Unbiased Analysis of Today's Healthcare Issues

The coming U.S. debt crisis

Written By: Jason Shafrin - Aug• 15•16

The Congressional Budget Office provides some gloomy news on the fiscal health of the federal government in their recent 2016 Long Term Budget Outlook.  They state:

If current laws governing taxes and spending did not change, the United States would face steadily increasing federal budget deficits and debt over the next 30 years, according to projections by the Congressional Budget Office. Federal debt held by the public, which was equal to 39 percent of gross domestic product (GDP) at the end of fiscal year 2008, has already risen to 75 percent of GDP in the wake of a financial crisis and a recession. In CBO’s projections, that debt rises to 86 percent of GDP in 2026 and to 141 percent in 2046—exceeding the historical peak of 106 percent that occurred just after World War II.

CBO projects that there are three key factors affecting future debt burdens and the first two relate to the impending retirement of baby boomers.  The aging of baby boomers will hit the federal government in both paying for their retirement (Social Security) and their health care (Medicare).  Interest on the current debt is the third component expected to drive increases in long run federal debt.

Let’s take a look at the CBO’s health care expenditure projections.  Note that excess cost growth is the change in per capita health spending above and beyond economic growth.  For instance, if excess cost growth was 1%, this would mean that average per capita health spending would grow by 1 percentage point more than increases in GDP per capita over this time period.

net federal spending for those programs[i.e., Medicare, Medicaid, CHIP and ACA subsidies] grows from an estimated 5.5 percent of GDP in 2016 to 8.9 percent in 2046: Net spending for Medicare amounts to 5.7 percent of GDP that year, and spending on Medicaid and CHIP, combined with outlays for subsidies for insurance purchased through the marketplaces and related spending, equals 3.1 percent….Aging accounts for….roughly 60 percent of the…[increase in federal health spending]. Excess cost growth accounts for the rest…

How does CBO come up with these projections?  First they look to demographers and actuaries to see how the age composition will shift over the coming decades.  Next, the predict changes in spending per capita, using the excess cost growth approach.  Specifically, CBO assumes:

For Medicare, that average [excess cost growth] rate is 0.9 percent; for Medicaid, it is 0.7 percent; and for private health insurance premiums, it is about 2 percent. After 2027, the excess cost growth rate of each of those three categories moves linearly, by the same fraction of a percentage point each year, from that category-specific rate to a rate of 1.0 percent in 2046


How does CBO recommend controlling cost in Medicare?  They make the following suggestions:

  • Increased cost sharing
  • Decrease reimbursement rates to providers
  • Provide incentives to reduce readmissions, hospital acquired infections, and other downstream costs
  • Innovative pricing models (likely bundled payments, value-based payments, etc.)
  • Independent Payment Advisory Board (IPAB) could implement reforms if Medicare spending exceeds certain thresholds.




VBID comes to Medicare Advantage

Written By: Jason Shafrin - Aug• 14•16

CMS announced last week that they are extending their value-based insurance design (VBID) program to more states and more patients.  I describe VBID and the proposed changes below.

What is VBID?

Value-Based Insurance Design (VBID) generally refers to health insurers’ efforts to structure enrollee cost sharing and other health plan design elements to encourage enrollees to use high-value clinical services – those that have the greatest potential to positively impact enrollee health.

How will VBID be implemented for Medicare Advantage plans?

Eligible MA plans in these states, upon CMS approval, may offer varied plan benefit designs for enrollees who fall into certain clinical categories identified and defined by CMS.  Benefit design changes made through this model may reduce cost sharing and/or offer additional services to targeted enrollees; however, targeted enrollees can never receive fewer benefits or be charged higher cost sharing than other MA enrollees in their plan as a result of the model.

What is changing ?

In its first year, CMS is testing the VBID model in seven states: Arizona, Indiana, Iowa, Massachusetts, Oregon, Pennsylvania, and Tennessee.  CMS announced last week that beginning on January 1, 2018, CMS will also test the model in Alabama, Michigan, and Texas.  The current list of conditions eligible for VBID are diabetes, chronic obstructive pulmonary disease (COPD), congestive heart failure (CHF), patients with past stroke, hypertension, coronary artery disease and mood disorders.  Starting in 2018, rheumatoid arthritis and dementia will be included in the VBID model.

In addition to developing interventions targeted at all enrollees in one or more of the above categories, participating MA plans will have the flexibility to identify specific combinations of the listed chronic conditions for one or more “multiple co-morbidities” groups and establish tailored VBID interventions for each group.  Participating MA plans are required to provide VBID benefits to all VBID-eligible enrollees in the selected group.  Participating MA plans selecting the Mood Disorders group will also have additional flexibility to focus on specific conditions within that group.

What changes can plans make as part of VBID?

Plans have four options:

  1. Reduce cost sharing for high-value services
  2. Reduced cost sharing for high-value providers
  3. Reduced cost sharing for enrollees participating in disease management or related programs
  4. Coverage of additional supplemental benefits

Whereas many Medicare initiatives (such as ACOs) focus on Part A and B spending, the VBID program allows for different cost sharing levels for Part D drugs as well.

For example, plans could eliminate co-pays for eye exams for patients with diabetes.  In another example, they could reduce copays for high quality or low cost hospitals.

Typically plans must have 2000 members to participate in the program.

Friday Links

Written By: Jason Shafrin - Aug• 12•16

Trends in Life Expectancy among Older Americans, by Race

Written By: Jason Shafrin - Aug• 10•16

It appear that most of the gains in longevity and reductions in disability among elderly Americans accrued to Caucasians. Using data from the 1982 and 2004 National Long Term Care Surveys and the 2011 National Health and Aging Trends Study, Freedman and Spillman (2016) find the following:

We examine changes in active life expectancy in the United States from 1982 to 2011 for white and black adults ages sixty-five and older. For whites, longevity increased, disability was postponed to older ages, the locus of care shifted from nursing facilities to community settings, and the proportion of life at older ages spent without disability increased. In contrast, for blacks, longevity increases were accompanied by smaller postponements in disability, and the percentage of remaining life spent active remained stable and well below that of whites.


Quotation of the Day

Written By: Jason Shafrin - Aug• 09•16

Common decency counts. Showing up on time and giving respect is key when you’re the CEO.

Bob Lefsetz in “Yahoo Lessons” at The Big Picture

Clinton vs. Trump: A Healthcare Comparison

Written By: Jason Shafrin - Aug• 08•16

AJMC has a nice article summarizing some of the key differences between the two presidential candidates.  I paraphrase the article below.

  1. The future of the Affordable Care Act (ACA). Clinton wants to keep or even expand the ACA and wants to cap out-of-pocket drug costs.  Clinton has even called for a public option. On the other hand, Trump has called for a repeal of the ACA, in particular the individual mandate.
  2. Approaches to Medicaid. Clinton wants to make sure that all states expand Medicaid eligibility, but has not specified how she would do this.  Trump’s first called for block grants for Medicaid then he says the federal government should review basic Medicaid options with states, because, “we must also make sure that no one slips through the cracks simply because they cannot afford insurance.”  
  3. Controlling prescription drug costs.  Both candidates want to lower drug prices.  Clinton wants to allow Medicare to negotiate drug prices, tie federal research help to limits on profits, end direct-to-consumer ads and allow more generics and biosimilars to enter the market. Trump’s simply says, “Congress will need the courage to step away from the special interests and do what is right for America.”  
  4. Healthcare and immigration. Trump of course wnats to build his wall in part to reduce the cost of care to illegal immegrants.  Clinton, on the other hand, would allow all people–including illegal immigrants–to  buy coverage on the health insurance exchanges.
  5. Attention grabbers. Trump proposed allowing businesses to buy health insurance coverage for their employees across state lines. Clinton wants to expand Medicare, letting patients aged 55 and older buy into the system.  

ACOs and VBP

Written By: Jason Shafrin - Aug• 07•16

Accountable Care Organizations aim to link providers through the supply chain (i.e., hospitals, physicians, post-acute care facilities) to incentivize providers to improve quality and reduce costs.  In addition to its ACO program (the Medicare Shared Savings Program), the Centers for Medicare and Medicaid Services (CMS) have implemented a number of value-based payment programs, including the Hospital Value-Based Purchasing Program (HVBP), the Hospital Readmissions Reductions Program (HRRP), and the Hospital-Acquired Conditions (HAC) Reduction Program.  Whereas joining an ACOis optional, all hospitals that accept Medicare payments are required to participate in Medicare’s HVBP, HRRP and HAC programs.  Payment adjustments for HVBP can be as high as 1.75%, for HRRP 3%, and HAC 1%.

Are hospitals in ACOs more likely to perform well on the Medicare VBP programs?  Muhlestein et al. (2016) attempts to answer that question.  Using data from FY2013-FY2016, they find:

For FY2016, ACO-participating hospitals performed better than non-ACO hospitals for the HRRP, but not on the HVBP and the HAC Reduction Program. Longitudinal analysis, however, reveals that results are more varied, with evidence that hospitals joining ACOs did increasingly better than their peers for the HRRP, but had inconsistent results year-over-year with the HVBP.

Part of the reason for the lack of correlation, however, is that the scoring methodologies change frequently.  Nevertheless, based on this study, hospitals in ACOs do not universally provide better care than those outside an ACO network.

Are You Just a Number?

Written By: Jason Shafrin - Aug• 04•16

That is the abbreviated title of a new commentary on the Forbes blog that I wrote with Tomas Philipson.  The full article is HERE.  An excerpt is below.

New value frameworks in health care have emerged due to increasing cost pressures. Although value frameworks can be useful tools, they should be used to complement the patient-physician treatment decision-making process, rather than substitute for it. This entails getting away from “one size fits all” rules as well as including all treatment aspects that matter to patients. This will resolve the stark difference between many valuation frameworks that deem treatments to be low value and patients who are willing to go bankrupt to access them.  

Check out the whole piece HERE.

Providers move into digital health

Written By: Jason Shafrin - Aug• 04•16

Marketplace reports:

On a recent visit to the hospital, Riley, who is five years old, swallowed a tiny white pill with an embedded sensor – roughly the size of a grain of sand. When it reached her stomach, it sent a signal to a patch she’s wearing on her skin and alerted her parents and doctors that she’d taken her medication.

Making sure Riley has taken her pills is especially important because she had a kidney transplant earlier this year.

Why would hospitals use this technology? Not only to improve patient health but to cement their relationship with patients.

Children’s hospitals are searching for the best way to monitor patients and keep them out of the ER. Digital health startups are looking for patients to test their products. Julie Hall-Barrow, Senior Director of Healthcare Innovation at Dallas Children’s Medical Center, says keeping kids healthy means finding partners outside of the hospital, in the home, in the school, and with faith-based organizations…

“These companies gave them convenience and an app, what we as an industry missed was they also wanted to extend the relationship with their network of caregivers,” Perialas said.

Combining the latest technologies with established medical providers seems to be a recipe for success for both the patient and provider perspective.


Impact of Brexit on Pharma

Written By: Jason Shafrin - Aug• 04•16

There is a lot of talk that Brexit will be a disaster.  While I believe that much of this disaster talk is overblown, there are clear business implications.  Pharmafile provides an example of how Brexit would affect a small pharmaceutical company conducting clinical trials in the UK.

In the latter case, UK-based pharmaceutical companies with no other offices or manufacturing plants in the EU/EEA may do well to consider relocating to an EU/EEA country in order to continue benefitting from the advantages that come with being established in the EU/EEA. The implications of not relocating are significant for companies that rely on clinical trials conducted in the UK to support an EU marketing authorisation application, as Pharma business conducted in the UK will be considered conducted in a third country. This means that, among other things, in order to rely on clinical trials, the applicant will have to demonstrate that they were conducted in compliance with at least EU equivalent standards.

There is still much regulatory uncertainty in health care and other industries, but we do know that Brexit will be causing some changes.