EpiPen: Government is Part of the Problem

Much has been written about the dramatic price hikes for EpiPens, which inject a drug that counters severe allergic reactions (anaphylactic shock). According to Aaron E. Carroll, writing in the New York Times, the real (inflation-adjusted) price of EpiPens has risen 4.5 times since 2004.
Both Carroll and the Wall Street Journal have described how government has allowed EpiPen’’s manufacturer to hike prices so much. EpiPen is complicated, being both a drug and a device. The drug is very inexpensive, and not patented. The device is protected by patents issued in 2005, which expire in 2025.

First, the government made a couple of interventions in the market that allowed the manufacturer to raise prices above the free-market level. The federal government changed its guidelines such that the EpiPens have to be sold in packages of two (while customers might prefer just one, or at least an odd number). Also, the federal government gave public-emergency grants to states on condition they stockpile EpiPens.

Gross Domestic Product: Health Services Grow Over Five Times Faster Than “Sluggish” Non-Health GDP

Today’s second estimate of second quarter Gross Domestic Product confirms spending on health services is dramatically outpacing other “sluggish” GDP growth. Fixed investment, durable goods, and inventories continued to collapse, while imports increased. Therefore, growth in services spending grew much faster than GDP. In real (inflation-adjusted) dollars, services grew 4.3 percent (annualized, seasonally adjusted). As a large component of services, health services grew 3.8 percent.  While real GDP growth was 1.1 percent, once health services is stripped out, non-health GDP grew just 0.7 percent (Table I).

Telehealth Opportunity or Telehealth "Parity"?

Health Alert: Telehealth Opportunity or Telehealth “Parity”?

(A version of this column, with hyperlinks, was published by Forbes.)

Telehealth provides a great opportunity to reduce costs and improve quality in U.S. health care. It uses information technology to eliminate distance within the system. A subset of telehealth is telemedicine, which allows physicians to consult patients over the phone, by text, or video.

Take a couple of obvious examples: Telepsychiatry, whereby a patient undergoing talk therapy has a session with his psychiatrist over the phone instead of having to go to the doctor’s office; or e-prescribing, whereby a patient can describe symptoms over the phone or send a photo (of, for example, a rash) and the doctor can prescribe immediately (if appropriate).

Most people tend to categorize these as “no-brainers.” If we paid for our own care directly, these and many other examples would have long since taken off. However, because payment for medical care is dominated by health insurers and government, these innovations have been stifled. Third-party payers impose obstacles because they fear paying fraudulent claims.Nevertheless, telemedicine is growing.

Single-Payer Setback: Canadian Doctors Without Contract for Two Years

Physicians in Canada’s largest province, Ontario, have rejected a contract negotiated between the Ontario Medical Association and the provincial health ministry. The more than two-year old dispute shows no sign of ending.

Every Canadian is covered by his provincial government’s health plan. So, doctors have only one plan with which to contract. Each doctor cannot decide how much he wants to charge his patients. Instead, he is dependent on a centrally bargained contract which determines fees for every procedure and practice from the skyscrapers of downtown Toronto to windswept hamlets on the frozen shores of Hudson’s Bay.

Artificial Intelligence, Machine Learning, and the FDA

(A version of this column, with hyperlinks, was published by Forbes.)

In July, the Food and Drug Administration issued guidance on three topics important to the future of medical innovation. These welcome guidelines demonstrate the FDA is doing the best it can to ensure it does not interfere inappropriately with advances in medical technology that rely on processing information.

However, the guidelines also show the FDA will be limited in its ability to respond effectively to future innovations. Current law does not really define the FDA’s powers to regulate devices that depend on advances in artificial intelligence and machine learning, as applied to health care. Guidelines give medical entrepreneurs some comfort the FDA will not impose an undue regulatory burden on them, but they are no substitute for legislation precisely defining the FDA’s powers in the digital age.

A Dull EDGE: The Administration Believes Obamacare’s Costs Went Down

The Centers for Medicare & Medicaid Services (CMS) has just made the remarkable claim that medical costs paid by health insurers operating in Obamacare’s exchanges declined in 2015 from 2014:

Per-enrollee costs in the ACA individual market were essentially unchanged between 2014 and 2015. Specifically, after making comparability adjustments described below, per-member-per month (PMPM) paid claims in the ACA individual market fell by 0.1 percent from 2014 to 2015. For comparison, per-enrollee costs in the broader health insurance market grew by at least 3 percent.

The report compares apples to oranges. When discussing the change in costs in the exchange, it estimates medical claims. When discussing changes in employer-sponsored health insurance, it estimates premiums (which increased 3 percent). The average Obamacare premium increased 5.2 percent in 2015, more than employer-sponsored coverage. (See note below.)

The "Right to Shop" For Health Care

Anyone who has undergone a medical procedure knows it is very difficult to figure out how much an insured patient will pay out-of-pocket. It is often not clarified for months after the procedure, after a flurry of incomprehensible paperwork from insurers, doctors, labs, et cetera, has landed in the patient’s mailbox.

(Personal aside: A couple of years ago, my health insurer encouraged me to go paperless, and I signed up for electronic messages about claims. It was so confusing, I went back to paper after a few months. At least you can scrunch up a letter and throw it across the room with an anguished scream, which you don’t want to do with your computer.)

This problem has led to a bunch of state laws attempting to impose “price transparency” on medical providers. As discussed previously, they do not work, because relationships between insurers and providers inhibit transparency. Medical providers “customers” are insurers, which pay most of their claims, not patients. Further, the real problem with medical prices is not that they are opaque, but that they are not formed in a normal market process. Instead, they are negotiated by third-party bureaucracies.

Consumer Price Index: Medical Prices Continue Upward March

The Consumer Price Index for July was flat. Medical prices, however, continued their upward march, increasing by one half of one percentage point. If prices for medical care had been flat, the CPI would have declined by 0.1 percent. Prescription drugs, physicians’ and other medical professionals’ services, and health insurance stand out even within medical care.

Over the last twelve months, prices for medical care have increased almost seven times faster than prices for non-medical items in the CPI. Price increases for medical care have contributed 40 percent of the overall CPI increase.

Many observers of medical prices decline to differentiate between nominal and real inflation. Because CPI is flat, even relatively moderate nominal price hikes for medical care are actually substantial real price hikes. Consumers are seeing no relief from high medical prices.

(See Table I below the fold.)

Incentives Matter: Medicare’s Hospital Readmissions Penalties Are Having An Impact

In 2012, Medicare began to penalize hospitals which had too many readmissions. For a small number of targeted conditions, the program compares actual readmissions within 30 days to what an acceptable readmission rate should be. This is an important part of the drive to “pay for value, not volume.”

For example, if a patient who had a knee replacement is readmitted within 30 days because the implant was poorly implanted, the hospital used to profit from that readmission because the extra costs would just be submitted to Medicare for reimbursement.

PPI: Health Price Inflation Low, But Not Low Enough

This morning’s Producer Price Index came in unexpectedly low, decreasing 0.4 percent versus an expected slight increase of 0.1 percent. Except for nursing home care, which increased 0.9 percent, producer prices for medical goods and services decreased or increased very modestly. Of 15 medical goods and services measured in the PPI, four actually experienced price decreases over the month. This number includes pharmaceutical preparations. However, because overall PPI actually deflated significantly, all medical prices increased at a faster rate than the overall PPI (Table 1).

The Dead-Weight Cost of Obamacare’s Confusing Tax Credits

Obamacare crushes jobs because of its loopy distribution of tax credits. As discussed previously, the tax credits (which reduce premiums) for Obamacare coverage phase out in such a way that beneficiaries face very high marginal income tax rate hikes at household incomes up to 400 percent of the Federal Poverty Level.

However, even those who increase their incomes despite the higher tax burden face the hassle of figuring out how much they owe in tax and premium at the end of the year. This imposes a dead-weight loss on the economy, wasting people’s time and energy. Here is an example:

The "Public Option": Obamacare's Last Stand

(A version of this article was published by RealClearHealth.)

Most Americans disapprove of Obamacare. In a poll conducted in July by the Kaiser Family Foundation, which supports the goals of Obamacare, 46 percent of respondents disapproved of the law while only 40 percent approved. The first poll was conducted in April 2010, when Obamacare was fresh off the press. Then, 46 percent of the public favored the new law, while 40 percent opposed. In July 2010, half of respondents voiced support for the law. In the mind of the American public, that was Obamacare’s high-water mark. It has been downhill since then.

Another Obamacare Architect Recognizes Its Unintended Consequences

Dr. Bob Kocher, an Obamacare architect turned venture capitalist, has admitted the law has had a significantly negative unintended consequence:

When I joined the Obama White House to advise the president on health-care policy as the only physician on the National Economic Council, I was deeply committed to developing the best health-care reform we could to expand coverage, improve quality and bring down costs. 

What I got wrong about ObamaCare was how the change in the delivery of health care would, and should, happen. I believed then that the consolidation of doctors into larger physician groups was inevitable and desirable under the ACA.

Well, the consolidation we predicted has happened: Last year saw 112 hospital mergers (up 18% from 2014). Now I think we were wrong to favor it. 

(Bob Kocher, “How I Was Wrong About Obamacare,” Wall Street Journal, July 31, 2016.)

Arkansas’ Medicaid Expansion Improved Access to Care (At A Very High Price)

Arkansas has a love-hate relationship with Obamacare. The previous (Democratic) governor, Mike Beebe, made a deal to accept Obamacare’s Medicaid expansion but with an interesting twist. Obamacare significantly increased the number of Americans who could become dependent on Medicaid by increasing the income cut-off for eligibility. Many governors rejected the federal funds offered to expand this welfare dependency.

Governor Beebe took the money, but instead of using it to expand Medicaid for the newly eligible, he used it to subsidize beneficiaries’ purchase of private plans in Obamacare’s health insurance exchange. His successor, Republican Asa Hutchinson, and the Republican-majority legislature, decided to continue the program.

According to new research published by the University of Pennsylvania, this “private option” yielded dramatically improved access to care. In a “secret shopper” survey, callers identifying themselves as dependents on traditional Medicaid were able to make appointments with primary-care physicians in 55.5 percent of attempts. Medicaid dependents enrolled in exchange plans got appointments 83.2 percent of the time.

Health Services Jobs Grew 75 Percent Faster Than Non-Health Jobs

This morning’s jobs report was the second month in a row of good news on the employment front. However, like last month’s report, jobs in health services grew much faster than non-health jobs. Health services added just 43,000 jobs in July comprising 17 percent of the 255,000 civilian non-health, non-farm jobs added (Table I). The monthly rate of growth in health services jobs was 75 percent more than for other jobs. The shifting of jobs towards the government-controlled health sector continues.

Double-Digit Premium Hikes Debunk California's "Active Purchaser" Claim

(A version of this Health Alert was published by Orange County Register.)

With some embarrassment, Covered California (the state’s Obamacare exchange where people can purchase health coverage) has announced the average premium hike next year will be 13.2 percent. For many subscribers, the hike will be much greater because of the way federal tax credits discount premiums.

This year, a 40-year-old single person making between $17,820 and $23,760, can buy a Blue Shield Silver level plan with a monthly premium of $318. However, the subscriber only pays $122 while the federal government chips in $196. Next year, the premium will go up 2 percent to $381, of which the subscriber will pay $170, while the government will chip in $211. The total premium will increase by 20 percent ($63), while the subscriber’s net premium will increase 39 percent ($48).

Health Construction Shrinks Twice As Fast As Other Construction in June

The see-saw in health facilities construction continues. Health construction starts dropped 1.4 percent in June, versus a drop of 0.6 percent for other construction (Table I). However, there was a significant difference between the private and public segments.