.

As for the idea that encouraging seniors to stay in the workforce longer would boost productivity and make up for some of that pain, I suggest the opposite may be true. We don’t have enough jobs to go around now. By holding on to jobs, seniors would prevent businesses from hiring younger workers, who are cheaper to employ.

Raising the eligibility age is a bad idea. We need a better one.

Dr. Carroll is associate professor of pediatrics and the associate director of Children’s Health Services Research at the Indiana University School of Medicine. He is also the director of the Center for Health Policy and Professionalism Research. Email him at reports@wsj.com.

http://online.wsj.com/article/SB10000872396390443864204577623700185012824.html?KEYWORDS=carroll+the+price+is+too+high+medicare

Single-payer health care still best solution

By John Raffensperger, M.D.
The News-Press (Fort Myers, Fla.), Sept. 18, 2012

Fishing is one of the main reasons people come to Southwest Florida. Most of us need a guide to find the fish.

One morning recently, I met my guide at Blind Pass on Sanibel and set off to fish the mangroves and sand holes. He found the right spot and we caught a few fish. During a lull, our conversation turned to health care. Neither of us had health insurance.

My guide, being self-employed, could not pay for health insurance, which would cost more than the mortgage on his home. He was most concerned about how he would pay for a catastrophic event, a situation he had already met when his wife had two major operations.

We both agreed that Obamacare would help people in his situation, but that a single-payer system would be a better solution.

During 40 years of pediatric surgical practice, I became angry when the insurance companies and HMOs refused to pay for a child’s admission to the hospital the day before an operation. They also insisted on children being discharged while they were still in pain and in danger of complications such as bleeding. A child with a corrected birth defect would later be considered to have a “pre-existing condition” and could not get health insurance.

I was particularly incensed by the multimillion-dollar salaries given to executives in the health care industry, investor profit, advertising and bribes to politicians.

The need for extensive paperwork to meet the demands of insurance companies translates into many more employees in doctors’ offices and hospitals. The high overhead in doctors’ practices partly explains why I paid several thousand dollars to specialists for the removal of two small skin cancers—a procedure than any intern could do in a half hour or so.

For-profit-hospitals further aggravate our medical delivery system.

Two recent stories about HCA, the giant healthcare company, partly owned by Bain Capital, illustrate the unscrupulous practices the industry will use to inflate profit. The Aug. 7 story “Hospital chain inquiry cited unnecessary cardiac work” in The New York Times told how HCA physicians performed unnecessary coronary artery operations to bolster profits. An Aug. 15 story in the same paper revealed shoddy care that caused complications such as bed sores. Oh! We must not forget that in the year 2000, when Governor Rick Scott was the chief executive of the company, HCA was forced to settle a huge fraud case involving over-billing of Medicare.

I have visited children’s hospitals in Canada, Cuba, Great Britain, Slovakia, China and Mexico, countries that are blessed with government-run health care systems. The doctors in all of these hospitals provided excellent care at low cost. Especially, in Canada, the research, teaching and patient care is equal to and in some cases superior to that given in our country. Even, 20 years ago, the surgeons in Cuba and Slovakia, communist countries, were performing open heart operations, kidney transplants and other complicated operations with great skill.

We should have a single-payer system to care for life-threatening conditions, but patients should be responsible for a portion of the costs, depending on their means. Patients should pay for most of the costs of “comfort” procedures such as joint replacements so the elderly can continue to play tennis.

The elimination of advertising by the entire health care industry including physicians and hospitals would reduce costs. Independent panels to resolve malpractice issues would also go a long ways to reduce the costs of care. The referral of patients with complex diseases to academic hospitals will further improve care and reduce costs.

Dr. John Raffensperger, is former surgeon in chief, Children’s Memorial Hospital, Chicago. He lives on Sanibel Island.

http://www.news-press.com/article/20120919/OPINION/309190008/1075/Guest-opinion-Single-payer-health-care-still-best-solution?odyssey=nav|head

Medicare's failure to protect personal finances

Out-of-Pocket Spending in the Last Five Years of Life

By Amy S. Kelley, Kathleen McGarry, Sean Fahle, Samuel M. Marshall, Qingling Du and Jonathan S. Skinner
Journal of General Internal Medicine, September 5, 2012
Abstract
Background
A key objective of the Medicare program is to reduce risk of financial catastrophe due to out-of-pocket healthcare expenditures. Yet little is known about cumulative financial risks arising from out-of-pocket healthcare expenditures faced by older adults, particularly near the end of life.
Design
Using the nationally representative Health and Retirement Study (HRS) cohort, we conducted retrospective analyses of Medicare beneficiaries’ total out-of-pocket healthcare expenditures over the last 5 years of life.
Participants
We identified HRS decedents between 2002 and 2008; defined a 5 year study period using each subject’s date of death; and excluded those without Medicare coverage at the beginning of this period (n = 3,209).
Main Measures
We examined total out-of-pocket healthcare expenditures in the last 5 years of life and expenditures as a percentage of baseline household assets. We then stratified results by marital status and cause of death. All measurements were adjusted for inflation to 2008 US dollars.
Results
Average out-of-pocket expenditures in the 5 years prior to death were $38,688 for individuals and $51,030 for couples in which one spouse dies. Spending was highly skewed, with the median and 90th percentile equal to $22,885 and $89,106, respectively, for individuals, and $39,759 and $94,823, respectively, for couples. Overall, 25% of subjects’ expenditures exceeded baseline total household assets, and 43% of subjects’ spending surpassed their non-housing assets. Among those survived by a spouse, 10% exceeded total baseline assets and 24% exceeded non-housing assets. By cause of death, average spending ranged from $31,069 for gastrointestinal disease and $66,155 for Alzheimer’s disease.
Conclusion
Despite Medicare coverage, elderly households face considerable financial risk from out-of-pocket healthcare expenses at the end of life. Disease-related differences in this risk complicate efforts to anticipate or plan for health-related expenditures in the last 5 years of life.
http://www.springerlink.com/content/427m88565153p76k/

And…

Grappling With Details of Medicare Proposals

By Roni Caryn Rabin
The New York Times, September 17, 2012
The (Medicare reform) proposals keep changing, and some are short on details. No one is certain what health care costs will be in the coming years.
Still, it’s clear the proposed changes would shift costs from the federal government to retirees. “All scenarios will require seniors to pay more,” said Robert Moffit, senior fellow at the Heritage Foundation, a conservative research organization in Washington. To think otherwise, he said, “is a fantasy.”
http://well.blogs.nytimes.com/2012/09/17/grappling-with-details-of-medicare-proposals/

In spite of having Medicare coverage, out-of-pocket health care expenditures can be devastating for seniors. Current proposals to reduce government entitlement spending on Medicare would shift even more costs to our seniors.
Premium support voucher proposals for Medicare would create a defined contribution which would shift more costs to all Medicare beneficiaries, when only the wealthier could afford the increase. That won’t work.
Since many already can’t pay their current out-of-pocket costs, proposals have been advanced to index costs to income by charging higher premiums, higher cost sharing and/or reducing benefits for the wealthier. That process has already begun with Part B and Part D premiums now based on income. That risks reducing support by the politically connected affluent, which could clear the way for enactment of destructive government policies, especially if the conservatives gained control. The threat from the liberals is bad enough.
On the other hand, lower income individuals could be given support beyond that of Medicare. Again, that is already happening through the dual-eligible program for both Medicare and Medicaid. The risk is that the dual-eligible program would be considered a welfare program for the poor, and would be budgeted accordingly. That is already happening as the federal and state governments are well along in the process of herding these victims into underfunded, low quality, private Medicaid managed care programs (see https://pnhp.org/news/2012/september/herding-dual-eligibles-into-low-…).
Obviously Medicare needs a lot of improvement before we convert it into a single payer national health program. We need to go in the opposite direction from where the politicians currently are headed. Instead of slashing it under the budget hawks’ call for cutting back on entitlements, we need to expand its coverage so that it doesn’t leave anyone with the devastating out-of-pocket expenses associated with complex and prolonged medical care.
Even though more would be spent through the Medicare program (i.e., through the tax system), the efficiencies of single payer would not increase our total health care costs, and, more importantly, would slow future health care cost increases to sustainable levels. It’s not that we can’t afford to expand Medicare; it’s that we can’t afford not to.

'Occupy: for patients, not profits': OWS marks 1-year anniversary

By Mario Tama
Getty Images, Sept. 17, 2012

NEW YORK — Laurie Wen, with Physicians for a National Health Program (L) and Dr. Magni Hamso, M.D., both affiliated with Occupy Wall Street, are arrested in the Financial District while protesting Wall Street influence in health care on September 17, 2012, in New York City. Today is the one-year anniversary of Occupy Wall Street and various actions and events are taking place throughout the day. (Photo by Mario Tama/Getty Images) Copyright © 2012 Getty Images. All rights reserved.

‘Occupy: for patients, not profits’: OWS marks 1-year anniversary

By Mario Tama
Getty Images, Sept. 17, 2012

NEW YORK — Laurie Wen, with Physicians for a National Health Program (L) and Dr. Magni Hamso, M.D., both affiliated with Occupy Wall Street, are arrested in the Financial District while protesting Wall Street influence in health care on September 17, 2012, in New York City. Today is the one-year anniversary of Occupy Wall Street and various actions and events are taking place throughout the day. (Photo by Mario Tama/Getty Images) Copyright © 2012 Getty Images. All rights reserved.

IT savings are little more than hype

A Major Glitch for Digitized Health-Care Records

By Stephen Soumerai and Ross Koppel
The Wall Street Journal, September 17, 2012

In two years, hundreds of thousands of American physicians and thousands of hospitals that fail to buy and install costly health-care information technologies—such as digital records for prescriptions and patient histories—will face penalties through reduced Medicare and Medicaid payments. At the same time, the government expects to pay out tens of billions of dollars in subsidies and incentives to providers who install these technology programs.

The mandate, part of the 2009 stimulus legislation, was a major goal of health-care information technology lobbyists and their allies in Congress and the White House. The lobbyists promised that these technologies would make medical administration more efficient and lower medical costs by up to $100 billion annually. Many doctors and health-care administrators are wary of such claims—a wariness based on their own experience. An extensive new study indicates that the caution is justified: The savings turn out to be chimerical.

Since 2009, almost a third of health providers, a group that ranges from small private practices to huge hospitals—have installed at least some “health IT” technology. It wasn’t cheap. For a major hospital, a full suite of technology products can cost $150 million to $200 million. Implementation—linking and integrating systems, training, data entry and the like—can raise the total bill to $1 billion.

But the software—sold by hundreds of health IT firms—is generally clunky, frustrating, user-unfriendly and inefficient.

Now, a comprehensive evaluation of the scientific literature has confirmed what many researchers suspected: The savings claimed by government agencies and vendors of health IT are little more than hype.

To conduct the study, faculty at McMaster University in Hamilton, Ontario, and its programs for assessment of technology in health—and other research centers, including in the U.S.—sifted through almost 36,000 studies of health IT. The studies included information about highly valued computerized alerts—when drugs are prescribed, for instance—to prevent drug interactions and dosage errors. From among those studies the researchers identified 31 that specifically examined the outcomes in light of the technology’s cost-savings claims.

With a few isolated exceptions, the preponderance of evidence shows that the systems had not improved health or saved money.

It is already common knowledge in the health-care industry that a central component of the proposed health IT system—the ability to share patients’ health records among doctors, hospitals and labs—has largely failed. The industry could not agree on data standards.

Instead of demanding unified standards, the government has largely left it to the vendors, who declined to cooperate, thereby ensuring years of noncommunication and noncoordination. This likely means billions of dollars for unnecessarily repeated tests and procedures, double-dosing patients and avoidable suffering.

http://online.wsj.com/article/SB10000872396390443847404577627041964831020.html?mod=googlenews_wsj

Comment:

By Don McCanne, MD

This article reinforces two points that we have made repeatedly about the application of information technology to health care: 1) The government needs to lead the process, and 2) We need to look elsewhere for means of controlling spending in health care.

Entrepreneurial approaches to health information technology are designed to make money – a lot of it. Competitors design their products to be incompatible with each other in hopes that one can dominate the market and crowd out the competitors. Public service approaches, such as the interoperable VistA system of the VA, are designed to help health care professionals give better and more coordinated care to their patients, but are not designed for profit. We already own the VistA system, and it could easily be adapted to become the national standard, at a small fraction of the costs of the private fragmented systems that are being forced on providers by the 2009 stimulus legislation.

Particularly annoying is the repeated claim that information technology and electronic records will save money. Not true. Yet the pursuit of these savings and the alleged savings from the various experiments in payment innovations found in the Affordable Care Act – which all experience to date has suggested have been and will be phantom savings – have distracted us from proceeding with reform that everyone knows would recover tremendous waste and ensure health care affordability for everyone forever – a single payer national health program, aka an improved Medicare for all.

IT savings are little more than hype

A Major Glitch for Digitized Health-Care Records

By Stephen Soumerai and Ross Koppel
The Wall Street Journal, September 17, 2012
In two years, hundreds of thousands of American physicians and thousands of hospitals that fail to buy and install costly health-care information technologies—such as digital records for prescriptions and patient histories—will face penalties through reduced Medicare and Medicaid payments. At the same time, the government expects to pay out tens of billions of dollars in subsidies and incentives to providers who install these technology programs.
The mandate, part of the 2009 stimulus legislation, was a major goal of health-care information technology lobbyists and their allies in Congress and the White House. The lobbyists promised that these technologies would make medical administration more efficient and lower medical costs by up to $100 billion annually. Many doctors and health-care administrators are wary of such claims—a wariness based on their own experience. An extensive new study indicates that the caution is justified: The savings turn out to be chimerical.
Since 2009, almost a third of health providers, a group that ranges from small private practices to huge hospitals—have installed at least some “health IT” technology. It wasn’t cheap. For a major hospital, a full suite of technology products can cost $150 million to $200 million. Implementation—linking and integrating systems, training, data entry and the like—can raise the total bill to $1 billion.
But the software—sold by hundreds of health IT firms—is generally clunky, frustrating, user-unfriendly and inefficient.
Now, a comprehensive evaluation of the scientific literature has confirmed what many researchers suspected: The savings claimed by government agencies and vendors of health IT are little more than hype.
To conduct the study, faculty at McMaster University in Hamilton, Ontario, and its programs for assessment of technology in health—and other research centers, including in the U.S.—sifted through almost 36,000 studies of health IT. The studies included information about highly valued computerized alerts—when drugs are prescribed, for instance—to prevent drug interactions and dosage errors. From among those studies the researchers identified 31 that specifically examined the outcomes in light of the technology’s cost-savings claims.
With a few isolated exceptions, the preponderance of evidence shows that the systems had not improved health or saved money.
It is already common knowledge in the health-care industry that a central component of the proposed health IT system—the ability to share patients’ health records among doctors, hospitals and labs—has largely failed. The industry could not agree on data standards.
Instead of demanding unified standards, the government has largely left it to the vendors, who declined to cooperate, thereby ensuring years of noncommunication and noncoordination. This likely means billions of dollars for unnecessarily repeated tests and procedures, double-dosing patients and avoidable suffering.
http://online.wsj.com/article/SB10000872396390443847404577627041964831020.html?mod=googlenews_wsj

This article reinforces two points that we have made repeatedly about the application of information technology to health care: 1) The government needs to lead the process, and 2) We need to look elsewhere for means of controlling spending in health care.
Entrepreneurial approaches to health information technology are designed to make money – a lot of it. Competitors design their products to be incompatible with each other in hopes that one can dominate the market and crowd out the competitors. Public service approaches, such as the interoperable VistA system of the VA, are designed to help health care professionals give better and more coordinated care to their patients, but are not designed for profit. We already own the VistA system, and it could easily be adapted to become the national standard, at a small fraction of the costs of the private fragmented systems that are being forced on providers by the 2009 stimulus legislation.
Particularly annoying is the repeated claim that information technology and electronic records will save money. Not true. Yet the pursuit of these savings and the alleged savings from the various experiments in payment innovations found in the Affordable Care Act – which all experience to date has suggested have been and will be phantom savings – have distracted us from proceeding with reform that everyone knows would recover tremendous waste and ensure health care affordability for everyone forever – a single payer national health program, aka an improved Medicare for all.

Lower wage employees have greater out-of-pocket expenses

Health Benefits In 2012: Moderate Premium Increases For Employer-Sponsored Plans; Young Adults Gained Coverage Under ACA

By Gary Claxton, Matthew Rae, Nirmita Panchal, Anthony Damico, Heidi Whitmore, Kevin Kenward and Awo Osei-Anto
Health Affairs, September 2012 (online)

Health care premiums rose moderately for single and family employer-sponsored coverage this year, the 2012 annual Kaiser Family Foundation/Health Research and Educational Trust (HRET) Survey of Employer Health Benefits found.

In 2012 the average annual premium cost was $5,615 for single health coverage and $15,745 for family coverage. The average premiums were about 3 percent higher for single coverage and 4 percent higher for family coverage than in 2011. During the same period, general inflation was 2.3 percent, and wages rose by 1.7 percent.

There continue to be important differences between the health benefits offered by small and large firms. Workers at small firms (those with 3–199 workers) face higher cost sharing, including higher copayments for office visits and higher general annual deductibles for single coverage. These workers are also responsible for a larger premium contribution for family coverage than are workers at large firms (those with 200 or more workers).

Compared to workers in large firms, workers in small firms have a slightly lower average percentage contribution for single coverage but a far higher average percentage contribution for family coverage.

Workers in firms with a large share of lower-wage workers face higher contributions for family coverage than workers in firms with a small share of lower-wage workers.

The enrollment distribution varies by employer size, with preferred provider organizations being relatively more popular among large firms, and point-of-service plans and high-deductible plans with a savings option being relatively more popular among small firms. 

Looking across all plan types, 49 percent of workers in small firms and 26 percent of workers in large firms are in a plan with a general annual deductible of at least $1,000.

The largest firms are much more likely than the smallest firms to offer health benefits: Virtually all firms with more than 5,000 workers offer benefits to at least some of their employees, whereas only half of firms with 3–9 workers do so. Firms with a smaller percentage of lower-income workers are more likely to offer coverage than firms with a larger percentage of those workers.

An employer-sponsored health plan can be grandfathered if it provided coverage to a worker when the act became law and if the plan does not make major changes that reduce benefits or increase employee costs.

From the Conclusion

There are important differences between the health plans being offered at small firms and those offered at large firms. Although the average family premium is lower at small firms than at large firms, workers at small firms are often responsible for paying a larger share of the premium than workers in large firms. Also, workers at small firms typically face higher cost sharing and out-of-pocket maximums—which means that in addition to higher premium contributions, they are also left with a higher financial burden when using services.

http://content.healthaffairs.org/content/early/2012/09/07/hlthaff.2012.0708.abstract

Comment:  

By Don McCanne, MD

The Affordable Care Act was designed to perpetuate as much as possible enrollment in employer-sponsored plans. This study demonstrates that lower-income workers face greater out-of-pocket costs through a higher share of premiums and through greater deductibles and other cost sharing, especially if they are employed by a small firm. Private employer-sponsored plans do not serve well the needs of workers with lower incomes.

An improved Medicare for everyone would resolve these differences.