Idea #304 for December 19th, 2009: The $60 Billion Sinkhole or Stopping Medicare Fraud

With the federal government trying desperately to do something about rising healthcare costs, we sometimes forget about an especially devious way that healthcare dollars are sometimes sucked down the drain. A story in the news today reminds us of this costly ploy: Medicare fraud. Twenty-six people were arrested by federal agents in three states for allegedly committing $61 million worth of Medicare fraud. A Florida doctor and 14 associates were arrested for fraudulently referring 1,300 patients for unnecessary treatments. We shouldn’t lose sight of the fact that Medicare fraud costs us $60 billion a year, and efforts to reform healthcare should address this problem.

Read more about this story here.

Idea #193 for August 30th, 2009: A Low-Cost Option or Assessing The Effectiveness of Retail Clinics

Retail clinics, like those found in CVS or Walmart, are a popular way to receive prompt, inexpensive treatment for non-urgent health ailments. Not only are they convenient, but they are also quite effective, a new study says. The clinics were assessed in their treatment of ear infection, sore throat, and urinary tract infection (which combined, make up 40% of their cases) in an article to be published in Annals of Internal Medicine. Researchers found that the clinics followed accepted guidelines in lab tests performed and medications prescribed, and that frequency of misdiagnosis was not outside of acceptable ranges.

Retail clinics are usually staffed with nurse practitioners and can diagnose and treat minor sicknesses and provide routine wellness services like vaccinations. A third of Americans live within ten minutes of clinics like these, and another 6,000 clinics will open in the next few years. Visit costs usually range between $30 and $110, and patients don’t need appointments and can expect to spend only 15 minutes on a visit. The costs are generally 80% less than those associated with emergency rooms.

It makes sense to treat common illnesses in a low-cost, high-turnaround environment like this, instead of clogging emergency rooms with people who aren’t all that ill. There’s the potential of lowering healthcare costs overall as more of these facilities are rolled out. It’s encouraging to hear that the standard of care in retail clinics is commensurate with other, conventional healthcare facilities.

Read more about the study in US News.

Idea #187 for August 24th, 2009: Bringing The Doctor To You or How House Calls Can Save Money

Once, house calls were a common way for providers to treat patients. Now the notion seems antiquated and inefficient. But a group of doctors in Richmond, VA is finding that this old-fashioned method can actually save money in some cases. By visiting chronically ill patients at home, providers can help patients avoid emergency rooms and the Medicare costs associated with ER visits.

The group from Richmond is made up of four doctors and five nurse practitioners who visit about 275 patients within a 15 mile radius of the hospital. The program costs about $1 million annually, but they estimate that for every day a patient is kept out of the hospital, that saves $1,500. From 2003-2006, the program cut in half the number of days the patients were in hospitals, which amounted to about $2 million in savings.

One problem with this system is that doctors who are not affiliated with hospitals do not benefit financially from the patient’s reduced hospitalizations. A provision in the House healthcare bill would address that problem by giving providers a cut of the savings that Medicare will see if this system is implemented. With Medicare on course to run out of money in the upcoming years, creating incentives for more house calls makes sense as a money-saving tactic.

See the story on this in the LA Times.

Idea #121 for June 19th, 2009: Caught Red Handed or Class Action Settlement for Drug Pricing Scheme

As part of a class action settlement, drug prices will be cut by 4% later this year and consumers may be reimbursed for their purchase of prescriptions over the last several years. The settlement comes after a lawsuit was filed against two drug price publishers and a drug wholesaler for conspiring to inflate prices of 400 drugs by about 5%, beginning in 2001. The illegal price alterations affected the Average Wholesale Price listings for the drugs, which caused insurance companies to overpay pharmacies. Overall, an estimated $2.9 billion was overpaid by insurers and patients for the drugs over the years.

Although patients with insurance were not directly affected by the pricing, it did result in inflated insurance premiums overall. Uninsured patients, on the other hand, were directly affected by the prices, and are entitled to reimbursement under the settlement. But receiving the payments requires that they’ve kept all receipts for the drug purchases. The 4% drug price reduction that will take effect in September will save insurers money, but whether that will be passed down to patients is unclear. It’s great that this scheme was uncovered, and that the parties involved will have to pay, but it makes one wonder how many other schemes like this have not been caught, and what price are we paying for them?

Read the story in the Wall Street Journal.

Idea #96 for May 25th, 2009: Shopping Around or Price Comparison Tool for Medical Procedures

California has implemented a new idea that more regions should consider adopting. It’s an online tool that allows users to compare prices for common medical procedures among the state’s hospitals. You select the procedure (from 28 elective surgeries), the county and the city, and the tool will list all the hospitals that perform the surgery along with their respective prices and average length of stay. It’s important to note that the prices reflect what an uninsured patient should expect to pay; they do not factor in insurance coverage.

California was able to construct the tool partly because of a state law that requires hospitals to report costs for common procedures. There are limitations in its current form, though. The only searchable data is for the year 2007 and does not include Kaiser hospitals, which account for a large portion of California’s hospitals. Also, there are no metrics for quality of care, only price. “Shopping around” is difficult in healthcare, but a tool like this has the potential of providing valuable assistance to patients looking for the most cost-effective option for their procedure.

Use the tool for yourself here, or read more about in the San Francisco Chronicle or on bizjournals.com.

Idea #47 for April 6th, 2009: It Pays to be Fit or Employee Incentives for Healthy Living

Many Americans struggle with health problems, and many employers struggle to pay insurance premiums for their workforce. It stands to reason that improvements in the health of workers would benefit not just themselves, but also their employers. For that reason, a number of companies are making efforts to improve employee wellness, and in some cases are offering rewards for participation in wellness programs.

Targeting obesity can have substantial effects on healthcare costs, as it is associated with other diseases like high blood pressure, high cholesterol, and diabetes. Similarly, smoking cessation can also drastically lower the occurrence of health problems. Companies are increasingly implementing workplace wellness programs, which may include education, screening, and interventions to keep employees and their families healthier. Employers that have started such programs have seen their healthcare costs drop 26%, according to the CDC.

But sometimes people need prodding to make lifestyle changes. Accordingly, companies are seeing employee participation in wellness programs increasing when incentives are offered, says one study’s findings. Incentives usually include rewards like gift cards for reaching certain wellness goals.

Aside from lower healthcare premiums, employers can expect a corresponding increase in job satisfaction and otherwise positive employee attitude about their job, as well as fewer missed days. This is a win-win situation. Given proper incentive, workers will take steps to improve their health, saving money for the company — and most importantly — employees’ lives.

To read more about wellness programs, see this LA Times article, and this press release from Humana.

Idea #27 for March 17th, 2009: America’s Great New Product, Healthcare Inefficiency

This year we will spend 19% of of our gross domestic product on health care. That’s right — about $10,000 for every man woman and child, or in total dollars about 3.9 trillion with a T (11 zeros by the way). In the few seconds of time it took you to reach that last sentence we just spent about $500,000 on healthcare. It dwarfs our defense spending, the stimulus, even our social programs spending. Why can’t we get this item to the forefront of the national agenda? I’ll tell you: the solution is ugly, complex and highly disruptive to the very efficient process by which healthcare companies give large amounts of money to congressman to help them get reelected.

Why are healthcare costs so high, and why do they continually outpace inflation? It’s not that services are much more expensive to perform today than ten years ago. A physical exam, for instance, should cost now what it did a few years ago. The problem is, we are in the midst of a healthcare bubble, much like the real estate bubble we’ve all become familiar with recently. For instance, one way health costs rise is when insurers clamp down on allowables, forcing providers to shift costs to compensate, leaving the patient with a higher bill. Compound that with rising drug prices, staff shortages, expensive medical devices, and other factors, and you end up in our present situation wherein healthcare costs are rising double the rate of inflation.

In dollar terms, we absolutely have to take about 1.5 trillion to 2.0 trillion out of the clutches of a large number of cottage industries. I am not sure we can do it because I am not sure we have the will as a nation. Within 15 years at the current rate, healthcare will completely bankrupt the US, not just one sector but all of them…kaput!

In specific terms we need to reduce drug spending by $100 billion or 30%, insurance spending by $600 billion (about 50%, Medicare and Medicaid total about $556 billion) and provider transactional costs by another $500 billion or about 21%. These are the targets we need to aim for, no matter how we get there. Not many people are willing to talk frankly about how dire the situation is. Our politicians  need to be more direct about what effect this out-of-control health spending will have on our nation. This is frightening stuff, and our leaders can’t afford to keep us in the dark.

To see some facts and figures on the rising costs of healthcare, see the National Coalition on Health Care and this page from the Kaiser Foundation.

Idea #17 for March 7th, 2009: DIY ECG or the Cost of Medical Devices

If a hobbyist can build a prototype ECG in a garage for just $5, but major manufacturers like HP or Welch-Allyn sell professional ECGs for $1,500-$12,000, then something is wrong with medical device pricing. I am definitely not saying that, should I end up in the ER, I want to see my neighbor’s 15-year-old son hacking together my ECG with a bread board and soldering iron. But what is reasonable?

Real-time monitoring devices that are invaluable for many patients at high risk are astronomically expensive when they should be cheap and ubiquitous. If Amazon can make the Kindle for $300, then someone can certainly make a real-time vitals monitoring device that can go anywhere for less…am I wrong? Certainly there are many legitimate expenses regarding certification, testing, compliance with FDA standards and approval etc., but ECGs (in some form) have been around since 1872. Why haven’t the costs come down more over time? Is the answer lack of competition?

Medical devices are a regulated market under the FDA, but there are no cost controls. Critics of cost controls point out that they deter investment in promising technology, stifling innovation. This might be true, but the way the medical device market works now is comparable to a de facto monopoly, in some cases. For highly specialized and expensive equipment, very few companies actually produce the devices, allowing them to charge exorbitant prices in their competition-free environment. There has to be a way to control costs and at the same time foster innovation.

If the process was approached like generic drug approval, costs could be reduced significantly. As detailed in a previous post, the approval of generic drugs does not require the full-scale testing requirements of initial drug approval. Rather, the manufacturer has to show the drug is chemically and biological equivalent to the previously approved version. An analogous process could be used in medical device approval. If manufacturers could use existing approved designs, the approval process would be much simpler. Of course, the patent system would need to be changed for this to work, but that change would be less harmful to innovation than imposing cost control measures.

Read about the $5 ECG here and this site promoting an Open Source ECG. Also, check out this page to learn more about over-priced medical devices.