Latest Blog Posts & Articles

The Future of Disease – in One Picture

Here are some projections on what illnesses Medicare enrollees are experiencing now, and what they will be experiencing 20 years from now, courtesy of the Brookings Institute:

Future of Disease

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So Much for the Job Killing Effects of Obamacare

Despite passionate warnings that the Affordable Care Act would demolish the American economy, things haven’t exactly turned out that way. Here is evidence Dan Diamond circulated a while back. Dan is someone I suggest you follow on Twitter if you want more pictures like these:

So Much for Job Killing Obamacare

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Action Movies Create Couch Potatoes

ICYMI: When people watch action movies, they consume more calories.

Action Movies Create Couch Potatoes

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Cancer Drugs Aren’t As Cost-Effective As They Used To Be

Cancer drugs have become increasingly expensive in recent years. No one blinks anymore when a new lung cancer or colon cancer treatment comes to market priced at more than $100,000 per patient. In part, we don’t blink because we have simply gotten used to such prices – the shock has worn off. Moreover, many of these new treatments are targeted therapies that only work for patients whose cancers express specific mutations, targeting the specific genetics underlying their neoplasms. Because these treatments are targeted, we know that only a subset of patients will receive them, thereby limiting the overall cost of the therapies. We are willing to give pharmaceutical companies some leeway in pricing these drugs, because we recognize that such targeted therapies limit the pool of patients pharmaceutical companies can count on to recoup their investments. In fact, due to such precision targeting, we even hope that the new treatments will be so much more effective against cancers they will justify their high prices.

Unfortunately, a study by David H. Howard and colleagues shows that new cancer treatments, on average, are less cost-effective than older ones.  The price of cancer drugs is rising faster than the effectiveness.

In the simplest terms, cost-effectiveness quantifies the ratio between how much an intervention raises healthcare costs and how much it improves health outcomes. For advanced cancers, one important outcome is whether the treatment increases patient survival. A $100,000 treatment that increases life expectancy by an average of, say, six months would have a cost-effectiveness of around $200,000 per life year. (The actual cost effectiveness could differ, depending on how the drug influences other healthcare costs.) That $200,000 per life year cost-effectiveness ratio is on the border of what health policy experts think is worth spending for a year of life. And if that extra year of life is of low quality, the intervention would be deemed even less cost-effective.

(To read the rest of the article, please visit Forbes.)

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Want to Pay Higher Prices? Try a For-Profit Hospital!

Expensive medicineIf she had been eligible for Medicare, the hospital would have charged the government $10,000 for the services it provided to her, with Medicare picking up most of the tab. But lacking insurance, she was billed directly from the hospital, and not for a mere $10,000. The total charge: $120,000!

That 1200% markup is extreme. But  out of the 50 U.S. hospitals with the largest price markups, 49 are for-profit institutions, marking up charges 9 to 12 times above what Medicare would pay. That is the conclusion drawn in a recent study published in Health Affairs The U.S. hospital industry has a price problem. And as it turns out, that problem is especially problematic at some of our largest for-profit hospital chains.

Before I dig in to the details of these markups, let me provide a quick refresher on hospital pricing. If you call up the nearest hospital and ask what they charge for, say, a hip replacement, you will quickly learn that most hospitals don’t charge a single price for this procedure. (To keep things simple, let’s ignore the physician fee part of this equation, and just stick with the hospital charge.) The hospital will have a Medicaid price, and a Medicare price. They will have a price they charge BlueCross, and another they charge Cigna, and yet other prices for yet other insurance companies, each price the result of company to company negotiation. And finally, they will have the charge master price – the amount they bill for people without insurance, or for people receiving the procedure outside of their insurance network, or for people paying for the procedure with workers’ compensation insurance. These charge master prices were the main focus of Steven Brills’ influential Bitter Pill essay in TIME Magazine. And as I’ve written about before, charge master prices are often arrived at capriciously. Some experts might even contend that such prices don’t matter much because so few patients, or payers, pay this full price.

But as it turns out, these prices are not completely capricious, and for-profit hospitals raise their prices for very savvy financial reasons. You see, the charge master can be a starting point, what behavioral economists call an “anchor,” for negotiations with payers. In addition, high charge master prices pad the bottom line for hospitals, whenever they serve patients who pay the full price. And there remain a large number of people in the United States who, despite the Affordable Care Act, do not have health insurance and therefore will be charged this full price.

(To read the rest of this article, please visit Forbes.)

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What’s a Fair Price for a Medication?


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Greedy pharma execs have been in the news of late. Here is a story on the topic, from Wired. The reporter misquotes me. I never said Apple could make profits selling iPhones for $10. I said that even if they could profit at that price, they’d be crazy to do so if people would pay lots more.

Martin Shkreli is the Internet’s villain of the week. After buying and then immediately jacking up the price of a drug that treats a potentially deadly parasite, he’s become a sneering meme in social media, a think-piece punching bag, and a policy springboard for presidential candidates. He gives a bad name to former hedge fund pharmaceutical CEOs everywhere.

How can that be? Drug companies and greed are supposed to go together like bankers and um, greed. Shkreli recently capitulated to the public outrage and said he’d drop his drug’s price. But he hasn’t backed down from his rationale for the original price hike: This is what it takes to do research, to be profitable, to be successful in his highly regulated industry.

And in a way, he’s right. Long before you ever have a chance to balk at drug prices, the companies that make the medicine rack up billion-dollar tabs from research, development, and clinical trials. Insurance companies negotiate for distribution, and whittle more money away from a company’s bottom line. Not to mention that without profits, investors won’t invest in pharma, and drugs won’t get made. So is Shkreli really an excessive rogue actor, or is he merely playing by the same rules as the rest of the pharmaceutical industry?

Drugs start in laboratories. Some scientist—at a university, government lab, or pharmaceutical company—finds a chemical compound that seems to have some effect on some malady. She or he isolates the compound and tests its effects on individual cells in petri dishes, then animals, building a case for human use. This preclinical work, called drug discovery, can take three to four years, and only about one in 1,000 compounds survive to get tested on human beings.

Human tests—called clinical trials—are the gauntlet of drug development, and have three phases. The first tests the drug for safety, the second for dosing, and the third makes sure the drug is effective enough against whatever it targets that it’s worth putting on the market. Lasting anywhere from five to ten years, only about one in ten drugs survives clinical trials to market.

Time (plus scientists, plus lab space, plus equipment, plus patient recruitment, plus test after test after test) is money. A 2014 report from Tufts University Center for the Study of Drug Development found that the average cost of going from chemical compound to clinical trials to FDA-approved drug is $2.7 billion. Even drugs that fail early can cost companies millions. “There’s a saying, that it costs a billion to produce the first pill, and 10 cents to produce the second,” says Rachel Sachs, a fellow at the Petri-Flom Center for Health Law Policy, Biotechnology, and Bioethics at Harvard Law School.

Pharmaceutical companies make a lot of hay about these costs, but they aren’t the end-all be-all for a drug’s final price. “If I’m the pricing person for something, I’m not looking at how much we spent making it,” says Peter Ubel, a physician and professor of business and public policy at Duke University. “I’m looking at what I think the market will bear.”

“What the market will bear” is an phrase you’ll hear frequently when you start asking people about drug costs. What it means is nobody outside the company really cares how much a pharmaceutical company spent developing a drug. Markets care about a drug’s perceived value.

Think about when Apple debuted the iPhone, says Ubel. “There were crazy research, development, and production costs, and they probably could have sold the thing for $10 and still made a profit,” he says. But Apple figured that people would pay $500, and so that’s what they charged.

(To read the rest of the article, please visit Wired.)

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Are Medicare Prescription Benefits Too Stingy?

StingyThe bill she received in the mail revealed a staggering figure — $9,225 for one infusion of Avastin, a chemotherapy drug. And she would need many more such infusions. Fortunately, the dollar amount is what medical experts call a “charge,” which in normal marketplaces refers to the amount a provider expects for the good or service in question, but in healthcare means: the amount the provider reports billing to the payer, which has almost nothing to do with what we expect the payer to pay.

Phew! She scanned the bill more closely. The $9,000+ figure was followed by several other figures – the amount the insurance allows the doctors to charge, for example, plus (most importantly) the amount she was expected to pay out-of-pocket. As it turns out, for most Americans with private insurance, that out-of-pocket value will be quite reasonable. For Avastin, privately insured patients pay an average of $228 per treatment. That still is a lot of money for most people, but it is mere fraction of the overall cost. Insurance companies, in fact, pay an average of $4,461 for each Avastin treatment, based on data from 2012.

But there’s a very important third party payer that is not so generous, a payer that more than 55 million Americans count on for help with medical bills. That payer, of course, is Medicare. (To read the rest of this article, please visit Forbes.)


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More on Merger Mania

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I recently wrote something in Forbes about all the mergers going on in the U.S. healthcare industry. Well here is a nice article about the growth of the healthcare system in Western North Carolina, that explores some of the same issues. Check it out:

Mission Health Partners, the Accountable Care Organization of Mission Health System, is adding 550 specialists to its network next year, according to a statement released Thursday morning.

The network, which Mission says is the second largest in North Carolina, has 275 primary care physicians.

Mission formed Mission Health Partners in June 2014. This group is different than Mission Medical Associates, which represents the company-employed doctors. It was created by private physicians, the hospital, company physicians and community health centers working in a group. Mountain Area Health Education Center also had input. Doctors who join the ACO get to tap into a system designed to share data on patients across the population.

They give up some independence in that they have to follow standards of care set by the ACO and share data on patients. But they could be financially rewarded for meeting goals.

“In general, expanded networks offer the possibility for better coordinated care,” said Dr. Peter A. Ubel, a physician and behavioral scientist who also is associate director of Duke University’s Fuqua School of Business Health Sector Management program.

“But that all depends on whether the network develops things like electronic medical records that enable its clinicians to easily communicate with each other,” said Ubel, who added that he didn’t know the Mission Health Partners network well.

Mission’s patients could see their health costs go up, he said.

“Larger networks also give health care providers more negotiating leverage with insurance companies, which could mean that prices will rise and, therefore, that insurance premiums might rise, too,” Ubel said. “But whether that happens depends in part on whether the insurance companies in the same area are also consolidating.”

To read the rest of this article, please visit the Citizen Times.

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Merger Mania in Medicine — What Will It Cost Us?

The federal government is currently debating whether the big six health insurance companies in the U.S. will soon become the big four. Aetna and Humana have announced plans to merge, as have Anthem and Cigna. The American Hospital Association and the American Medical Association strongly oppose the mergers, saying they will reduce competition in consumer markets.

Meanwhile, healthcare provider groups continue to consolidate. Small hospitals either get swallowed up by larger ones or risk going out of business. The federal government even seems to be encouraging provider consolidation, by establishing incentives for them to form accountable care organizations, or ACOs.

Standard economic theory holds that when firms gain too much market power, prices rise. Will that be the consequence of healthcare consolidation?

The short answer is: no one knows, because so much depends on the relative power of payers and providers in individual markets.

If consolidation was limited to providers, prices would rise (absent government intervention). For example, prices for total knee replacements have been shown to be higher in markets where orthopedic surgeons have bonded together in larger organizations. This is the finding of a study led by Eric Sun from Stanford University. Sun collected information on physician fees for this procedure, from a database of health insurance claims. He also figured out how competitive orthopedic markets are in different parts of the country. In some markets, patients can choose from a wide range of independent orthopedic surgeons. In more concentrated markets, their choices will be more limited, due to the existence of large orthopedic groups that account for a high proportion of local services. Patients in those more concentrated markets will face, on average, a $200 increase in the fee their surgeons charge for such services.

Merger Mania in Medicine -- What Will It Cost Us

The price of healthcare in the U.S. is determined in part by negotiations between payers and providers. When a large group of orthopedic surgeons commands a significant percent of business in a given area, they are in a good position to bargain for higher fees from local insurers.

What happens, then, when insurers gain market share? (To read the rest of this article, please visit Forbes.)

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Does Africa Have an Overeating Problem?


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