Category Archives: Health Economics

It’s quite remarkable that anyone would oppose reforming our health care system. It’s not the “best in the world” by any measure but is the most expensive.

Atlanta’s large employers watched the per-employee cost of health insurance go up by 140 percent during the past decade, from $3,877 in 2001 to a projected $9,316 for 2011, AJC staffer Carrie Teegardin reports.> Atlanta Journal Constitution

The market analysis firm Standard & Poor’s released new figures on health care costs last month, and the results are disturbing, if unsurprising. The numbers show that from August 2009 to August 2010 the average, per capita cost of health care services rose 7.32 percent. During that same period, overall inflation rose a mere 1.1 percent. Press Enterprise

Meanwhile:

Purchases increased 0.2 percent, the smallest gain in the third quarter, Commerce Department figures showed today in Washington. Incomes fell 0.1 percent, the first drop since July 2009, and the Federal Reserve’s preferred measure of inflation stagnated, capping the smallest 12-month gain in nine years. Bloomberg

Medicynical Note: Its simple arithmetic and it’s been going on for many years. Incomes are not increasing at the rate of increase in health care costs. That sucking sound is health care removing discretionary expenditures from the economy.

We are in a crisis of expectations. The sick expect everything possible to be done, no matter the cost, whether or not they have insurance. Physicians and other providers expect healthy incomes–we’re number one in the world in this.

Hospitals expect continuing income to support their extravagant overhead. They compete for patients by the grandeur of their building and the beauty of their public spaces. Pricing is not competitive and obscured. Outcomes are not understandable or easily accessible.

Insurers are in a cost plus situation and pass through increases, keeping their  excessive  20% margin to fuel profits and executive income.

Pharmaceutical companies and other technology suppliers to the health care industrial complex expect increasing profits each year and generation long patent protection. Pricing of advances does not reflect the benefit of an innovation but rather the desperateness of the patient.

Value?  Quality?  Not our department

Fasten your seatbelts. Regardless of the election outcome the system is about to crash.

Continue reading →

It’s hard to believe that we spend so much and have less than optimal outcomes.

In the U.S. its all about revenue and income rather than patient outcomes.

Some recent posts:

• Infant Mortality Comparison Canada vs U.S.
• Inpatient vs outpatient surgeries
• Balking a prescription Costs
• What Makes U.S. health care so expensive: Red herrings
• What makes U.S. Health Care so Expensive: Conclusion

Medicynical Note: Like many other aspects of the U.S. economy health care coverage is heading for the bottom–fewer people covered, uncontrolled costs. A system in chaos.

It’s sobering to hear politicians on the right talk about their concern about balancing the budget. After all their “starve the beast strategy” has created massive deficits (with the exception of the Clinton years) and the more recent Bush tax cuts and unfunded wars accounted for over one or two trillion in deficits over the past 10 years. Added to this are the deficits caused by the deregulation of the financial industry and it’s subsequent self-immolation.

Now these same interests wish to further cut taxes particularly for the wealthy. At the same time they claim not to want to privatize or cut social security and criticize health reform for decreasing medicare costs and oppose any defense cuts. (defense spending in their view needs to go up)

But reality is this:

From the Center on Budget and Policy Prioities:

It’s obvious that if you want to balance the budget you need to go where the money is. That means increasing government revenues (taxes and fees) and/or cuting the budget where money is spent.

It’s easy to fall into deep despair about the deficit, but Obama’s former budget director, Peter Orszag, recently grabbed the fiscal spotlight with a remarkably easy solution: Let the 2001 and 2003 tax cuts expire for everyone. By allowing taxes to return to the pre-Bush era levels for taxpayers, the federal budget would be close to balance by 2015.

Cuts in small agencies have little effect on the deficit but great effect on the necessary programs and regulations those agencies oversee. Our conservative friends stipulate that defense spending no matter how excessive or proligate is sacrosanct and should not be cut. Therefore to have meaningful budget cuts, logically, social security, medicare, social security, medicare, medicaid, CHIP, and other safety net programs are on the chopping block. This from those who criticize the health reform for more efficiently using medicare’s current funding and decreasing spending.

This leads us to a bit of irony. “Conservative” thinkers want to cut taxes on those who can afford them most and cut spending or, to put it another way, “tax” programs that provide support for people who literally can afford it least. It’s really doesn’t add up.

The most objective measure of health care effectiveness is longevity, particularly when tracked over a period of years.

A recent Health Affairs article reviews what’ happened over the past 15 years to survival rates in our population:

Many advocates of US health reform point to the nation’s relatively low life-expectancy rankings as evidence that the health care system is performing poorly. Others say that poor US health outcomes are largely due not to health care but to high rates of smoking, obesity, traffic fatalities, and homicides. We used cross-national data on the fifteen-year survival of men and women over three decades to examine the validity of these arguments. We found that the risk profiles of Americans generally improved relative to those for citizens of many other nations, but Americans’ relative fifteen-year survival has nevertheless been declining. For example, by 2005, fifteen-year survival rates for forty-five-year-old US white women were lower than in twelve comparison countries with populations of at least seven million and per capita gross domestic product (GDP) of at least 60 percent of US per capita GDP in 1975. The findings undercut critics who might argue that the US health care system is not in need of major changes.

Medicynical note: The current dispute over health reform is actually a matter of life and death. What happens will detemine the results of the next 15 year study of outcomes. We need reform with more accessible affordable care. Health care value in our current non-system is an oxymoron.

I’ll be surprised if we don’t screw this up.

It’s too bad but as more data becomes available it’s apparent that Avastin (bevacizumab) has very limited efficacy — dispite it’s mega price.

A few weeks ago the FDA began a review of the drug in breast cancer, new studies and reanalysis of older ones showed no survival benefit. Now in regard to colon cancer in the adjuvant setting (preventing recurrence after surgery):

A combination of Avastin and chemotherapy given immediately after surgery didn’t extend disease-free survival compared with chemotherapy alone, Basel, Switzerland-based Roche said today in a statement. Preliminary data from the study suggest that chemotherapy alone is more effective in treating the tumors, Roche said.

It’s remarkable that anyone would suggest using such an expensive drug in such a setting. Consider that those who have Duke’s 3 colon cancer–the stage for which adjuvant treatment is indicated– have about a 35-40% chance of recurrence. That means 60-65% of these patients have no risk. It’s hardly cost effective to use this drug in people with no risk. This is particularly so for a drug that has shown only limited efficacy in advanced disease.

In an Eastern Cooperative Oncology Group trial (ECOG 3200),[11] the use of bevacizumab with FOLFOX in second-line treatment of metastatic colon cancer resulted in significantly improved PFS (7.3 months vs 4.7 months) and median survival (12.9 vs 10.8 months) compared with FOLFOX alone. Based on these results, bevacizumab was approved for second-line use in metastatic colorectal cancer.

Medicynical Note: As noted previously value in medicine is an oxymoron. No one is cost sensitive and just a whiff of efficacy is considered adequate reason to spend tens of thousands of dollars. In this case, there is an odor and it isn’t a just a whiff.

Interesting article in the NY Times about costs of the criminal justice system. Missouri has taken the radical step of informing judges the cost of various sentence options:

For someone convicted of endangering the welfare of a child, for instance, a judge might now learn that a three-year prison sentence would run more than $37,000 while probation would cost $6,770. A second-degree robber, a judge could be told, would carry a price tag of less than $9,000 for five years of intensive probation, but more than $50,000 for a comparable prison sentence and parole afterward. The bill for a murderer’s 30-year prison term: $504,690.

One presumes somewhere in the system is a mechanism to look at value and efficacy!?

“One of the flaws in the operation of our criminal justice system is not only the failure to be attentive to cost but an arrogance that somehow you can never put a price on justice. Long missing has been a sober realization that even if we get significant benefits from incarceration, that comes at a significant cost.”

Where have I heard something like this before?

“No one can put a price tag on being a victim,” said Scott Burns, executive director of the National District Attorneys Association.

What’s fascinating is the parallel issue of cost in medicine. In medicine, prices are rarely revealed and considered in the treatment decision. As a matter of fact, we (patients, providers, and payers) are price insensitive when treating serious medical problems and will readily accept very costly approaches that have little efficacy.

Medicynical Note: Patients aren’t informed, have infinite expectations of treatment and cure, and insurers pay whatever is demanded. As a result we are going bankrupt, individually and as a nation.

The FDA will decide shortly whether to continue Avastin’s metastatic breast cancer indication. The article in the Post puts it in terms of “freedom” to choose any treatment regardless of cost or efficacy. However when a drug doesn’t work for the indication, what’s the rationale for it’s use?

An FDA advisory committee voted 12 to 1 on July 20 to withdraw Avastin’s authorization for advanced breast cancer based on two new studies that the advisers concluded had not shown that the drug extends life. Not only that, the committee concluded that the studies indicated the drug slowed tumor growth for even less time — perhaps as little as about a month. “The vast majority opinion of the committee was that the drug was not doing very much, and what it was doing was more than offset by the negative,” said Wyndham Wilson of the National Cancer Institute, who chaired the committee. Avastin can cause a variety of potentially serious side effects, including blood clots, bleeding and heart failure. “In our best judgment, we did not feel this drug was safe to give relative to its benefits,”

And of course the republican response:

“I fear this is beginning of a slippery slope leading to more and more rationing under the government takeover of health care that is being forced on the American people,” said Sen. David Vitter (R-La.).

Medicynical Note: There may be some utility for Avastin in breast cancer but the studies show no survival benefit. Desperate cancer patients will try virtually any therapy that may offer a benefit, this is particularly the case where there is no or little financial participation in covering the costs. The irony in Senator Vitter’s “concern” is that his party’s solution to health care, the so called free market, formalizes economic rationing of care (if you don’t have the money you don’t get the care). Our non-system is bankrupting patients, insurers, and the country. We need some rationale, like efficacy, to decide which treatments to use and pay for. Of course individuals should be free to buy whatever therapy they wish whether it works or not–and considering the boon in the Mexican cancer hospitals along the border, they do.

Economix continues the discussion of the inappropriateness of free market health care. Reinhardt’s discussion includes references to Kenneth Arrow’s 1960’s work on the characteristics of a perfectly competitive market.

Arrow explored in the early 1960s what the characteristics would be of a perfectly competitive market for an ordinary commodity, how the medical care industry deviated from those characteristics and what aspects of health care might explain these deviations.

And:

On the other hand, as medical science and practice advance rapidly, the information gap between physicians and their patients increases. Many transactions in the market for health care therefore still proceed on the basis of trust in the expertise and integrity of physicians and other health workers, rather than on the countervailing power of equally well-informed buyers and sellers, each looking out only for their own self-interest.

And Arrow in a recent interview:

I think the basic analysis hasn’t changed. There are wars over the details, but the basic analysis is accepted. Some specifics have changed. If you look closely at my argument there is a sociological structure. There is a kind of sociological thesis. The market won’t work –it doesn’t work well in the health context. But something else supplements the market, and the thing I put stress on in the paper are the elements that put a non-economic influence on the market: professional commitments to provide a service, to engage in services that aren’t self-serving. Standards of caring decided by non-economic actors. And one problem we have now is an erosion of professional standards. In a way there is more emphasis on markets and self-aggrandizement in the context of health care, and that has led to some of the problems we have today. (medicynical emphasis)

Medicynical note: So as the blind faith movement pushes for “free” i.e. less regulated markets in health care we should be painfully aware of the failures of this movement in the financial area (both in the 80’s and more recently), the deregulation of electric power (Enron, in case you forgot) etc. We shouldn’t forget that money makes people do funny things.

Health care is different than other commodities, it’s not optional; often there are no alternatives; shopping for care is difficult because of the urgency of needed care and the information gap — “both the diagnosis of and the likely consequences of treatment are asymmetrically allocated between the sell-side (providers) and the buy-side (patients) of the health care market.”

In the free market of ideas it’s buyer beware of those selling a free market idea for health care.

In and op-ed Representative Ryan of Wisconsin outlines his play for taking Medicare apart.

Given that we spend one and a half to two times as much on health care than other industrialized nations it’s clear we have to change. Indeed as Ryan notes there is predicted “38 trillion shortfall” over the next 75 years.

So there is a problem and Ryan seems to object to the savings outlined in the recent health care reform bill even if it’s savings attained through smarter spending and choosing the best most efficient treatments.

Instead his radical solution is to gut Medicare and replace it with “vouchers” to be used to “apply” to a list of medicare certified coverage options. No discussion of the amount of money the voucher will provide; the coverage it will buy; whether it will cover the premium; whether it will suffice if the premium is raised because of illness; whether the “certified coverage option” can turn the beneficiary down for coverage; and so on.

There is no discussion of what he means by “additional support” for those who have low incomes and higher health costs, and what he means by high-income beneficiaries–what is high income in the context of retirement? He is therefore proposing a replacing a simple system of insurance which has very low administrative costs with one that will have to evaluate and adjudicate the level of government support for, I would predict, the great majority of beneficiaries.

Left unclear is how this will cut costs in our very inefficient health care system other than create a system where economic rationing of care is the rule.

Medicynical note: There must be a better way. This may be a way to start a discussion but is a totally inadequate solution to the problem. The U.S. is the only country in the world without a national health care system. Ryan’s solution won’t change that.