JAMA Wants To Restrict Competition for Pharma Dollars

Many elite, academic doctors would like to believe that they can create a world where human beings do not influence other human beings. This makes them ashamed of their profession's relationship with research-based drug companies. They believe that any item or communication from a pharmaceutical representative, be it a branded pen or an all-expenses-paid conference in the Caribbean, corrupts. If such contacts were forbidden, only scientific evidence would influence doctors' behavior.

But this dream-like state has a more down-to-earth element to it as well, especially from the elite medical journals, which profit from advertising. The Editor-in-Chief of JAMA, the Journal of the American Medical Association, has collaborated with academic medical colleagues to pen an opinion in the journal which states that professional medical associations (PMAs):

".....should work toward a complete ban on pharmaceutical and medical device
industry funding ($0), except for income from journal advertising and exhibit
hall fees."

Well, I guess that will make JAMA's advertising sales staff happy!

But I should be more courteous: the writers did not demand government action to restrict PMA's financing, but have simply encouraged their profession to accept these restrictions voluntarily.

Nevertheless, artificially limiting contact between inventors and doctors will reduce investors' willingness to put their capital at risk in pharmaceutical and medical-device enterprises, as I have previously described.

Health "Reform" in New York: Cost Shifting & Higher Taxes

Does New York Medicaid pay too much for hospitals' inpatient procedures, like governor Paterson asserts? Well, maybe - but if so, that would be a truly remarkable devation from the national average, for which various estimates show significant underpayment by Medicaid and other government programs, which hospitals subsidize by shifting costs to private payers. (See here and here.)

I find it hard to believe that the Empire State, alone among the states, is somehow overpaying its hospitals for appropriate procedures. But NY has a recent history (under former gov. Spitzer) of shutting down hospitals via state diktat, in order to reduce health-care costs. Mr. Spitzer also pressed a wrong-headed attack against Medicaid beneficaries' use of prescription drugs, which generally reduce expensive inpatient treatment more effectively than government command.
There is a good case that NY Medicaid overpays for long-term care, but that is because it does not have a grip on self-styled eldercare lawyers and accountants who execute asset-transfers for middle-class seniors so that they can qualify for Medicaid LTC. It's also well-known that NY Medicaid is a cesspool of corruption, which drives costs up maddeningly.

Gov. Paterson's solution? A tax-hike in order to make health-care providers even more dependent on the state, by paying community clinics, doctors, & nurse practitioners, in the vain hope that more primary, preventive care, will reduce costs.

How about returning health-care dollars to New Yorkers, so that they can spend them on care of their choice? Or doing anything that might lift NY from the bottom of the U.S. Index of Health Ownership? Nope: Those options are just not in the cards.

Friday Facts & Follies: The Small-Group Health Insurance Market

Friday Fact:

Every Friday, I look forward to the Georgia Public Policy Foundation's "Friday Facts". Today's included a quotation from GA state senator Eric Johnson, who made a great statement about school choice:

"Right now, depending on your ZIP code, you’re told where to go to school. We don’t deliver health care that way. We don’t say if you live in Fulton County you have to go to Grady [Hospital]. We don’t say if you live in Fulton you have to go to Georgia State University. We don’t tell people with food stamps they have to spend them at Kroger. But we say that if you live in this neighborhood you go to this school unless you’re wealthy enough to afford private school.”

Well, ok: the state does not tell you what hospital to go to. However, if you're a small business (usually defined as up to 50 full-time employees), the state might tell you what health insurance to get according to your ZIP code. It's called small-group reform, and it washed over states in the early 1990s.

I've written about the failure of California's small-group reform, which resulted in fewer insured Californians in small businesses and professional associations. The reform compelled private health insurers to bundle small businesses into no more than nine regions, designed by ZIP code, and forced them to offer the same plans at the same rates, largely irrespective of each employer's risks, within the regions. Of course, premiums went up dramatically.

Friday Folly:

Talking about small-group health insurance, I received a truly idiotic letter from my health insurer today. I suppose all the carriers are pretty much the same with respect to paperwork, but this letter was a howler. In order not to discriminate, I'll call the carrier "CignAetnAnthem Blue Net".

The letter seeks to determine whether I am eligible for Medicare, demanding the following: "Please indicate the reason(s) you are eligible for Medicare benefits: Age 65 or older?"

In order for me to be at least 65, I would have had to be born in 1944. Rest assured, I was born many years later. Indeed, had I forgotten this fact, CignAetnaAnthem Blue Net helpfully typed my birthdate and year at the top of the letter!

And then they ask me how old I am: Incredible!

But I can't really blame them: It's the Government that has fragmented our access to health insurance, sentencing us to different ghettos: Medicare, Medicaid, individual health insurance, small-group health insurance, large-group health insurance, self-insured (ERISA-regulated) jumbo health benefits, etc.

The Government needs to stop imposing this fragmentation and allow every American family to choose its own portable & guaranteed-renewable health policy.

Health IT: Wal-Mart's Retail Clinics Show the Way

President Obama's claim that a Health IT "system" sanctioned and subsidised by the federal government will save $80 billion has been convincincly debunked.

So: Who's got an alternative? Wal-Mart, of course. Sam's Club, its warehouse operation for small businesses, counts about 200,000 physicians amongst its members. According to the executive in charge of the new line of business: "We're a high-volume, low-cost company, and I would argue that mentality is sorely lacking in the health-care industry."

That's putting it mildly! Sam's Club will be selling a combined hardware & software package to small physicians' practice for a price much lower than currently available (it claims).
How did Wal-Mart figure it could sell the package so cheaply? From experience in its convenient, retail clinics, where it has used the technology already. Here's another example of the benefits of innovation: Instead of competing against physicians, convenient clinics demonstrate the benefits of technology that physicians can then adopt!

Increased adoption of health IT is a stated objective of the Administration and the Congressional majority. So, what are they doing for Wal-Mart? Well, they've long supported the Employee "No" Choice Act, which would make it easier for union bosses to pressure workers into certifying a union without a secret vote. Plus, just last week the Equal Employment & Opportunity Commission (EEOC) joined a lawsuit against Wal-Mart by a class of women alleging unfair discrimination in wages. President Obama's first signing was the Fair Pay Act, which skirts the constitutional prohibition on retroactive legislation.

This is not the blog to discuss all the negative consequences of these actions, which do not relate directly to health care. (Although a colleague has done so here.) Nevertheless, they will drive up costs and cost jobs at Wal-Mart, making it less likely that Sam's Club can supply health IT at the low prices it anticipates.

I guess the government just can't stand anyone getting in the way of the Beltway's vision of health IT - or society in general.

Man the Panic Stations! It's "Cover the Uninsured Week"!

The Robert Wood Johnson Foundation (which I think invests in a lot of good work), has once again decided to arm the mob with pitchforks and torches for it's seventh annual "Cover the Uninsured Week."

This year's "scare-sheet" is called At the Brink: Trends in America's Uninsured - A State-By-State Analysis. It focusses on changes in the uninsured from the last period of health reform, HillaryCare, to today. Comparing the average number of uninsured from 1994/1995/1996 to 2006/2007, it concludes that 9 million more Americans are uninsured.

Ignored in the press release is the fact that, with population growth, the proportion of "uninsured" has only increased from 16% of the non-elderly population to 17.5%. In some states, it actually decreased. In Alabama, it dropped from 17.4% to 15.4%. (Whether this has anything to do with Alabama leading the Index of Health Ownership, I cannot directly determine, but I hope there's a connection!)

Even worse, the notion that 46 million uninsured is a meaningful number has been debunked in a number of places, including this book, a briefing paper on California's uninsured, and an analysis of the presidential campaign proposals in the 2008 election.

The media usually digests this stuff without even a burp, so imagine my pleasant surprise when the AP's Ricardo Alonso-Zaldivar's lead sentence in his coverage of the report started like this: "American workers, whose taxes pay for massive government health programs, are getting squeezed like no other group....."!

This alone is impressive: The burden of taxation to fund out-of-control government-run health care programs is nowhere in the RWJF report! Mr. Alonso-Zaldivar had this as background knowledge.

Call me crazy, but this media coverage is change I can believe in!

The FDA is a Deadly Burden on American Patients

Pacific Research Institute published my analysis of the FDA, Leviathan's Drug Problem, which concludes that the agency is actually overfunded and overstaffed, despite conventional wisdom to the contrary. The analysis argues that the problems exhibited by the FDA are a consequence of its monopoly power.

Los Angeles' King-Harbor Hospital Shows the Cost of Government-Monopoly Health Care

Every month, I write a short column called Capital Ideas for the Pacific Research Institute. It usually gets picked up by one or more California newspapers. This month, I addressed Los Angeles County's proposal to re-open King-Harbor Hospital (more appropriately known as "Killer King"), the county hospital that closed in August 2007.

St. Patrick's Day Health-Care News From Ireland: ER Charges Up 50%, Visits Down 5%

(OK, so I am a little late for St. Paddy's Day: It's the thought that counts.)

The Stockholm Network's weekly bulletin for March 18 is not yet online, but it came into my e-mail with a fascinating bit of news from Eire:

A new report in the Republic of Ireland by the Health Service Executive
(HSE) has revealed that the amount of patients attending accident and emergency
(A&E) departments has decreased by almost 5%, in the wake of increased
governmental charges for the service.

The 2009 Irish budget, presented by finance minister Brian Lenihan,
revealed that charges for A&E services would rise from €66 to €100, if the
patient has not been referred by their GP, or if they do not hold a medical
card.

The revised tariff came into force on 1st January and there are fears
that the HSE’s findings, which saw 4.5% less people attend A&E in January
2009 than in January 2008, could highlight that the new charges are frightening
people off being treated.

However, the report also claimed that “The drop in attendances was
mainly in the lower triage categories, which would explain why the lower numbers
did not result in a reduced number of admissions to hospital”.

Meanwhile, here in the Excited States of America, the government
outlaws the use of financial incentives to motivate patients to go to
doctors, or convenient clinics, or urgent-care clinics, as appropriate, instead
of going to ERs. Which, despite what you've read in the papers are
"free"
if you want them to be free, courtesy of EMTALA,
which commands all hospitals with ERs to "stabilize" anyone who presents there,
without charge.

When it comes to incentives to manage overuse of the ER, at least one single-payer country has it figured out better than the U.S. does!

Graham Interviewed on California Healthline

California Healthline, a great news service sponsored by the California HealthCare Foundation, interviewed Sacramento players, including yours truly, to discuss health reform in California, specifically SB 92, a bill to free up health insurance, about which I've already blogged.

Who's on the Obama Health Care Express This Month?

Every month, I write a short briefing paper in a series called Health Policy Prescriptions, published by the Pacific Research Institute for Public Policy. This month's article addresses the lobbying interests clustering around the White House's effort on health reform, and discusses the problems with President Obama's approach.

Massachusetts Health Care Spends $820 Million to Save $250 Million

Surely, even the New York Times can figure out that spending $820 million on the Bay State's Commonwealth Care "universal" health-care plan, in order to save $250 million in uncompensated hospital care, is not a good trade-off.

Not according to today's article on the latest state to compel its residents to buy health insurance, which reports those savings as the only positive outcome of this out-of-control program. Three years ago, Gov. Romney collaborated with the Democratic-majority legislature to achieve "universal" health care by government diktat: squeezing every resident into either compulsory private health insurance or expanded government programs, using both tax-hikes and subsidies. The taxpayer-crushing results have been discussed frequently in this community.

Today, we learn that, alongside the absurd cost/benefit ratio, the state can no longer bear the costs, which are spiralling out of control faster than other states' costs are. This reminds us of a fundamental lesson of government power: When the government orders you to buy something, the government will have to step in to decide what that something looks like.

Governor Patrick and his allies believe that they are capable of improving how health-care goods and services are priced. For example, they think payers should pay for "episodes of care", instead of bulk quantities of items or procedures. Good idea: We've heard that often from politicians with a far superior grasp of health-care realities than Gov. Patrick, e.g. former U.S. Secretary of Health & Human Services Michael Leavitt.

Sounds good to me: After all, when I fly on a plane, I pay for an "episode of travel". I don't pay a fee to the pilot, and another to the co-pilot, and another to the cabin-crew, and another for fuel, and another for "renting" my seat, and......

So, why doesn't the health-spending environment do the same?* Because the government's interference has prevented it! Blue Cross & Blue Shield of Massachusetts claims that it can move ahead on negotiating prices with providers that are based on value, not just quantities.

Maybe it could, if the state freed it to be a competitive insurer. Unfortunately, I fear that BCBS MA is so hopelessly tied up in government policy that we must consider it a public utility, rather than a risk-bearing enterprise, and have little confidence that it can work the Bay State out of the health-care mess that it's in.

(*I've decided to stop using the term "health-care system" except in extraordinary circumstances: There is nothing systemic about it!)

Obama's health-care "down-payment" is really a warning strike

My op-ed in this morning's Mesa, AZ, East Valley Tribune.

Crisis of the Overinsured: They Pay Up to Twice as Much for Hospital Services

In Michael E. Porter & Elizabeth Olmstead Teisberg's Redefining Health Care, they note that major health plans succeed by exploiting a competely artificial economy of scale. Because of the tax-code, American workers are compelled to accept health "benefits" from their employers instead of taking their health-care dollars to buy health insurance that serves their families' needs. (I'm using more libertarian language than Porter & Teisberg do.)

This artificial, perverse, government-created, economy of scale leads health plans to structure their products for groups whose members are unrelated except for the fact that they work for the same employer. Successful health plans exploit the lower distribution costs of selling to groups. Unfortunately, this has absolutely no relationship with providing good health care.
For example, if I have an inguinal hernia that requires surgery to repair it, the fact that I work for a small-group employer in California is irrelevent to the surgery I need. If I worked for a jumbo, ERISA-regulated employer like, e.g., Cisco Systems, my medical need would not differ, but I might have access to a completely different network of providers from which to choose a surgeon and hospital.

Furthermore, because a third-party payer has inserted itself in the provider-payment relationship, costs go up. Worse, patients do not know how much their procedures cost because they are merely line-items in monstrous contracts negotiated by providers and health plans. When doctors or hospitals claim that they cannot tell how much a procedure costs, they are telling the truth. This is because neither the plan nor the provider really care about your specific procedure. They care about payment for the entire portfolio of procedures done over a month, quarter, or year. The provider tries to be as creative with the "coding" of his claims as possible, in order to meet or beat a revenue target from each payer. The payer, in turn, looks for variance in the claims submitted that can justify a query and re-pricing the claims downward.

This is changing with the rise of medical tourism within the U.S. Brokers are arranging fixed-price surgeries for self-insured and uninsured parties. At least one health insurer, Wellpoint, has gotten on board. Why would it take such a step, which appears to challenge a key element of its competitive advantage?

With bundled prices agreed (and paid) before the surgery, costs are 30% to 50% less than under contracted-network pricing.

One of the major, unfounded, criticisms of consumer-driven health care is that it cannot drive down costs because only 10% of the population accounts for 70% of health costs. Once patients have met their deductible, they no longer care what procedures cost. (See, e.g. Timothy Stoltzfus Jost, pp. xi, 136.)

Innovations like "domestic medical tourism" debunk that charge utterly.

Healthy San Francisco Ready to Raise Taxes Again

I've written a lot about San Francisco's Healthy Access Plan, the employer "pay or play" mandate that hikes taxes on small businesses to fund San Francisco's public-health bureaucracy. The Golden Gate Restaurant Association, which has been leading the legal fight for relief from this excessive tax, has just suffered another setback. An 11-judge panel of the U.S. 9th Circuit Court of Appeal has refused to overturn a ruling that the San Francisco health-tax was legitimate.

It's perfect timing for the money-hungry bosses at City Hall: On February 10, the mandate expanded to cover employees earning up to $106,000 annually, per household. But the health-tax barely begins to cover the costs of this program: It's only raised $35 million since January 2008, while it costs $170 million annually - over $5,000 per enrollee. Despite this cost, SF HAP has failed to attract any significant participation by providers: 55% of beneficiaries have "medical homes" directly at the Department of Public Health and 43% are enrolled with members of the San Francisco Community Clinic Consortium.

Sorry, San Francisco: A tax hike to expand the public-health buraucracy is not universal access to health care.

Graham testifies to California State Senate Health Committee

Film from February 25, 2009. After the introduction, I speak for 5 minutes, and then get scolded for not caring about sick people, because I assert that they - rather than the state - should control their health-care dollars.

Happiness is a Warm Gun, Momma: Two New State Rankings

As the (vain) author of the only index ranking state's health-care policies, I'm thrilled to see new scholars enter the field of measuring states according to metrics that intersect or are adjacent to the Index of Health Ownership. Two new indexes have just been published.

Gallup, the well-known polling organization, teamed up with America's Health Insurance Plans (AHIP) a year ago to produce an Index of Well-Being, which just released its first comprehensive edition. It comes from polling data and purports to measure which states are "happiest", according to the media. The survey asks a broad series of questions about "well-being" including possession of health insurance and access to medical care (which are not the same thing, at all).

Second, scholars at the Mercatus Center at George Mason University have released Freedom in the 50 States: An Index of Personal and Economic Freedom. Freedom is a very libertarian index, including assessments of laws restricting the right to bear arms. (Hence, the title of this post.) It also intersects very closely with the Index of Health Ownership in three areas: health-insurance regulation, occupational licensing, and tort liability. The authors use CAHI's Health Insurance Mandates in the States (as do I) to measure the impact of states' mandated benefits and other regulations. However, they report extremely high costs of these mandates, which lead me to believe that they have not differentiated between total costs and marginal costs of mandated benefits - the very challenging issue that I addressed in a study published last year.

The next edition of Index of Health Ownership is scheduled for this summer. I intend to add a section discussing other rankings of states, and how they relate to IHOP.

Entitlement Mentality? California Pharmacies Block 5% Medicaid Cut

I think that health-care providers who want to survive and thrive in the days to come need a new, self-imposed, guideline for their businesses:

"If government revenue is so important to you that a 5% cut drives you into court to recover it, you are too dependent on government revenue."

California pharmacies have succeeded in rolling back such a cut in the U.S. district court. (Although the state is commanding the rollback, the pharmacies allege that it violates federal law.)

OK, so Medicaid's incentives are so perverse that the state cannot even decide what Medi-Cal's dispensing fee should be. (Not that I think the state is economically competent to do so, but the idea that it is not legally competent to do so is pretty obnoxious to me, as a California taxpayer. It's not like the state has gone out of its way to protect me from out-of-control state spending otherwise.)

But what's more disturbing is that the state's pharmacies are so dependent on Medi-Cal that they went to court to block the cut. In today's economic climate, many buyers are demanding price reductions far greater than 5% of their suppliers. Unfortunately, they don't have the courts to fix prices for them.

This is a short-term victory for the pharmacies. As long as they are dependent on Medi-Cal their fiscal woes will mount.

Class-Action Lawsuits Gone Wild

By itself, this isn't such a big deal: A non-profit hospital system in upstate New York settles a class-action lawsuit brought by a couple of nurses for $1.25 million. Plaintiffs alleged that the hospitals conspired to artificially lower nurses' wages.

The Wall Street Journal reports that the settlement will be filed today at the U.S. District Court for the Northern District of New York. Another paper reports that the suit was duplicated in Detroit, Chicago, Memphis, & San Antonio.

I have previously written, in a related context, that federal anti-trust law should not apply to contracts between hospitals and health professionals. I think that this case confirms the flaw.

Generally speaking, I think anti-trust law is nonsensical. However, if it must exist, state anti-trust law should suffice in these cases. Hospitals and health professions are regulated by the states, so states' laws should respond to the consequences of that power. There is no reason to believe that federal anti-trust laws are superior, especially when these cases do not bleed across state lines.

On the other hand, the scope for lawyers' mischief-making is high. What benefit would it be to a hospital in Albany, NY, to conspire with hospitals in Memphis or Detroit to fix nurses' wages? Very little, surely, given that the conditions of work and cost of living, and even scope of practice of the profession, varies across regions.

On the other hand, what a jackpot for the lawyers if they can lead nurses nationwide on a fishing expedition! This appears to be the case, as Northeast Health has agreed to spill the beans on other hospitals, too.

U.S. Cannot Afford ObamaCare: Op-ed in Los Angeles Daily News

The LA Daily News ran my op-ed challenging President Obama's approach to health reform, and proposing an alternative. Enjoy.

Is Big Pharma's Policy of Appeasement Backfiring?

Some folks (here and there) have been pretty shocked by an interview with Billy Tauzin, CEO of PhRMA, the research-based drug-makers' trade association. In it, Mr. Tauzin suggests that his trade association would be happy to see President Obama expand health coverage through government power, instead of competition, because more people would be using prescription drugs.

The interviewer, MSNBC's Mike Huckman, simply cannot believe it. He asks for confirmation, more than once. Mr. Huckman seems to understand something that Mr. Tauzin has forgotten: government domination of health care leads to price controls - and drug-makers do not "make it up on volume", as I've discussed.

Pfizer CEO Jeff Kindler gave a similarly disturbing speech on February 9, in which he reported that "broad agreement is emerging on some basic principles," by which I suspect he means that Pfizer has polling data informing the company how to frame its image as an agent of change rather than an obstacle. Like most emerging broad agreements on principles, it reveals itself as internally contradictory under examination.

No matter: Mr. Kindler let it be known that Pfizer is now more at ease with government-run health care, because Britain's National Health Service had just approved reimbursement for Pfizer's Sutent to treat kidney cancer.

But perhaps Mr. Kindler spoke to soon: Earlier this week, the NHS decided that it would not pay for Sutent to treat a rare form of stomach cancer, which is terminal otherwise.

Not that I think this'll be enough to make Big Pharma jump off the ObamaCare express - but I hope they figure it out before the train picks up too much speed.

John R. Graham on ObamaCare on NPR

Yours truly, Michael Krasny, Professor Alan Enthoven, & Professor Helen Halpin go back and forth on Obama's health-care effort. I think my high-water mark was referring to the health insurers, pharmaceutical companies, and corporate America! Listen to the audio.

Bailout Letdown: "Stimulus" Won't Rescue Medi-Cal

If there's anything sadder than individuals being dependent on the state for health care, it's the state being dependent on the federal government. It's a shame that Gov. Schwarzenegger didn't join Gov. Sanford (SC), Gov. Perry (TX) and a few others who plan to reject some of the bailout loot.

The specific boondoggles that the governors honed in on were things like "green buildings", but they suggested declining Medicaid matching funds, too. After all, making more people dependent on government for health care only hurts them when they can't get the services they need.

It looks like that's what will happen to California, despite Gov. Schwarzenegger's cheerleading the stimulus. Although the governor has a squad of lobbyists in Washington, DC, pressing California's case, it looks like the Golden State will end up with a bailout of only about $8 billion, not the $11 billion recklessly promised by U.S. Sen. Barbara Boxer.

The result: Among other consequences, Medi-Cal beneficiaries will likely lose dental and podiatry services, starting July 1.

Politicians make promises that they cannot keep, and the most vulnerable suffer. When will we ever learn?

Wyeth v. Levine: States' Rights Trump Federal Pre-emption

This morning, the U.S. Supreme Court announced a 6-3 decision in favor of the plaintiff in Wyeth v. Levine. The case addressed whether the Vermont Supreme Court erred in upholding damages, based on Vermont's product-liability law, against Wyeth for supplying a drug without adequate warning of its risks. I've written a series of blog entries on this case, expressing great dissatisfaction with Wyeth's argument that the federal government should exert a legal monopoly over information that a drug-maker can put on its label.

The Supremes' majority held that Wyeth promoted a "cramped reading" of pre-emption in the Food, Drug, & Cosmetics Act, and noted that Congress had never asserted the FDA's pre-emptive power. Rather, this was inserted by the Bush Administration in regulatory language as recently as 2006. Finding no Congressional intent to pre-empt, the majority found against Wyeth. The majority also found that the FDA erected no legal obstacle to Wyeth's amending its label to conform to Vermont law.

Concurring, Judge Clarence Thomas went even further. (Thanks to a Lexis/Nexis subscription, I've been able to read the whole decision.) While the majority suggests that Congress could have asserted pre-emption if it wanted to, Thomas argues that the 10th amendment to the U.S. Constitution deprives the Congress power to pre-empt states' product-liability laws at all. Thus, he finds himself in opposition to other cases where the Court has upheld pre-emption.

So, Wyeth's (and, by extension, the research-based pharmaceutical industry's) campaign for pre-emption has ground to a halt. And it is not likely to pick up steam under President Obama and the current Congress, who surely favor trial lawyers.

Defeat? No: Rather an opportunity to re-think creative ways to reform product-liability law while preserving states' sovereignty, as I've suggested before.

(Although, I have changed my mind on this issue at least once: See this link and this link.)