Why Aren’t Health Care Prices Ever on The Table?

September 17, 2012

Journalist-turned investment banker-turned auto bailout czar Steven Rattner provocatively calls for “not quite” death panels in an op-ed in today’s New York Times. Noting a quarter of all Medicare spending comes in the last year of life, he writes:

No one wants to lose an aging parent. And with price out of the equation (emphasis added), it’s natural for patients and their families to try every treatment, regardless of expense or efficacy. But that imposes an enormous societal cost that few other nations have been willing to bear. Many countries whose health care systems are regularly extolled — including Canada, Australia and New Zealand — have systems for rationing care.

Take Britain, which provides universal coverage with spending at proportionately almost half of American levels. Its National Institute for Health and Clinical Excellence (NICE) uses a complex quality-adjusted life year (QALY) system to put an explicit value (up to about $48,000 per year) on a treatment’s ability to extend life.

At the least, the Independent Payment Advisory Board should be allowed to offer changes in services and costs. We may shrink from such stomach-wrenching choices, but they are inescapable.

Here’s the problem with the NICE/QALY model. It accepts the price that providers set on end-of-life care. It says, here’s the cost; here’s the benefit; and if the cost-per-life-year gained is above a particular level,  we won’t pay anything (actually it’s the National Health Service in Great Britain that won’t pay based on analysis of cost and benefits provided by NICE).  If the average length of time to death from diagnosis with a terminal disease like stage four cancer is 10 months, and the drug extends the average life to a year, those extra two months cost $120,000 or $720,000 per QALY (and that doesn’t even adjust for the lower quality-of-life of that final year from adding a drug that probably has debilitating side effects).  That’s 15 times the British standard of cost-effectiveness.

Here’s another way to tackle the problem. Instead of having a binary option of either not allowing Medicare to pay for the drug or paying $10,000 a month, why not simply set the price that Medicare will pay at its actual value? In this case, it would be 1/15th of $10,000 or $667 a month. If the drug company continues to insist on charging more, then people will have to pay the difference out-of-pocket.

It’s called reference pricing, an idea initially propounded by Steven D. Pearson, president of the Institute for Clinical and Economic Review in Boston and a former advisor to CMS and Peter Bach of Memorial Sloan-Kettering Cancer. Some may object that this will cause rationing by price since poorer patients will suffer the brunt its effects. To a certain extent, they are right. But at least the poor and middle-class will go to their graves knowing they didn’t miss much since Medicare will have sent them a clear signal based on careful science that what they couldn’t afford really wasn’t worth very much.

Others may object by saying, ah, but these new drugs actually work extremely well in a handful of patients. They often live for years and it was this small group’s experience on the drug that drove the overall survival rate to two months. As soon as we figure out how to target them by using sophisticated biomarkers (the latest cancer drugs are being approved with such screening tests), we can limit the drug’s use to those that truly benefit. Great! The cost per QALY should come down dramatically. As long as Medicare doesn’t pay for its off-label use (patients with the same condition who don’t meet the appropriate biomarker profile), the cost to the system should be much more affordable. If that cost was still above the reference price (because even with targeting, the latest therapies are not magic bullet cures, but still life extenders), at least the out-of-pocket for patients (and the cost to Medicare) will be much, much lower.

Why The Slowdown in Health Care Costs?

September 14, 2012

Meghan McCarthy of the National Journal posted a good overview of the alternative explanations for the recent slowing in the increase in health care costs, which rose less than four percent in each of the past two years. Medicare costs, she points out, has slowed even more dramatically.The latest survey from the Kaiser Family Foundation shows insurance premiums rising just 4 percent this year.

The first reasons she offers parallel the official analysis from the Centers for Medicare and Medicaid Services: the recession has caused people to postpone elective surgeries or physician visits, which, like most health care, entail out-of-pocket costs. She then offers competing views on the role of the Affordable Care Act and reasonably quotes former Republican chief of CMS Gail Wilensky, who points out that it’s hard to credit something whose major provisions haven’t gone into effect yet.

She concludes with comments from the Urban Institute’s Robert Berenson, a former CMS official and physician, who credits the reform “environment,” not any specific element of reform: “Physicians and others are getting the message,” he said. “I suspect physicians are tired being criticized for not being able to restrain themselves. It’s more health reform in general, rather than specific provisions that are associated with ACA.”

There is precedent for that view. The last time there was a multi-year slowdown in the pace at which health care spending increased was between 1994 and 1996, during and after the Clinton-era debate over health care reform. While the legislative effort failed, it sparked a massive rush by insurers and employers to enroll people in health maintenance organizations, which succeeded for a time in holding costs in check (mostly by denying care, which led to a late 1990s backlash by the patients rights movement).

Today, hospitals and provider networks are moving to establish accountable care organizations and preparing for a new era of cost-controlled medicine. As Berenson points out, providers, tired of being blasted for their wasteful practices (even the Institute of Medicine earlier this month signed onto the analysis that said nearly a third of all health care expenditures are wasted), are preparing for a new era.  Contrary to Wilensky, reform can work even before it goes into effect.

Clinton’s Advice on Solyndra

September 14, 2012

Former president Bill Clinton put in an appearance yesterday at the solar industry’s annual meeting in Orange County, California. “You’re going to win this battle,” he told the crowd, according to an account this morning in Solar Industry Magazine. He pointed to California’s 33 percent renewable energy portfolio standard for utilities; falling solar panel prices (thanks to cheap Chinese modules flooding the U.S. market, which he didn’t mention); the growing interest at utilities in large-scale plants; and state-level tax credits now that federal aid is disappearing.

As for Republican candidate Mitt Romney’s pledge to end all federal renewable subsidies, he pointed to a study by the Baker Center (named for former Sen. Howard Baker, R-Tenn.) that government support for renewables is comparable by any measure to government support for fossil fuels. In reality, it lags far behind in nominal dollar terms.

Then he turned to the hot button issue of the campaign: Solyndra, the failed solar thin film manufacturer that received a $500 million loan guarantee from the Obama administration’s stimulus act. “You can’t blame people for reacting to an isolated incident out of context if you don’t provide the context and the other side of the story,” he said.

Solyndra, he argued:

. . . was a company with an innovative yet expensive technology that failed to reach volume and bring its costs down quickly enough to compete – especially once the Chinese government doled out billions to their domestic solar manufacturing industry. “Since no one explained that to the American people, they can be forgiven for listening to the worst possible explanation,” he said. He urged solar companies and their partners to “get the basic positive facts out there” in order to counteract the negativity.

Let’s see, the Koch brothers and the Romney campaign finance a massive advertising blitz to spread the lie that the loan guarantee for Solyndra, one of dozens made by the Obama administration, almost all of which have been successful, was an example of “crony capitalism.” Yet Clinton castigates a handful of small manufacturers struggling to survive in a tough international environment for failing to get their message out. Talk about blaming the victim!

The elite press, especially the Washington Post, jumped all over the Solyndra story after Rep. Daryl Issa, the richest man in Congress from his car alarm business, made it is cause celebre in his government oversight committee.  The solar industry never got any help from the free media except the occasional editorial in the New York Times. The alternative was advertising. But if their trade group was miraculously given the same hundred million dollars dumped on advertising by the Kochs and the other pro-oil industry Super PACs, I suspect it would donate it to research or advertise the benefits of the product, not explain the reasons behind one firm’s failure.

The reality is that if Romney and his allies in the fossil fuel industry win this election, alternative energy will face headwinds like nowhere else in the world. The solar industry here — the one most in need of subsidy because it is still uncompetitive with cheap natural gas — will go into steep decline. The stock market is already anticipating this outcome. Everything is teed up for China to win the race to dominate what is certain to be one of the major industries of the 21st century by default.

Are You Better Off?

September 11, 2012

A new Gallup poll out this morning compares Americans’ attitudes about the economy now to February 2009 when Barack Obama took office. It found:

Changes in Key Indicators, February 2009 to August 2012

Are things hunky-dorey? No, economic confidence is still a negative, but it’s far better than it was four years ago. Slightly less than half say their standard of living is getting better, not very satisfactory. But it’s a lot better than a bit more than a third saying the same four years ago.

It’s not surprising Obama’s job approval ratings are down sharply from where he stood when he first entered office. But the bottom line on the public’s attitudes conforms with the message sent during the Democratic convention last week: things may not be all that great, but at least the economy and public attitudes are moving in the right direction.


Two Conventions, Two Philosophies

September 10, 2012

Michael Cohen of the Century Foundation has a nice piece up on the Guardian website that pulls two quotes from the past two week’s conventions that sums up the vast philosophical gulf that separates the two parties. Unfortunately, Romney left it to Paul Ryan to articulate his party’s philosophy:

“I never thought of myself as stuck in some station in life. I was on my own path, my own journey, an American journey, where I could think for myself, decide for myself… that is what we do in this country. That is the American dream. That’s freedom and I will take it any day over the supervision and sanctimony of the central planners.”

Here is how President Obama responded:

“We, the people, recognize that we have responsibilities as well as rights; that our destinies are bound together; that a freedom which asks only what’s in it for me, a freedom without a commitment to others, a freedom without love or charity or duty or patriotism, is unworthy of our founding ideals and those who died in their defense.”

Last week, I read somewhere that Romney at a campaign event accused Obama of wanting to take the word “God” off the nation’s currency by removing “In God We Trust.” It wasn’t true, but no doubt resonated with some of the low-information fundamentalist voters who populate his crowds. If Obama were a liar, he might have responded, “oh, yeah, well they want to pull ‘E Pluribus Unum’ off the currency.” At least that would have been spiritually accurate.




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