Unbiased Analysis of Today's Healthcare Issues

Quotation of the Day

Written By: Jason Shafrin - Oct• 29•15

A man who procrastinates in his choosing will inevitably have his choice made for him by circumstance.


Over half of federal spending on entitlements

Written By: Jason Shafrin - Oct• 28•15

Here’s a graphic from the NIHCM foundation summarizing where federal revenues come in an where they are spent.  As you can see about one quarter of the budget is spent on  Medicare, Medicaid, CHIP and ACA Subsidies and another quarter is spent on Social Security.  This is not news if you have been reading the Healthcare Economist diligently over the years, but this graphic does a nice job of summarizing federal budget inflows and outflows.



Wednesday Links

Written By: Jason Shafrin - Oct• 27•15

NCCN Evidence Blocks

Written By: Jason Shafrin - Oct• 26•15

NCCN recently released a new approach to measure the value of cancer medicines. The approach–known as Evidence Blocks–evaluates medications on 5 dimensions:

  • Efficacy of regimens,
  • Safety of regimens,
  • Quality and quantity of evidence for regimens,
  • Consistency of evidence for regimens, and
  • Affordability of regimens.

Each criteria is ranked on a 1 to 5 block scale. There are no specific numeric cutoffs to get a rating of 5 on a category rather than a value of 5. Instead, NCCN provides guidance on what qualitative criteria are needed to reach each quality level; then expert panels decide on how each drug ranks on each of these criteria.


The Evidence Blocks seem targeted towards facilitating patient decision-making and discussions with their provider rather than any absolute treatment recommendation. Consider the way cost is measured under the Evidence Blocks:

The score in the Evidence Block is not to tell people what the absolute or actual true cost is; it is really to get a conversation started that if cost is an important consideration that they need to dig deeper into what their jeopardy in cost is. It’s not the dollar amount they are going to have to pay for.

More details on the Evidence Blocks is contained in the entire 1 hour presentation available below:

The 340B Program: An Overview

Written By: Jason Shafrin - Oct• 25•15

What is the 340B program?  A May 2015 MedPAC report has a nice summary:

The 340B Drug Pricing Program allows certain hospitals and other health care providers (“covered entities”) to obtain discounted prices on “covered outpatient drugs” (prescription drugs and biologics other than vaccines) from drug manufacturers. Manufacturers must offer 340B discounts to covered entities to have their drugs covered under Medicaid. The discounts are substantial. The Health Resources and Services Administration (HRSA), which manages the program, estimates that covered entities saved $3.8 billion on outpatient drugs through the program in fiscal year 2013. According to HRSA, the intent of the 340B program is to allow certain providers to stretch scarce federal resources as far as possible to provide more care to more patients (Health Resources and Services Administration 2014e)…we estimated that, on average, hospitals in the 340B program receive a minimum discount of 22.5 percent of the average sales price for drugs paid under the outpatient prospective payment system.

Which providers qualify for the 340B drug discounts?

“In 2014, there were 14,061 hospitals and affiliated sites in the 340B program. These hospitals and affiliated sites comprised 2,140 hospital organizations (a hospital and all of its affiliated sites count as one hospital organization).”

Examples include federally qualified health centers and Ryan White grantees as well as hospitals that are located in remote regions [critical access hospitals (CAHs), rural referral centers, sole community hospitals], and hospitals that treat vulnerable populations such as disproportionate share (DSH) hospitals, children’s hospitals, and freestanding cancer hospitals.

Do most hospitals quality for the 340B program?

About half of hospitals (45% of Medicare acute care hospitals, according to MedPAC) qualify for 340B drug discounts.  However, there has been a steep increase in the number of hospitals participating over time.

medpac 340b

Can hospitals get discounts from the 340B program and Medicaid for their Medicaid patients?

In short, no.  HRSA rules prohibit these double discounts.

To avoid duplicate discounts, a covered entity chooses whether to “carve out” or “carve in” Medicaid patients. If the entity carves out Medicaid patients, it provides non-340B drugs to these patients and the state Medicaid program is permitted to claim rebates on the drugs. If the entity carves in Medicaid patients, it provides 340B drugs to these patients and the state Medicaid program is not allowed to claim the rebates.

What do key stakeholders think?

MedPAC reports:

In recent years, there has been a debate between 340B hospitals and drug manufacturers about the proper scope of the program. Manufacturers have questioned whether all of the hospitals in the program need discounted drugs…Manufacturers seek to narrow the program’s focus to helping patients who are poor and uninsured gain access to outpatient drugs. In contrast, 340B hospitals seek to preserve the current criteria for eligibility for the program and their ability to use revenue generated through the program without restrictions.

Do drug manufacturers have a case?

Maybe yes.  MedPAC states that Medicare pays the exact same amounts for Part B drugs to 340B hospitals and non-340B hospitals.  However, the cost of these same drugs to 340B hospitals are much lower due to the deep discounts.  For instance, Medicare Part B may pay $1,000 for each fill of a given drug.  The cost of non-340B hospitals to access that drug may be close to $1,000.  For 340B hospitals, however, the cost of the drug would be only $775 (based on MedPAC’s estimate of discounts) and thus taxpayers are overpaying for these drugs.

Economics Humor

Written By: Jason Shafrin - Oct• 22•15

Economist’s aren’t known for having the best sense of humor.  Well, a joke about statistics has to be funny, right?  Here’s one from How I Met Your Mother.


Health Wonk Review: Halloween Edition

Written By: Jason Shafrin - Oct• 21•15

Halloween is almost upon us.  The week’s edition of the Health Wonk Review reveals some of the most frightful news from around the blog-o-sphere.




How to measure quality

Written By: Jason Shafrin - Oct• 20•15

Medicare’s Shared Savings Program (MSSP) contracts with accountable care organizations (ACOs) and provides financial rewards to ACOs that provide high-quality, low-cost care.  One question is whether or not the MSSP program does a good job of defining quality.

A paper by Valuck and co-authors examines what constitutes high-quality of care for 20 high-cost and highly prevalent diseases.  The authors use quality of care recommendations from medical specialty societies and patient advocacy groups.  They find the following:

We found measure gaps across all 20 conditions, including those conditions that are commonly addressed in current measure sets. In addition, we found many gaps that could not be filled by existing measures…

Addressing all gaps in accountable care measure sets with more of the same types of measures and approaches to measurement would require an impractical number of measures and would miss the opportunity to use better measures and innovative approaches. Strategies for effectively filling measure gaps include using preferred measure types such as cross-cutting, outcome, and patient-reported measures

As the authors note, increasing the number of measures to better measure quality must be offset by the additional complexity and reporting buden of adding more measures to the ACO program. Quality measurement is a good thing, but as CMS transitions more and more to value-based purchasing, they may need to wonder whether tying 90% of reimbursement to value-based metrics is too much of a good thing.


Tuesday Links

Written By: Jason Shafrin - Oct• 19•15

Patient Reported Quality

Written By: Jason Shafrin - Oct• 18•15

Should doctors financial incentives be tied to patient perceptions of quality?  Some physicians are reluctant for this to happen.  Paula Chatterjee and co-authors, however, argue that patient satisfaction should play a role in how incentives tied to value-based care are measured.

Although I do not disagree with Chatterjee, it is not clear how patient perceptions of quality would not affect physician compensation.  Even if reimbursement rates were the same for all physicians, patients often find doctors they like by talking to friends or getting referrals from other physicians.  If patient satisfaction is low, your friends are not likely to refer you to that doctor; further, physicians don’t like referring patients to a specialist when the patient comes back to them unhappy.  Thus, even if patient satisfaction is not always directly tied to the reimbursement per visit or per procedure, patient satisfaction certainly affects patient volume and thus physician revenue and profitability.

It could be the case that capacity constrains mean that all physicians except the very worst can have a full load of patients since all the best physicians have long wait times for visits or procedures.  Nevertheless, at least on the margin, patient satisfaction must affect physician profitability and revenue.

One way to balance supply and demand is to allow physicians more ability to vary the prices they charge.  For Medicare patients, this would mean allowing balance billing.  Balance billing occurs when the insurance covers a flat rate, but physicians are allowed to charge a higher rate which the patient would owe out of pocket.  Physicians in this case would have an incentive to provide high quality in order to attract new patients and also to justify a high price above the minimum amount charged by insurance.

The current administratively-based measure of value is fairly crude and likely does not take into account quality.  Incorporating patient satisfaction is a good idea, but a better idea is to let patients themselves evaluate quality of care and to allow high-quality physicians to charge higher prices to make sure the market clears with fewer shortages.