Health Spending Tame in Strong Q3 GDP

For those (like me) concerned about how much health spending continues to increase after Obamacare, today’s flash report of third quarter Gross Domestic Product brings good news. Of course, the flash GDP report is subject to significant revision. Nevertheless, it is good to have a breather from the second quarter, which was dominated by growth in health services spending.

Overall, real GPD increased 2.9 percent on the quarter, while health services spending increased only 2.3 percent, and contributed only 9 percent of real GDP growth. Growth in health services spending was also in line with other services spending and personal consumption expenditures (PCE). Also, the annualized change in the health services price index increased by 1.6 percent, very close to overall GDP.

(See Table I below the fold.)

Obamacare 2017 Premium Hikes 25 Percent

The Administration has confessed the average 2017 Obamacare premium hike for the benchmark (second-lowest cost) Silver plan will be 25 percent. (Back in June, it looked like the hike would be 16 percent.)

Don’t worry, says the Administration, tax credits will ensure beneficiaries only pay a fraction of their premiums. It is true, very few people would buy Obamacare plans without the tax credits the Administration cheers. However, that is not a sign the plans are "affordable," but only that taxpayers are bearing more of the burden.

Nor do the tax credits actually prevent people from sticker shock. In fact, the design of the tax credits usually makes the net premium hike higher than the gross premium hike. For example, the average premium hike next year in California will be 13.2 percent, but a 56-year old woman in Los Angeles just learned her premium will jump 57 percent next year.

California's Public Option Would Not Rescue Obamacare

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

Dave Jones, California’s Insurance Commissioner, has lifted a page from Hillary Clinton’s playbook for the rescue of Obamacare – the so-called “public option.” The public option would probably look at lot like Medicaid. Its proponents give it a less pejorative name to lull people into a false sense of confidence that the market for private health insurance would not be harmed more than it already has by Obamacare. 

However, the public option would surely lead to more of the same problems Medi-Cal (California’s Medicaid program) has experienced – poor access to care and exploding costs to taxpayers.

They Can't Even Give It Away: Global Charity Rejects Free Vaccines

Doctors Without Borders /Médecins Sans Frontières (MSF) has decided to reject a donation of one million doses of pneumonia vaccine from Pfizer, Inc. The global health charity’s convoluted reasoning goes like this:

There is No Such Thing as “Free” Vaccines

Pneumonia claims the lives of nearly one million kids each year, making it the world’s deadliest disease among children. Although there’s a vaccine to prevent this disease, it’s too expensive for many developing countries and humanitarian organizations, such as ours, to afford.

Free is not always better. Donations often involve numerous conditions and strings attached, including restrictions on which patient populations and what geographic areas are allowed to receive the benefits.

Critically, donation offers can disappear as quickly as they come. The donor has ultimate control over when and how they choose to give their products away, risking interruption of programs should the company decide it’s no longer to their advantage.

This remarkable document goes on to praise GSK, a competitor of Pfizer’s, for having declined to offer pneumonia vaccines for free, but instead offer them for $3.05 per dose to all humanitarian organizations. I don’t know about you, but I will take free over three bucks any day.

Everybody Gets A Medal: Performance “Incentives” In Medicare Reform

In April 2015, huge bipartisan majorities passed a milestone Medicare reform bill called MACRA, which imported all the worst elements of Obamacare into Medicare. At the time, I wrote an alternative proposal, and anticipated physicians would refuse to swallow the medicine MACRA prescribed.

The gist of MACRA is that Medicare will no longer pay for “volume” but “value” in a zero-sum game wherein physicians who do not satisfy the government’s requirements for “value” transfer income to those who do. Since the bill was signed, the details have percolated from the elite physician executives who run the medical societies which lobbied for the bill down to practicing physicians. There has been pushback.

Nervous that physicians will bail out of Medicare if the government squeezes them too hard, the Administration has backtracked on MACRA’s sticks and shifted towards carrots. Last April, the Administration published a proposed rule, 426 pages long. After a lengthy comment period, the final rule, which is 2,205 pages long (!), was published on October 14.

What Holds Back Consumer-Driven Health Plans?

A previous entry discussed new evidence that so-called consumer-driven health plans (CDHPs) reduce health spending one eighth among employer-sponsored group plans run by national health plans.

CHDPs are defined as High-Deductible Health Plans coupled with Health Savings Accounts or Health Reimbursement Arrangements). These plans became available in 2005. However, they only appear to cover a little over one quarter of employed people or their dependents who are enrolled in their benefits.

The case for CDHPs is that consumers (patients) will spend their health dollars more prudently than insurers or employers will. So: How can such a small proportion of people be enrolled in CDHPs after over a decade of evidence supporting the case that they cut the rate of growth of health spending?

California’s Surprise Medical Bill Law Papers Over A Systemic Problem

(A version of this column was published by Fox & Hounds.)

Insured patients who go into hospital for scheduled surgery are often shocked to find they owe bills well beyond what they expected to pay, especially if they understood the hospital and surgeon to be in their health plan’s network. The problem usually occurs when an anesthesiologist or other specialist involved in the procedure is not in the insurer’s network. Until now, when it came to the amount the out-of-network specialist could charge, the sky was the limit. A recent Consumers Union survey found nearly one third of Americans who had hospital visits or surgery in the past two years were charged an out-of-network fee when they thought all care was in-network.

Medical Care Prices Rose Less Than Non-Medical Prices in September

The Consumer Price Index rose 0.3 percent in September. Remarkably, medical prices rose a smidgen less, at 0.2 percent. This is a big breather from August, when increases in medical prices were dramatic. Nevertheless, both prescription and non-prescription drugs increased prices by 0.8 percent. Prices for medical equipment and supplies dropped by almost as much, shrinking 0.7 percent.

Over the last 12 months, however, medical prices have increased four times faster than non-medical prices: 1.2 percent versus 4.9 percent. Price changes for medical care comprise 27 percent of the overall increase in CPI.

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. More than six years after the Affordable Care Act was passed, consumers are seeing no relief from high medical prices, which have increased over twice as much as the CPI less medical care since March 2010, the month President Obama signed the law.

(See Figure I and Table I below the fold).

Fifty Percent Increase in Share of Physicians Owned By Hospitals in Three Years

A new survey by the Physicians Advocacy Institute and Avalere Health, a consulting firm, shows a significant increase in the number of physicians leaving independent practice and joining hospital-based health systems:

·        From July 2012 to July 2015, the percent of hospital-employed physicians increased by almost 50 percent, with increases in each six-month period measured over these three years.

·        In 2012, one in four physicians was employed by a hospital.

·        By 2015, 38 percent of physicians were employed by hospitals.

Good or bad? Well, color me skeptical. This acquisition spree is driven by new payment models which seek to reward providers for “accountable” care (which I suppose is better than unaccountable care.) So far, the results of payment reform in Medicare have been trivial.

Mixed News on Generic Drug Approvals

A response to expensive patented medicines is generic competitors. The U.S. has struck a pretty good balance between innovation and low prices through the Hatch-Waxman (1984) Act, which specified patent terms for newly invented medicines, and a pathway for generic competitors to enter the market after a period.

One obstacle to generic entry in recent years was a very slow approval process at the Food and Drug Administration. This led to a backlog, which was unexpected because one important benefit of Hatch-Waxman was that generic competitors did not have to replicate the expensive clinical trials innovative drug-makers had to carry out to receive the FDA’s approval.

The FDA’s Office of Generic Drugs (OGD) considers approving generic copies of drugs upon receipt of an Abbreviated New Drug Application (ANDA) from the manufacturer. The system changed under a law passed in 2012, the Generic Drug User Fee Act (GDUFA). Recent data show improvement:

PPI: Health Prices (Except Pharmaceuticals) Stay Tame

September’s Producer Price Index rose 0.3 percent, a significant pick up. However, prices for most health goods and services grew slowly, if at all. Eleven of the 15 prices for health goods and services reported grew slower than the headline PPI. The major exception was prices for pharmaceutical preparations, which increased 1.2 percent, resuming a trend which I had hoped was breaking down. Further, prices of medicinal and botanical chemicals dropped 0.7 percent. So, price increases for pharmaceutical preparations are not coming from the ingredients.

However, over the last twelve months, prices of health goods and services have increased faster than overall PPI, which grew 0.7 percent. The tables are turned: 11 of 15 health categories experienced larger price increases than PPI did. Pharmaceutical preparations continue to stand out dramatically, having grown 8.1 percent. Nursing homes, for which prices rose 2.4 percent, might replace drug makers as the whipping boy for high health prices, but they have a long way to go.

See Table I below the fold:

The United Nations Report on Access to Medicines is a Public Health Hazard

(A version of this Health Alert was published by RealClearHealth.)

Almost one year ago, the Secretary-General of the United Nations convened a High-Level Panel on Access to Medicines, which is especially limited among the poor in parts of the developing world still suffering the burden of tropical diseases (such as river blindness, sleeping sickness, leprosy, and rabies.) According to World Health Organization, 1.7 billion people in 185 countries needed treatment for neglected tropical diseases in 2014.

In the 21st Century, such numbers are shocking. However, the panel’s recommendations would have many harmful effects on the development of new medicines that benefit patients in both the developing and developed world. Indeed, it identifies the wrong culprit in the ongoing health catastrophe in the developing world.

Rather than allow the current decentralized system of primarily private for-profit - supplemented by some government and philanthropic - funding for researching, developing, and distributing new medicines, the panel recommends governments take over this function. And not even governments acting independently, but a sort of supra-national cartel would dictate how the world’s R&D budget would be spent.

Specifically, the panel advocates that governments “negotiate global agreements on the coordination, funding, and development of health technologies.” The funding would come from “transaction taxes and other innovative financing mechanisms.” (Only a panel mostly comprised of public-sector veterans would describe tax hikes as “innovative financing.”)

The report estimates $240 billion was invested in medical R&D in 2009 and 2010, of which $144 billion was from the private sector, $72 billion from the public sector, and $24 billion from the non-profit sector. Ninety percent was from highly developed countries, especially the U.S., which the panel recognizes holds a “central position in health technology innovation.”

The purpose of a multi-lateral government cartel seizing control of this capital would be to cause a “delinkage” between R&D spending, prices and consumer costs. In other words, investors would no longer be allowed to execute business plans that channeled R&D funding to profitable therapies.

Government and the Cost of Dental Care

In July 2015, former Enron board member, New York Times columnist, and champion of ever more government control of health care, Professor Paul Krugman, wrote a disturbing blog entry:

Wonkblog has a post inspired by the dentist who paid a lot of money to shoot Cecil the lion, asking why he — and dentists in general — make so much money. Interesting stuff; I’ve never really thought about the economics of dental care.

But once you do focus on that issue, it turns out to have an important implication — namely, that the ruling theory behind conservative notions of health reform is completely wrong.

For many years conservatives have insisted that the problem with health costs is that we don’t treat health care like an ordinary consumer good; people have insurance, which means that they don’t have “skin in the game” that gives them an incentive to watch costs. So what we need is “consumer-driven” health care, in which insurers no longer pay for routine expenses like visits to the doctor’s office, and in which everyone shops around for the best deals.

Krugman goes on to insist dentistry is a consumer-driven market: Insurance is far less prevalent in dentistry than in medicine, and most dental care is routine and preventive. Yet, he points out, costs of dental care have risen at the same rate as those of other health care, not at the rate of other consumer goods and services.

Health Jobs Grew Twice As Fast As Non-Health Jobs In September

This morning’s jobs report was a return to normal, with jobs in health services growing twice as fast as non-health jobs (0.21 percent versus 0.10 percent). With 33,000 jobs added, health services accounted for one fifth 156,000 jobs added. Ambulatory sites (with the exception of labs) added jobs at more than double the rate of hospitals. Nursing and most other residential care facilities were flat (Table I).

Consumer-Driven Health Plans Reduce Spending One Eighth

The Health Care Cost Institute has released its analysis of claims data for the years 2010 through 2014, examining consumer-driven health plans (CDHPs, which HCCI defines as High-Deductible Health Plans coupled with Health Savings Accounts or Health Reimbursement Arrangements). HCCI examines a database of claims submitted by Aetna, Humana, Kaiser Permanente, and UnitedHealthcare for their employer-sponsored group plans.

CDHPs shift payment from third-party bureaucracies (that is, insurers) back to patients directly. The results continue to impress:

Digital Health Entrepreneurs Raising More Capital Than Ever (Probably)

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

A trio of new reports shows the fundraising landscape for new digital health ventures remains promising. New York’s Startup Health, an investor and accelerator, has released its report on the digital health venture market for the third quarter. Startup Health estimates $6.5 billion has been invested in digital health deals in the first three quarters of 2016, more than the $6.1 billion invested in all of 2015.

San Francisco’s Rock Health, also an investor, estimates $3.3 billion in new digital health funding through Q3. Startup Health’s figures are likely larger because Startup Health includes deals outside the United States (including a $500 million investment in a Chinses mobile medical service). Startup Health also includes deals as small as $52,000, while Rock Health has previously specified it only includes deals worth at least $2 million.

With respect to U.S.-based companies, both reports note the San Francisco Bay area continues to attract the most capital. According to Startup Health, the total is $1.2 billion – almost twice as much as New York or Boston. However, the pool is getting wider and deeper. Businesses in Philadelphia, Chicago, Minneapolis/St. Paul, Los Angeles, San Diego, Dallas, and Washington, DC, all saw good deal flow.

Who Benefits From the "Right to Try” Experimental Medicines?

The Goldwater Institute has had great success getting states to pass “Right to Try” laws. Right to Try allows a desperately sick patient to take an experimental new medicine before the FDA has approved it.

Thirty-one states have passed Right to Try. Further, U.S. Senator Ron Johnson (R-WI) has tried to get a federal Right to Try law through the U.S. Senate. However, there has been push-back. According to Allison Bateman-House of NYU Langone Medical Center, “there is no confirmed instance of anyone getting a drug through Right to Try.” Jonathan Friedlaender, a survivor of advanced metastatic melanoma, has written a compelling essay in Health Affairs, which concludes Johnson’s proposed federal law would not improve access to experimental medicines.

The problem has two parts:

Health Facilities Construction Growth Up Amidst General Decline in August

Construction of health facilities significantly outpaced other construction in August. Overall, health facilities construction starts increased 1.2 percent in August, versus a drop of 0.8 percent for other construction. Further, both private and public health facilities construction grew.

Construction of private health facilities grew 0.6 percent, versus a drop of 0.4 percent for other private construction. Construction of public health facilities increased a whopping 3.6 percent, versus a drop of 2.2 percent for other public construction. Is this what they mean by “infrastructure” spending – broken bridges and roads, while more VA and county hospitals spring up?

See Table I below the fold: