Sep

The role of price in health care cost inflation

Posted by Joe Paduda on Friday, September 25th, 2009 | Comments

I’ve been accused of being one of the few that actually reads the bimonthly journal Health Affairs. Well, guilty as charged, although the pub has a lot more than a ‘few’ devotees. What it does particularly well is challenge core beliefs.
The latest edition focuses on bending the cost curve – a phrase likely to inspire William Safire to dissect it in detail in one of his discourses on language. The idea is to find ways to reduce the rate of growth in health care costs, and this edition has plenty of ideas.
One of the most thought provoking articles contends that price controls are “central to curbing cost growth”. I’m going to comment on the article next week in detail, but here are a couple of points made by the authors.

“out of pocket spending in the United States is roughly twice the OECD median. If some Americans have “Cadillac coverage,” than most workers in Germany or France must have “Mercedes coverage” – and they would likely view many American insurance policies as “Yugo coverage.”
patients in OECD countries average more hospitaldays, more physician visits, and greater consumption of prescription drugs than American patients do. Higher US spending is not primarily explained by greater volume of services.
analyzing data from Massachusetts, David Cutler and colleagues found<, for example, that virtually all of the savings that managed care plans achieved for heart disease treatment, relative to indemnity insurance, came from price reductions./li>

I’ve long believed, and still do, that utilization is a more significant cost driver than price. I’ve seen this time and time again – in data on physician in-office utilization from CMS (up 11% in 2006), in NCCI’s analysis of workers comp prescription drug costs, in analyzing client physical medicine experience, in the correlation between workers comp medical expenses and state fee schedules – or rather lack thereof, and a host of other examples.
What doe this mean for you?
The authors make a compelling case – not just for price as a cost driver, but to always question your assumptions.

Sep

The cost of surgical implants in workers comp

Posted by Joe Paduda on Tuesday, September 22nd, 2009 | Comments

A new RAND study reports California’s employers are paying $60 million more than they should for surgical implants. Not the surgery, or the follow up care, or the facility costs – just the devices themselves.
According to Jim Sams’ piece in today’s WorkCompCentral,

“the state’s fee schedules allow hospitals to bill separately for the hardware that is used in spinal fusion surgeries plus an administrative fee. [lead researcher for the cost-savings project Barbara] Wynn said the resource-based relative value scale that Medicare uses to calculate the appropriate fee for spinal surgery hardware procedures already includes the cost of the hardware, and California’s fee schedule pays 120% of the Medicare rate.
“Passing through WC device costs on top of 120% of the Medicare payment results in paying for the spinal hardware twice, creates incentives for unnecessary device usage, and imposes unnecessary administrative burden,” she said in her report.
Wynn said repealing the rules that allow pass-through charges would save $60 million annually.”

There’s a lot more to the RAND study, but this highlights a big problem area – one much larger than $60 million.

First, why is work comp paying 20% more than Medicare?
Second, surgical implants are not “one and done”. It is fairly common for patients to have to undergo surgery to replace defective or incorrectly used devices.
Third, the cost of the implant can often push total expense for inpatient care past the outlier limit, making the stay substantially more expensive.
Fourth, the cost of implants is growing much faster than overall medical inflation – one projection has the spinal implant market increasing 16% per year.
What does this mean for you?
California hasn’t fixed this problem yet, despite knowing about it for eight years. And don’t think this is unique to the Golden State (a term likely coined by implant manufacturer Stryker); the use of implants is up all over the country.

Sep

Is the low work comp injury frequency rate a myth?

Posted by Joe Paduda on Friday, September 4th, 2009 | Comments

More than 75,000 work comp injuries were not reported in just three cities last year. Close to a million may have gone unreported nationally.
Yesterday’s news (sub req) that 92% of low-wage workers don’t file work comp claims for injuries that require medical attention was a shocker. I’d long thought the actual injury rate is higher than the reported rate – but nowhere near that high.
Fully half of the workers with on the job injuries “experienced an illegal employer reaction”, including firing the worker, calling immigration authorities, or telling the worker not to file a comp claim.
Here’s a quick summary from the piece in WorkCompCentral:

The survey found:
* 43% of the injured respondents were required to work despite their injury.
* 30% said their employer refused to help them with the injury.
* 13% were fired shortly after the injury.
* 10% said their employer made them come into work and sit around all day.
* 4% said they were threatened with deportation or at least notification to Immigration and Customs Enforcement.
* 3% were told not to file a workers’ compensation claim.
* 8% were told by employers to file a claim.

You can read the WCC or other article to understand the methodology, which looks pretty solid. And some of the stats above aren’t as troubling as they might first appear – requiring injured workers to work, or come in and not work, may be OK if the injury wasn’t that severe. I’m trying to give the employer the benefit of the doubt here, but for those workers who were threatened, whose employers refused to help with the injury, or were fired because of the injury there is not only a work comp problem, there’s a legal, ethical, and moral failing.
As our economy has become more service-based, the number of low wage jobs has increased – jobs that are held by people that tend to be minorities, undereducated, and recent immigrants, legal or undocumented. My sense is the drop in work comp claim frequency may be – at least partially – due to the failure to report injuries as well as structural changes in the economy and improvements in safety and loss prevention.
The study looked at a population that accounts for fifteen percent of all workers in three cities; Chicago, New York, and Los Angeles. Extrapolating the numbers out in just those three cities indicates that 75,446 workers comp injuries were not reported.
Moreover, according to the study, “workers compensation insurance paid the medical expenses for only 6 percent of the workers in our sample who visited a doctor for an on-the-job injury or illness.” [emphasis added]

What does this mean for you?
For the comp industry, the declining frequency years may be coming to a screeching halt.
If you’re a work comp payer, you’ve been ‘lucky’ if you insure these businesses. That ‘luck’ will soon change as the Department of Labor is dramatically ramping up enforcement efforts. (I don’t mean to imply that comp carriers have somehow been complicit in this, in fact the opposite is much more likely as insurers work very hard to ensure rapid and accurate claim reporting.)
If you’re a TPA or other servicing entity, your revenues have been suppressed by the failure to report injuries.
And if you’re one of these low-wage workers, perhaps there’s hope that the situation will improve.

Aug

The Sixth Annual Survey of Prescription Drug Management in Workers’ Comp – (very) preliminary results

Posted by Joe Paduda on Tuesday, August 25th, 2009 | Comments

My firm, Health Strategy Associates, has conducted a survey of prescription drug management each year for the last five. I’m well into the survey portion of the Sixth Annual Survey, and here are some preliminary findings.
1. Drug cost inflation appears to show signs of rebounding after five years of decreases in the rate of increase. The data is by no means complete, but most of the respondents to date reported cost inflation was higher in 2008 than the previous year.
2. More respondents are tracking their first fill capture rate this year than last. There appears to be a significant focus on this metric, based at least in part on the sense that the earlier the PBM can get involved in a claim, the more likely it will be able to minimize over-prescribing and inappropriate dispensing.
3. Respondents are more aware of the actual strengths and weaknesses of specific PBMs than they were in the past; the buyers with strong knowledge of and experience in this niche are pretty savvy.
4. The primary cost driver remains utilization – too many of the wrong type of drugs dispensed by too many physicians, especially for pain.
5. Clinical management programs are increasingly important to payers (see 5. above), and they are getting smarter about these programs, what works and what doesn’t, and why. Marketing pitches aren’t cutting it any more; these folks want to see programs in action, study the reports, and understand the logic.
The report will be out next month. If you’d like to download copies of the previous reports, click here.

Apr

Drug Trends in Workers Comp

Posted by Joe Paduda on Thursday, April 23rd, 2009 | Comments

Workers comp PBM and medical services company PMSI released its annual Drug Trends Report at RIMS earlier this week. I noted a couple highlights in an earlier post; you can download a copy here.
One of the more notable findings is the increase in the rate of inflation in drug costs, this coming after several years of decreasing inflation rates. A key contributor was per-script price increases which amounted to 6.1% in 2008.
There’s lots of good information in the Report, and you can’t beat the price.
My firm will be conducting the Sixth Annual Survey of Prescription Drug Management in Workers Comp next month; this survey focuses on tools and techniques employed to manage costs as well as payer executives’ views on cost drivers and PBMs.
For the fourth consecutive year the Survey is sponsored by Cypress Care.
Send an email to infoAThealthstrategyassocDOTcom if you’d like a copy of the report.

Feb

The horrors of effectiveness research

Posted by Joe Paduda on Monday, February 2nd, 2009 | Comments

Horrors! Those big-government Democrats are at it already, actually trying to get taxpayers to fund medical effectiveness research!
How dare the government actually fund research. The nerve! The gall! The (sputter sputter) utter brazenosity! (I know it’s not a word but it fits)
Why, doctors would actually know what works and what doesn’t! Care would improve, costs would drop, people would be healthier, there would be fewer medical errors; oh, the horror of it all!
And worst of all, taxpayers would get better results for their tax dollars!
Everyone knows there is just nothing more to learn about medicine, disease, physiology. We have learned all there is to know, and any money spent on effectiveness research would be wasted.
That, and the government might actually use that information to decide what types of care to pay for, and what types will not be reimbursed. Wow, what a concept. Why would the government ever contemplate basing reimbursement on effectiveness?
We would never want the government to be careful how they spend our tax dollars. Why, we never want to use taxpayer dollars to study the effectiveness of, say, military equipment. Or air traffic control. Or emergency preparedness. Or flood control. No, we should just pay vendors for any services they provide, regardless of whether or not those services actually work.
OK, forgive me for the over-the-top sarcastic rant. I’m completely disgusted with the hypocrisy of the libertarian right; those who have screamed for years about the ineffectiveness of government, ranting nonstop about how government can’t do anything right, yet are now screaming even louder as government attempts to make sure they are responsible stewards of the public’s funds.
Here’s an example from the health care experts at the National Review. “The [stimulus] bill provides $1.1 billion for a new program of comparative effectiveness research. The idea is to study medical practice patterns, new products, and new technology to determine what is “cost effective.” In the UK, a similar program run by the National Institute for Clinical Evidence (NICE) is used to deny payment by the government for certain drugs and procedures that are said to be “cost ineffective.”
Democratic lawmakers will deny that rationing is their intent, but that is not credible. Why create a government program to study what’s cost effective if not to use the information to inform payment and coverage decisions?”
Notice the use of the scary word ‘rationing’ to define appropriate coverage and payment. Using the author’s (James Capretta) reasoning, Medicare should pay for voodoo, cancer treatment with peach pits, snake oil, rhino horn, and universal cancer vaccines.
Why, not paying for these ‘treatments’ would be ‘rationing’…at least according to Capretta.
Capretta has zero experience in the real world of health insurance. Insurance companies make decisions every day to not pay for treatments that have been proven ineffective. If Mr Capretta had ever worked in the insurance or health care industries, he would know that. But he hasn’t.
That’s not ‘rationing’, it’s good business. Would you not want your government to only pay for services that work?

What does this mean for you?
Everyone knows government is the problem; how dare they try to be part of the solution?

Jan

The Ingenix settlement – you wanted details…

Posted by Joe Paduda on Thursday, January 15th, 2009 | Comments

The phone and email has been buzzing today. So has the blog-o-sphere, at least among those bloggers who follow this. Both of us.
Today’s follow up announcement by Ingenix’ parent UHC revealed the giant health plan will pay $350 million to settle a class action lawsuit directly related to the use of the Ingenix UCR database. This brings the total (to date) cost for legal settlements to $400 million after yesterday’s NY settlement. Here’s the key language from UHC’s statement today.
“UnitedHealth Group (NYSE: UNH) announced today that it has reached an agreement to settle class action litigation related to reimbursement for out-of-network medical services. The agreement resolves class action litigation filed on behalf of the American Medical Association (AMA), health plan members, health care providers and state medical societies.
Under the terms of the proposed nationwide settlement, UnitedHealth Group and its affiliated entities will be released from claims relating to its out-of-network reimbursement policies from March 15, 1994, through the date of final court approval of the settlement. UnitedHealth Group will pay a total of $350 million to fund the settlement for health plan members and out-of-network providers in connection with out-of-network procedures performed since 1994. The agreement contains no admission of wrongdoing.”
The real problems with the Ingenix UCR database weren’t the subject of much discussion in the settlement documents or the various analyses of the settlement. But underlying the case are some significant problems with the database, how it is put together, and its uses. These issues were highlighted in the Davekos case in Massachusetts, and are discussed in the court record. Among the problems are:
– the accuracy and consistency of the underlying data is questionable. Ingenix cannot assure that the entities (health plans and claims administrators and insurance companies) that supply the data that Ingenix uses to determine what usual customary and reasonable charges are in specific areas are all using the same criteria, are coding consistently and accurately, and are aggregating the data in the same way.
– Ingenix may not always have enough charge data to provide a statistically valid sample for every CPT code. In that case, it appears that Ingenix may aggregate data from similar codes to produce a large enough sample. The potential issue with this work-around is obvious. In some instances, Ingenix actually called medical providers in specific areas where it did not have enough data to ask what they would charge for specific procedures. Thus they were combining telephonic survey data with actual charge data in their UCR databases, a commingling of very different data from very different sources with varying reliability.
– Ingenix itself defines the sociodemographic region boundary lines that are used to determine which charges are relevant for which geographic areas. In the Davekos case, the court appeared to be concerned when Ingenix could not give a defensible rationale for the logic or process they used to determine the boundaries for charge areas.
– Ingenix scrubs the data to extract charges that they decide are outliers for reasons that appear to be subjective. It also appears Ingenix removes high end values but not low end outliers. If this is the case, it would likely skew the charge data towards the lower end.
Those are some of the details behind the Ingenix UCR settlements. As to what will happen next, Bob Laszewski’s perspective provides insights as only he can.
What does this mean for you?
If you are using the Ingenix UCR database, you may want to look for other options.

Jan

Misleading managed care headlines

Posted by Joe Paduda on Tuesday, January 6th, 2009 | Comments

Last week a study hit the wires indicating that managed care plans did not have better outcomes for carotid endarterectomies (CEs), a surgical procedure ostensibly intended to reduce the risk of stroke.
Here’s the headline from UPI – “No managed care link for stroke-prevention”.
A quick read of the headline and abstract leads the reader to the conclusion that managed care is ineffective. But there’s much more to it than the headline and brief synopsis. For starters, the data was ten years old. It was from one state (NY), that is not exactly known as a hotbed of managed care. And it lumps all kinds of ‘managed care’ – from group model HMOs to PPOs under the same category.
And the study’s conclusions are muddy. In fact, there had been a good bit of research into the procedure itself (it involves cleaning out the carotid artery (the big one in the neck that bad guys are forever threatening to cut in movies), and the data used indicated “the rate of inappropriate surgery dropped substantially from 32 percent in 1981 prior to the RCTs [randomized controlled trials] to 8.6 percent in 1998/1999 after publication of the clinical trials [by AHRQ].” Clearly, medical practice had changed dramatically over that period, due primarily to publication of data indicating the procedure “reduced the risk of stroke and death compared to medication alone among carefully selected patients and surgeons.”; the research also showed many patients did not benefit from the surgery.
It wasn’t that simple. In fact, the surgery rate had dropped in the mid-eighties after publication of research indicating the procedure had high complication risks. A decade later, additional research seemed to show that CEs did benefit some patients, and the rate shot up again, only to start a gradual decline.
What happened? Generally accepted medical practice changed. Was the rate different within “managed care’ plans? No. But why would it have been?
I worked for large managed care/health plan companies during the late eighties and early nineties, with responsibilities in customer reporting and managed care product development. We all knew there were probably too many carotid endarterectomies performed, but we didn’t really know which ones were inappropriate. The indications were rather uncertain, and it did appear the procedure helped some patients. What was not clear was which patients would benefit and which would likely not. The ‘choice’ we made was to encourage/mandate/require second surgical opinions (at that time the state of the art in managed care) to ensure the patient got at least one other physician’s views on the potential risks and benefits. There wasn’t much in the way of clinical guidelines that we could use to deny the procedure outright, and the legal risks of a denial were so high that this option was never seriously considered.
Truth be told, the managed care firms I worked for had little ‘control’ over medical practice. Sure, we had contracts with physicians, but our influence was minimal – we were ‘two inches deep and a hundred miles wide’. With little ‘market share’ in any one physician’s office, it was unlikely most of ‘our’ docs would pay much attention to directives from one of our Medical Directors. We did notice that our rate of surgeries was dropping, but did not have the data to know if this was occurring across the board and thereby due to our efforts (I’m pretty sure we took credit for the decrease…) or was driven by external factors.
Contrast our very loose ‘managed care’ with the much different model exemplified by group and staff HMOs – Kaiser Permanente, Group Health of Puget Sound, HIP, etc. I don’t know what the group/staff model HMO rates were, but I’d bet they were lower than my employers’.
In retrospect, it is obvious that external factors were the reason for the decline in my employer’s number and rate of carotid endarterectomies. In retrospect.
What does this mean for you?
There’s far too much superficiality in the press, superficiality that can distort public views of managed care and the effectiveness thereof. In this case, the headline, although nominally accurate, is highly misleading.

Dec

Doing harm by doing good

Posted by Joe Paduda on Tuesday, December 16th, 2008 | Comments

I’m a baseball fan. Weekend mornings I always listen to Ed Randall, one of the more knowledgeable and listen-able baseball analysts; he really knows the game and has a style that is modest yet insightful. For years Mr Randall has been a tireless advocate for prostate cancer screening, and by his efforts he has likely encouraged thousands of men to get tested.
As much as I admire Mr Randall’s expertise in baseball and desire to do good, he’s really doing a disservice to public health. While his efforts undoubtedly result in an increased early diagnosis of many cancers, they are also increasing costs, scaring many men and their families, and likely harming a portion of men who follow his advice.
In his quest to get as many men tested as possible, Mr Randall is causing as least as much harm as good.
First, a little background about prostate cancer. According to the National Cancer Institute, between 27 percent and 37 percent of men between 55 to 74 years of age have prostate cancer. It is a very slow growing cancer; most men who have it end up dying of something else.
The ugly truth about prostate cancer testing is it doesn’t work. The most common test, a blood test known as PSA (Prostate Specific Antigen) is terribly inaccurate. Men who have been tested have no better survival rate than men who have not.
This isn’t my opinion, it is the finding of research published in The Archives of Internal Medicine in 2006. The authors found that neither a PSA test, nor a rectal exam reduced the chance of death from prostate cancer.
OK, so what’s the problem? Men get tested, no harm no foul? Actually there are lots of problems. First they aren’t free – PSA tests range in cost from $70 – $200, dollars that could be saved or spent on more effective medical services. OK, what happens if you decide the heck with the cost, I’m going to get a PSA test. The PSA level can be abnormal even when a man does not have prostate cancer. Seventy percent of positive PSA tests are false positives; the patient does not have prostate cancer. (if you test negative, there’s only a one-to-two percent chance you still have prostate cancer.) Of course, those who test positive worry about the result, and think they may well have cancer. I don’t know how to place a value on peace of mind, but anyone who has worried about a positive cancer test certainly knows how scary it is. (
When an abnormal P.S.A. level is discovered, most often the next step is a biopsy. Which are often inconclusive. Tissue from a negative screening may have come from parts of the prostate that are free of cancerous cells. If a cancer is found, an operation may not be necessary; remember this cancer grows so slowly most victims die of something else. So, you get an operation, what’s the big deal?
The big deal is patients who undergo treatment (radiation and/or surgery) may well end up impotent (38% – 63%) or incontinent (13% to 52%) or have bowel issues (5% to 17%. As a fifty year old man, I don’t much like those odds.
This doesn’t mean testing is futile or pointless. There are undoubtedly many men who would have never discovered their cancer until it had progressed quite far; the men in this group have to thank people like Mr Randall – on a personal level, he has undoubtedly helped save them. But there’s a societal cost for that benefit. Here’s one physician’s view (from the NYTimes):
“I’m a little worried we may look back on the prostate cancer screening era, after we learn results of clinical trials, and see that we’ve harmed a lot of people without doing them good [emphasis added],” said Dr. David Ransohoff, a professor of medicine and cancer screening researcher at the University of North Carolina at Chapel Hill. “By being so aggressive with so many people, did we do the right thing? I don’t know that it’s going to turn out that way.”

Dec

Why health reform will be so tough

Posted by Joe Paduda on Monday, December 15th, 2008 | Comments

From the world of workers comp comes a crystal clear picture of what’s wrong with America’s health care system, and how difficult it will be to get it right.
WorkCompCentral has a piece this morning about California’s proposal to not recommend topical analgesics – creams and ointment that are compounded at the pharmacy.
The pharmacy community doesn’t like the proposal, claiming “there’s [sic] prescriptions for these medications, patients have been getting relief, and we think that they should continue to be reimbursed for the medications that are being prescribed for them”.
Opponents of the proposed language also noted that it “conflicts with the DWC’s written policy stating that only “evidence-based, peer-reviewed research concerning the efficacy of a treatment can be the basis for recommending or not recommending a treatment.”
I’d suggest the opposite is the real issue – there is no evidence-based peer reviewed research documenting the effectiveness or efficacy of compounded medications. The pharmacists want to be paid for preparing and dispensing a medication which has not been shown to work. And they are pulling out the lobbyists and PR folks and ‘inhouse experts’ in an attempt to get California to back down.
Further. compounded medications are outside the scope of the the FDA’s authority.
About a third of US health care dollars are spent on treatments that are likely not effective. One has only to look at the history of MRIs, carotid endarterectomy, and angioplasty to identify billions of dollars that have been wasted on treatments that did not help, and may well have harmed, thousands of patients. These treatments, devices, and providers make money for their purveyors and manufacturers, dollars that they are loathe to give up.
Yet the approval process for these treatments/drugs/devices is is almost laughably low. Here’s how a UK researcher put it:

“the FDA dossier showed that the average improvement produced by drugs introduced in the 1960s was 17%, whereas with the drugs introduced in the 1990s it was 16%![emphasis added]…If one looks at the medical interventions we have for many diseases, whether they be psychiatric or neurological disorders, cancer, cardiovascular or respiratory or gastrointestinal problems, or almost any type of illness other than bacterial infections, what evidence-based medicine shows is that, as my colleague found, many of our interventions are pitifully inadequate. Our studies, although beautifully conducted, have been done on patient populations that bear only a limited relationship to those patients we actually see. The number needed to treat to achieve one success over and above that which could be achieved by placebo may be 10, 20, or even as high as 50. Thus, the trials actually give us almost no guidance as to the likely outcome of an intervention in the individual patient who sits in front of us. For many conditions, therapeutic effects are so small that neither the patient, nor the relative, nor the doctor is likely to be able to recognize any differences in the patient’s state as a result of our intervention. We pride ourselves on our large, well-conducted, immaculately analyzed trials that give significant results. But we have forgotten that we need to conduct such enormous trials only because our interventions are so minimally effective. If we were making a really large difference to the outcome, small trials would suffice and provide clearly significant results.”
That’s one side of the argument. Here’s the other.
I give you the condition known as ‘chronic lyme disease’. This tick borne ailment is pretty common in my area (central coast of Connecticut), in fact I live about twenty miles from Lyme. Walk down the main street in Madison and chances are you’ll encounter at least one person who has had recurrent Lyme disease – the mechanic, artist, college student, mom. Yet try to find a doctor who will treat chronic Lyme and you’ll find very few who will risk their reputation and medical license, as several physicians have been disciplined for just that.
The battle over chronic Lyme (and it is a battle) has been brutal, nasty, and vicious. Nay sayers claim no such disease exists, and cite research and articles in prestigious publications such as the New England Journal of Medicine as support for their opinions. Their opponents decry the poor quality and selective nature of that ‘research’, accuse the authors and study leaders of conflicts of interest, and note the successes – patients treated for chronic Lyme that get better.
Anecdotally, I know at least a half-dozen friends and neighbors who have suffered from some condition that robbed them of their energy, caused great pain, and prevented them from doing many of the things the rest of us take for granted. After extensive treatment (we’re talking over a year) with antibiotics, all have gotten better. Much better.
It is abundantly clear that medicine is an art as much as a science, and art is, as famously described, in the eye of the beholder.
And that’s one reason health reform, which must attack cost, will be so very difficult.

Category: Research