EpiPen: A Case Study of Government Harm

 

EpipenMuch 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.

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

 

BEAToday’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).

(See Table I below the fold.)

Telehealth Opportunity or Telehealth “Parity”?

 

iStock_000005825665XSmall(A version of this Health Alert 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. There is one pure-play telemedicine provider listed on a U.S. stock exchange: Teladoc, Inc. (NYSE: TDOC).

Single-Payer Setback: Canadian Doctors Without Contract For Over Two Years

 

OHIPPhysicians 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

 

Doctors Examining X-Rays ca. 1980s-1990s

Doctors Examining X-Rays ca. 1980s-1990s

(A version of this Health Alert 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.

Fortunately, new legislation that moves in the right direction – the 21st Century Cures Act – has passed the House of Representatives and will hopefully finish its passage through the Senate quickly enough that reconciliation between the two chambers can take place, and a good bill will pass before the 114th Congress adjourns.

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

 

HealthcaredotgovThe 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

 

credit-card-2Anyone 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.

CPI: Medical Prices Continue Upward March

 

BLSThe 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.

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

 

cmsIn 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.

Evidence so far suggests reducing readmission was low-hanging fruit. In the program’s fourth year, Medicare will penalize over half the nation’s hospitals a total of $528 million, an increase of $108 million over last year. It is a significant increase, but not a money-maker for taxpayers, amounting to just 0.18 percent of Medicare’s expected hospital spending of $287.1 billion in 2016.

PPI: Health Price Inflation Low, But Not Low Enough

 

BLSThis 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.

Over the last twelve months, prices for all but one medical category (medical lab and diagnostic imaging services) have increased faster than overall PPI. At 6.3 percent (versus just 0.3 percent for final demand), producer prices for pharmaceutical preparations stand out. However, the monthly PPI suggests this trend might be breaking down. Nursing homes, for which producer prices increased 2.5 percent might replace drug makers as a target of politicians’ campaigns against health costs, but they have a long way to go.

(See Table I below the fold.)