Category: Health Alerts

Medicare Should Revoke Drug Dealers’ License to Steal!

Nearly 39 million Medicare beneficiaries, including seniors and the disabled, have subsidized drug coverage thanks to the Medicare Modernization Act (MMA) of 2003. Medicare drug plans are popular with seniors. Although subsidized by Medicare, Part D plans are offered by private insurers and compete with each other for seniors’ patronage.

When Congress passed the Medicare Part D drug program back in 2003, it inadvertently created a license to steal. Prescription drug abuse costs health plans nearly $75 billion per year — about two-thirds of it from public programs such as Medicare and Medicaid. That makes Uncle Sam the biggest illicit drug dealer in the country! Prescription drug fraud and abuse also drives up seniors’ premiums as well as boosts costs for taxpayers and health plans that administer seniors’ drugs benefits.

Questionable drug use typically involves addictive painkillers that create a heroin-like euphoria. More than 16,000 people die annually from abusing pain relievers — double the number that die abusing cocaine and heroin combined. For every death, there are 10 people admitted to a treatment program for substance abuse and 32 emergency room visits. For each person who overdoses, 130 chronically abuse prescription drugs and 825 casually use them for nonmedical purposes.

The HHS Office of the Inspector General (OIG) reports that some individuals themselves are abusing the drugs. In other cases, they attempt to obtain drugs they don’t need in order to profit by reselling them. This is especially true of narcotic pain relievers derived from opium poppy plants. Substantial numbers of narcotic pain relievers are diverted to the illicit market where their “street value” far exceeds their pharmacy costs. For instance, the OIG reports the “street” price of Oxycodone is a dozen times the normal retail price at a pharmacy. Its agents report that a bottle of Oxycodone is worth $1,100 to $2,400 per bottle if sold on the streets of Northern California.oxy

Ed Gillespie’s Health Reform Plan a Big Step in the Right Direction

Ed Gillespie, the Republican candidate for the U.S. Senate from Virginia has proposed a substantive plan to reform U.S. health care. The Washington Post called it “the most sensible GOP alternative.” An economic consulting firm estimates the plan, which was developed by the 2017 Project, would reduce the federal deficit by $1.13 trillion over 10 years.

There is significant overlap between the 2017 Project’s proposal and the NCPA’s: They both rely on individual tax credits for individually-purchased insurance as a building block for a new, consumer-driven health system.

The 2017 Project’s proposal would give adults under 35 years of age a tax credit of $1,200 a year; those between 35-49 years would get $2,100; and those 50 or older would get $3,000. Those with children would get an additional $900 per child. Those who can buy health insurance for a lower premium can deposit the leftover tax credit in a Health Savings Account.

However, these tax credits would only be available to employees of firms with fewer than 50 full-time equivalent employees. Those in larger firms, who remain in the employer-based market, would retain non-taxable health benefits, up to a limit. However, the tax exclusion would be capped at the 75th percentile of annual premiums. The value of benefits above this cap would be taxable to the employee. (In 2014, the average premium for single coverage in employer-based benefits is estimated to be $6,223. Let’s say that the 75th percentile is $4,667. So, if a person has coverage worth $6,000, $1,333 of that would be taxable.)

The NCPA’s proposed reform, on the other hand, gives everyone a tax credit and includes all employer-based health benefits in taxable income. The 2017 Project’s alternative is more politically palatable because it does not appear to threaten employer-based benefits. (In fact, the NCPA’s alternative does not prevent employers from offering benefits either.) Like the NCPA’s reform, it restores medical underwriting.

Free of Obamacare Taxes, the Future of Health is Digital

A version of this Health Alert appeared at Forbes.

A handful of recent reports indicate that capital, overall, is seeking to exit the health care industries burdened by Obamacare’s excise taxes and annual fees. With one outstanding exception — digital health — much of health care is seeing consolidation through mergers and acquisitions (M&A). As for fresh capital, venture funding has shriveled from its 2007 high.

Mergermarket has published its analysis of Q3 global mergers and acquisitions in pharma, biotech and medical devices. Mergermarket reports $354.3 billion in deals so far in 2014, more than two-thirds over last year’s value and the highest annual level since 2001. These sectors also have the highest share of all global M&A (14.2 percent), the biggest share of M&A since 2001.

Unfortunately, Mergermarket’s analysis is already somewhat out of date, because it includes deals announced but not yet closed. So, the failed merger of Shire and AbbVie is included in the total. This deal appears to have been primarily motivated by the tax benefits of inversion to a foreign domicile, and AbbVie will pay Shire a $1.65 billion break-up fee for jilting the Irish-domiciled firm. AbbVie is not going to grow its own business instead. Rather, it announced a $5 billion stock buyback program.

Nevertheless, most deals are going through, despite the U.S. Treasury’s attempts to stop these inversions. Despite all the political hand-wringing about companies moving their tax domicile to avoid U.S. taxes, inversions were not the primary cause of most deals. Rather, corporate strategy drives the consolidation, according to Mergermarket.

Global Pharma, Medical & Biotech sub-sector trend

Is Medicaid-Associated Overuse of Emergency Departments Just a Temporary Surge?

Research from the UCLA Center for Health Policy Research suggests that increasing Medicaid dependency does not result in a secular increase in use of hospitals’ emergency departments (EDs). Rather, the jump in ED use is just pent-up demand being satisfied, which then drops off. This is the conclusion of a study that examined ED visits by California patients newly enrolled in a government program similar to Medicaid, called the Low Income Health Program (LIHP).

Rates of Emergency Room Visits per Quarter

The study suggests different consequences of Medicaid expansion than the Oregon Medicaid experiment showed:

Although our results are not directly comparable to those of the Oregon Health Insurance Experiment, they suggest that the higher costs and utilization among newly enrolled Medicaid beneficiaries is a temporary rather than permanent phenomenon. To the extent that California’s experience with the pre-ACA HCCI and LIHP programs is generalizable to other states, policymakers and service providers can expect a reduction in demand for high-cost services after the first year of Medicaid enrollment.

Mars and Venus on Medicaid

A version of this Health Alert appeared at Forbes.

I will be participating in Medicaid Health Plans of America’s annual conference in Washington, DC from October 26 to 28. So, I thought I’d prepare for it by reviewing the research on health outcomes for patients on Medicaid. What a tangled web!

According to evidence cited by Forbes opinion editor and Manhattan Institute Senior Fellow Avik Roy, “[P]atients on Medicaid have the worst health outcomes of any insurance program in America ― far worse that those with private insurance and, strikingly, no better than those with no insurance at all.” On March 10, 2011, the Wall Street Journal published a column by Forbes contributor and American Enterprise Institute Resident Fellow Scott Gottlieb, MD, which concluded that “Medicaid coverage is worse than no coverage at all.”

Yet, others resist these conclusions. The federal and state governments spent $460 billion on Medicaid last year. Is it really feasible that this buys nothing? Gottlieb’s article prompted two scholars affiliated with the Kaiser Family Foundation to publish a paper “setting the record straight on the evidence.” Julia Paradise and Rachel Garfield conclude that “…the Medicaid program, while not perfect, is highly effective…Furthermore, despite the poorer health and the socioeconomic disadvantages of the low-income population it serves, Medicaid has been shown to meet demanding benchmarks on important measures of access, utilization, and quality of care.”

Can these differences be reconciled? The evidence cited by Roy and Gottlieb shows poor outcomes for various cancers, major surgical procedures, coronary angioplasty and lung transplants. The evidence cited by Paradise and Garfield emphasizes preventive and primary care (including blood pressure and PAP smears), birth outcomes, heart attack, congestive heart failure, diabetes management and pneumonia.

Ironies Abound: Walmart Associates Who Lose Their Benefits Can Buy Obamacare Policies at Walmart!

Walmart stands out as the poster child of Obamacare’s perverse consequences. Last week, the giant retailer announced that it is dropping benefits for workers who put in fewer than thirty hours per week, which is the definition of part-time according to Obamacare. This will affect about 30,000 U.S. workers. For the remaining “associates” still eligible for benefits, their premiums will jump 19 percent, from $18.40 to $21.90 per pay period. Project 2017’s Jeff Anderson has dug up an embarrassing letter published by Walmart in 2009, which championed Obamacare:

…touting “the promise of reduced health care cost increases” that would come from “health care reform.” Walmart and friends wrote, “We are for shared responsibility,” opined that “health care costs more because we don’t cover everyone,” and said that “losing coverage pushes people already dealing with financial hardship to the verge of financial collapse.”

The real reason Walmart was so eager to have Obamacare passed was so that it could socialize the health costs of part-time workers by dropping their benefits:

Think of the 36-year-old Walmart employee here in Washington, D.C. who works 29 hours per week at the company’s average wage of $12.73 per hour. She earns just about $19,000 annually if she works every week of the year.

If Walmart doesn’t offer her insurance, the Kaiser Family Foundation’s subsidy calculator shows that she qualifies for a $1,751 subsidy from the federal government to help buy coverage on the exchange. With that financial help, she can buy insurance for as little as $7 per month. As a low-wage worker, she gets some of the most generous financial help.

But if Walmart does offer her coverage, it becomes her only option. She doesn’t qualify for federal help and the $7 plan disappears. Walmart’s plan, meanwhile, is way more expensive. The average premium there works out to $111 per month. (Sarah Kliff, Vox)

Hospitals Profit from Drug Discount Program for Poor Americans

A version of this Health Alert appeared at Forbes.

A new study by Drs. Rena M. Conti and Peter B. Bach makes a valuable contribution to the growing pile of evidence of the harm being done by a federal program that Congress designed to increase poor people’s access to prescription drugs, but which has been perverted by hospitals to pad their bottom line.

The 340B program was legislated in 1992. It gives the federal government the power to force drug-makers to offer deep discounts on medicines dispensed to outpatients. 340B was supposed to be a win for both poor people and taxpayers: By forcing drug-makers to discount prices, it would reduce poor people’s costs, and, therefore, reduce the demand for federal subsidies to safety-net facilities in those areas.

In August, I discussed evidence that the number of hospitals and other facilities taking advantage of 340B had doubled in ten years. The new study by Conti and Bach explain how, where, and why this is happening. The key is that, although hospitals get the discounts, there is no effective way to ensure that the discounts are passed on to poor people. Once the discounted drugs are inside the hospital system, they are just added to the rest of the inventory.

Conti and Bach review disturbing cases:

In 2012 one 340B entity, Duke University Hospital, reported five-year profits of $282 million accrued through its outpatient departments and affiliated clinics as a result of its participation in the 340B program. Another report suggested that profits generated through the prescribing of a single medical oncologist who practices at an outpatient clinic affiliated with a 340B hospital could reach $1 million per year, when the oncologist administered drugs obtained at 340B discounted prices to treat fully insured patients.

Reporting Changes in Uninsured Due to Obamacare: Government Agencies Can Be Clearer

One of the themes of this blog is that the number of uninsured Americans is not decreasing as quickly or surely as Obamacare’s supporters would have us believe. Part of the problem estimating this is a confusing series of releases from federal agencies, which has led to inconsistent interpretation by scholars.

Last month, the Centers for Disease Control and Prevention (CDC) released the results of the National Health Insurance Survey (NHIS), which I discussed under the headline “Number of Uninsured Americans Aged 18-64 Down 2 Percentage Points.” What this was referring to was that the percentage of residents in that age group who were uninsured at the time of the interview had dropped from 20.4 percent in 2013 to 18.4 percent in the first quarter of 2014. That’s about 3.8 million people.

However, the proportion who were uninsured for at least part of the last year barely budged from 24.4 percent to 24.3 percent, and the proportion who were uninsured for more than a year dropped by 1.7 percentage points, from 15.7 percent to 14 percent. That’s about 3.2 million people. Obviously, the last group is a subset of the second group. The first group is also a subset of the second group, but it is not clear how to connect the first group and the third group.

The person responding that he is uninsured at the time of the interview might have lost coverage yesterday, or many years ago. This is an important question for public policy, because the short-term uninsured are likely short-term unemployed: Fix the job market and you fix their health insurance. Those who have not had health insurance for a long time likely have a different challenge. Indeed, they may be eligible for Medicaid but not be enrolled. However, Obamacare is changing this. Its expensive outreach efforts are leading to more Medicaid enrollment than enrollment in subsidized, private Obamacare plans.

Kaiser Permanente’s Former Chairman Might Not Understand Why Healthcare Prices Are Different

A version of this Health Alert appeared at Forbes.

Consumer Reports has published an article demanding that we get “mad about the outrageous cost of health care.”

Hey, I’m all for that. The article goes through the usual list of subjects, e.g. $37.50 for a single Tylenol, having two or three MRI scans when one will do, etc. The article also asserts that “health care works nothing like other market transactions. As a consumer, you are a bystander to the real action…” I could not agree more. However, I was a taken aback by a statement from George Halvorson, the former Chairman of Kaiser Permanente:

“There is no such thing as a legitimate price for anything in health care,” says George Halvorson, former chairman of Kaiser Permanente, the giant health maintenance organization based in California. “Prices are made up depending on who the payer is.”

It is the last sentence that is so wrong that I thought it deserved a blog post, especially as it came from one of the most accomplished healthcare executives in the United States. Prices made up depending on “who the payer is” is not unique to health care. It is a characteristic of almost all markets.

In undergraduate economics classes, they teach the characteristics of a “perfectly competitive market.” One of those characteristics is that suppliers are price-takers. One apple vendor, more or less, will have no impact on the market, so one vendor entering or leaving the market will not change the price, especially as an apple is an undifferentiated commodity. This refers to the “law of one price.”

Haha Gotcha! Medical Pricing

By almost any measure, the U.S. health care system remains dysfunctional. If you apply some of its common practices to other industries, they sound ridiculous. Consider this hypothetical thought experiment. Suppose you made an appointment at a local dog kennel for them to keep your dog, Bowser, while you were on vacation. You asked if they could bathe and groom Bowser just prior to your return. As is standard practice, you probably had to sign a consent form agreeing to pay for the boarding and any additional fees insured. Maybe the grooming fees weren’t guaranteed ahead of time, but you were assured they were nominal and normal for the services. Among the forms you were asked to sign, there was some fine print that said should your dog become ill, the services of a veterinarian would be arranged at your expense.

During his stay Bowser seemed lethargic and a little anxious — and he wasn’t very interested in his food. Maybe you assumed this is normal for a dog left at a kennel for a week. But Doggie Spa & Canine Resort cannot take any chances. It called in a pet behavioral therapist to assess Bowser’s condition. The doggie shrink brought along a colleague for a second opinion. The pet behavior therapist recommended Bowser be walked twice a day to lift his spirits. However, another veterinarian — an orthopedist — had to assess Bowser’s gait to make sure he was healthy enough to be walked. A pet nutritionist analyzed Bowser’s diet and assessed his food intake. She sent a stool sample to a lab for analysis of food absorption. She ultimately decided that spoon-feeding Bowser might encourage him to eat.

Upon your return you pick up your dog expecting to pay for boarding, bathing and grooming. You know Bowser was well-taken care of, but the fees were much higher than expected. Within days of your return, itemized bills from vendors begin to arrive. The person who bathed your dog sent a separate bill from Doggie Spa’s bathing fee. A different bill from the person who applied the shampoo is in your stack of mail. Yet another bill arrives from the groomer. You discover the groomer also brought along an assistant groomer. She too submits a bill. The pet nutritionist and the lab both sent bills. A bill even arrived from another person who walked your dog twice a day while you were away. Spoon feeding Bowser twice a day for a week incurred 14 separate dietitian charges. Indeed, the pet behavioral therapist swung by Doggie Spa on his way home every night to make sure Bowser was doing OK — and you got charged for each visit. Worse, you discover some of the people who sent you a bill charged far, far more than the pet resort’s regular vendors. The on-call vendors called other vendors to assist. But these out-of-network vendors are not bound by Doggie Spa‘s standard rates, they can charge anything they want. You discover Doggie Spa actually encouraged these upcharges so it too could bill a separate facilities fees for them. Arranging for the dog activity therapist to assess your dog; that generated a separate charge for both the Doggie Spa and the dog walker.