Wednesday, April 8, 2015

Feeling The Price Chasm

Even Anita and my routine medical expenses this past month show how our leadership from the top down miss the key flaw with our U.S. healthcare system.

It's like in the satirical novel Catch-22 where the (anti) hero Yossarian tends to airman Snowden aboard their WW2 bomber which has been hit by anti-aircraft fire. Yossarian painstakingly treats a serious but non-life threatening leg wound while unaware that beneath his flak jacket the dying Snowden's abdomen has been blown apart.

In similar fashion, President Obama touts a new system to tie more payments to the quality - not quantity - of health care services rendered. He echoes health secretary Sylvia Burwell's similar recipe offered up on Jan. 26, '15.  This implicitly implies that our main issue is one of over-treatment, "wrong" treatment or even waste, and data shows this to be false as I repeatedly highlight, including in my previous post. Americans already see doctors 40% less and are hospitalized 20% less often than in other developed countries so how is excessive "quantity" a big problem? Yet our bills run over twice as high.

Neither Mr. Obama nor Ms. Burwell nor any legislative leader has said anything about our core problem - grotesquely high prices of medical services and goods compared to anywhere else in the world.

So about our own March medical purchases, these involved office visits to a dermatologist, an orthopedic surgeon and an ophthalmologist for routine eye exams. All providers are highly rated and attended to us well. We paid them out of pocket as it counted towards our deductible in our health savings account.  Our rates were negotiated by our insurer Aetna, which were below "usual and customary charges" or what they would take up front from a cash paying customer without insurance.

Most Americans would consider what we paid to be very reasonable. That's part of the problem as they have no idea about the rates for medical services and goods abroad. Though reports like the 2013 IFHP comparative price study are available, listing our own payments as below and what they'd have been in Germany, France and India puts it all in a personal context:

1) Eye exam: We paid $235 for an eye exam and glasses / contact lens prescription by an ophthalmologist. The cheapest option would have been a $95 eye exam by a Costco optometrist purely to get glasses or contacts - no detailed exam for any other potential trouble.

According to an Oct. 2011 IBES study in France an eye exam costs between 25 and 40 euros (p. 35, or $35 - $55) and in Germany it is free if you buy glasses or contacts from that specialist. If you don't charges vary, averaging around 40 euros. In India an eye test by an optician is free if you buy glasses or contacts from them. Now get this: I paid only $66 for a pair of glasses with progressive lenses and free eye exam in India last year, though charges would have been $150 - $200 had I opted for top line glasses.  For my father-in-law a couple of years ago I had a detailed eye exam for macular degeneration by Pune's top eye specialist for $50.  Routine screening was for $15 - $25. In sum eye exams in France and Germany cost about a fourth, and in India about a tenth of what we paid in U.S.A.

2) Dermatologist: First, most dermatologists were booked solid for two months or had closed their practice to new patients as they were so busy. But one was available within a week. The standard office visit which included some cortisone shots lasted 15 minutes with the doctor and another 15 minutes with a nurse and for paperwork with the office staff. The charge was $262 but our payment was $181 at Aetna's negotiated rate. The doctor also prescribed a generic steroid ointment clobetasol propionate that cost us $40 at our CVS pharmacy.

In France the dermatologist fee would be 25 euros and coupled with the cortisone shots the total bill would be under $50. In Germany it may have been $70.  In Pune, India a reputed dermatologist charges $7 for office visits (and $20 for house calls) and along with cortisone shots we'd have paid $12 - $14. And that ointment that cost us $40 at "negotiated rates?" I discovered I had that exact same one, only a branded product called Tenovate made in India by the reputed GlaxoSmithKline that cost - get this - $2 for the same quantity. In addition as per Indian law the packaging had this price printed on it to prevent overcharging.

3) Orthopedist: The complaint was leg pain. The diagnosis after physical examination and taking three X rays was osteoarthritis worsened by some undesirable exercises. The treatment was avoiding those exercises, wearing a knee brace and taking ibuprofen tablets for a few days. The list charges for this 45 minute visit (15 minutes with the doctor, and the rest with X rays technicians, assistant and billing clerk) were $380 though we paid $220 at Aetna's negotiated rates.

In France an orthopedist will charge 25 euros and an uninsured visitor will pay about 45 euros for X rays (locals pay less) bringing the total to about $90.  In Germany the doctor may cost about $20 more, so overall cost is $110. In Pune, India a top orthopedic surgeon Dr. Dudani charges $6 - $12 per visit depending on where you see him, and X rays cost $5 - $15 in private facilities bringing the total to $11 - $27.

So there you have it. Our March personal medical expenses in U.S.A. for routine treatment were 2 - 3 times what we'd have paid in West Europe even without any state subsidies, and ten or more times those in India.  And it would be all traditional fee for service in those other places as well, with none of those quality versus quantity approaches that seem to be distracting Mr. Obama and his health administration.

Wednesday, February 4, 2015

False Cure for Health Savings

The U.S. cannot cure its colossal health care expenses by targeting the wrong disease. Even as a Sep. 2014 CMS report predicts a further 6% bump in our healthcare costs from 2015 out we have an opportunity to correct our true problem of bloated prices.

Health experts with industry ties blame over-treatment, waste, fraud, and our lifestyle choices for healthcare costs. The data tells a different story. In fact, their impact is minor compared to overpricing, which is the root cause of our inflated medical bills. Industry apologists bury high prices among other factors to protect this key source of providers’ extreme earnings and profitability. They tout “anything but price” solutions that will at best achieve very limited success. Most of these are based on three somewhat overlapping myths about our health system. 
Myth 1: Americans enjoy more care, while other advanced countries provide skimpier treatment after longer wait times.  But OECD Health Data shows that Americans see their doctors 40% less and are hospitalized 20% fewer times than in other advanced countries. While Americans do get more heart bypasses, knee replacements, MRIs and CT scans, this is outweighed by less of other care and treatment, explaining the lower aggregates. Japan even has much higher MRI and CT usage than us, with a third of our per capita spending. 

The Commonwealth Fund in 2014 shows U.S. ranking fifth in access (includes wait times) and last overall among the eleven countries studied.  Citizens in other developed countries use more health resources than we do, with better health outcomes, comparable wait times, and at about half of our cost.   

Myth 2: Our health system is riddled with waste that can easily be eliminated to realize huge savings. An influential March 2012 JAMA study has a “midpoint estimate” of $910 billion wasted annually, roughly a third of our total medical spending. It divides this into six categories – requiring as many remedies – and says “waste reduction is the best strategy by far.”

There are several problems with these assertions. Some waste and leakage is inevitable in any large and complex system, including health care. Except for multiple insurers, there’s no evidence that our system is more wasteful than in peer countries. No one is offering any silver bullet or straightforward, easily implementable solutions. Strenuous efforts to address those multiple sources of nebulously defined waste are likely to yield few savings.

For example, the recently released Medicare payments to individual doctors shows some multimillion dollar payouts triggering suspicions, but fraud represents only a small fraction of total expenses. It’s about $80 billion or under 3% according to the FBI.  The JAMA study doubles this estimate on adding fraud detection and enforcement costs. How do you cut down on fraud AND on anti-fraud measures at the same time?  

Myth 3: Much of our excess expenses are due to heavy and avoidable treatment benefitting very few people, often in their final months of life.

A 2012 federal health department study shows that just 1% of Americans incurred 21.4% of all US health expenses. The top 5% incurred nearly half, while the lower 50% accounted for only 2.8%. Other studies show Medicare spent 28% of its budget on patients in the last 6 months of their life.

Heavy medical users are stereotyped by media stories of fortunes spent to painfully add a few months to lives of terminally ill patients.  But the health department shows only a fifth of the top 10% of spenders are in poor health, while a majority are in good to excellent health over two years. So many people requiring intensive medical services in a particular year or two don’t need much in the preceding and following years. Think of high hospital bills of young women during childbirth, or the young man treated after a skiing accident going back to low health spending in later years. There are of course old or chronically sick patients needing consistently expensive care, but that’s inevitable in our humane society. Few support culling such people or “pushing grandma over the cliff.” 

Also, many “unnecessary” treatments are only evident in hindsight. It’s reasonable to try an expensive therapy offering decent hope though not assured success. Consider patients suffering from a deadly disease that will kill them in two months, unless they undergo treatment costing $200,000 apiece with a 70% success rate. 70% of these people will be cured, but the unlucky ones who fail to respond and die will feed the data showing 30% of medical spending is on patients in the last two months of their life. It’s absurd to look back and classify it as “waste.”

The true issue remains US medical prices that are two to three times higher than in West Europe and six to nine times those in top Asian hospitals. The few experts who fully acknowledge this problem only propose forcing pricing transparency (letting customers know rates in advance). California has required this since 2003 to little effect.   

But with the right legislative and administrative steps matching the (still expensive) European price levels should be easy. The difficulties are primarily political, with the health industry fiercely opposing anything diminishing their fee nirvana. They spend half a billion dollars annually on lobbying according to the Center for Responsive Politics, and that’s just the “official” money changing hands.

Overcoming such resistance to lowering prices carries immense rewards. At European rates our health expense per capita drops from $9,000 to $4,500, yielding $1.5 trillion of annual savings. Even partial success towards this goal transforms our economic landscape. Our budget deficit becomes a surplus (removing the major flash point between Obama and the new Republican Congress) and lower employee labor costs boost our workforce competitiveness. This realization hopefully triggers a long overdue drive against pricing excesses.

Wednesday, April 2, 2014

A Quarter of a Loaf is Better Than None

By the Mar. 31 deadline for 2014 health coverage enrollment of 7.1 million subscribers under the Affordable Care Act (Obamacare) has exceeded the original projection of 7 million.  This has happened despite the inexcusable initial problems with the federal enrollment website, some ongoing glitches including on the last day, and fierce Republican propaganda against this program. 

Given their ineptness this should hardly have been "a victory lap of the Obama administration" with Health Secretary Kathleen Sebelius "beaming in the front row during the Rose Garden ceremony".  But at least the administration can heave a sigh of relief, then set about trying to fix the other glaring deficiencies of Obamacare and our health care system. 

Chief among them is the failure to effectively address overpricing which is the root cause of our colossal health expenditure.  A single payer system or a strong public option in Obamacare would have been far more effective in matching the market power of providers with a dominant buyer. Reform opponents that include private health insurers and a majority of the health industry outplayed the Obama administration in 2009 and 2010 and thwarted this.  Provisions under Obamacare like Accountable Care Organizations (ACO) or even the stalled Independent Payment Advisory Board are unlikely to drastically dent costs.

Still, there are other effective ways to slash our prices and bring them close to European levels by using supply side economics (more hospitals and doctors and competition among them).  These steps are not hard as I laid out back in my Mar. 28, '11 post.  The difficulties are primarily political, with the health lobby spending half a billion dollars annually to protect their advantage, and this is just the "official" money changing hands.

There are some encouraging signs.  I have repeatedly stressed the need and ways to expand our doctor supply, e.g., in this Sep. 11, '10 post.  It would be best to remove residency caps for all specialties altogether, but now Obama is at least seeking an extra $5 billion from Congress to train more doctors.  It may be an isolated step or signal the Obama administration is finally turning to fix supply imbalances and foster more provider (not just insurer) competition. I hope it's the latter.  Combined with the enrollment projections being achieved we're still very far from where our health care needs to be, though on a much better track than the Republicans' "Repeal and Replace" mantra.

Tuesday, October 15, 2013

Obamacare's Self-Inflicted Wounds

The good news is that Obama is a lot better in policy and execution than his predecessor, G.W. Bush. The bad news is that he is a lot worse than his predecessor's predecessor, Bill Clinton.

The good news is Obamacare (ACA) is much better than no safety net for non-seniors.  The bad news is this complex law is far inferior to "Medicare for all."  Obama instead could have pushed to lower the age for Medicare needing only 50 Senate votes or else insisted on a cleaner bill with a strong public option.

The good news is Obamacare should survive and desirous applicants should eventually be able to enroll before coverage starts on Jan. 1, 2014. The bad news is the awful, glitch-ridden debut of these online exchanges gives House Republicans behind the government shutdown some legitimacy in attacking the law.

This last self-inflicted set of wounds in the high profile rollout of Obamacarethat has little to do with politics or Washington gridlock.  Earlier health care shortcomings of HHS and Secretary Kathleen Sebelius are listed in my previous post.  There have also been outbreaks of infectious diseases and preventable veterans deaths in VA hospitals. And now this.  Even the generally Obama friendly Jon Stewart to his credit has excoriated the administration including in this Oct. 7 interview of Sebelius who looked as if she did not want to be there. 

She also couldn't properly answer his reasonable, easily anticipated and repeated question about why the businesses were given a one year waiver from the provisions of the Act, but individuals are not. (The best reason is that to make private insurers cover pre-existing conditions and less healthy people without discrimination you have to make everyone including healthier people participate.  Otherwise it's like allowing people to buy auto insurance to cover an accident that has already occurred, which is neither fair nor viable for insurers.  Such problems of adverse selection don't apply to businesses, unless all their employees get seriously sick simultaneously.)

Another of Stewart's questions Sebelius needlessly fumbled with was why wasn't single payer a much better solution than the present complex law with a big role for private insurance.  She could have simply agreed, explaining that this law was the best achievable compromise given Republican opposition and privately insured Americans' discomfort with changing the whole system. 

Of course the primary problem is not about giving bad answers in interviews, but the ineptness of Sebelius and HHS in implementing the law.  The blame shouldn't stop with them.  The effective execution of Obama's centerpiece legislation is so vital that he and his other close advisors should have been closely engaged in it.  I cited instances of Team Obama's administrative failings in the later part of my March 26 post and this is another - and much bigger - instance of his team's flubs. 

The Times on Oct. 12 reported on ignored warnings and repeated mistakes behind the dismal opening of the federal health care exchange.  The problems are so severe and widespread ("it's awful, just awful"), the article quotes, that they cannot even be categorized as "glitches".  Repeated warnings and missed deadlines have been ignored by HHS officials and the White House.

Obama and Sebelius seem to have made bad judgments and obvious mistakes even in basic decisions like assigning priorities and whom to shortlist for doing the job.  Considering its crucial role in implementing Obamacare the online system should have been vastly overdesigned for handling traffic volumes, complexity and even hacker attacks.  No expenses should have been spared - after all what's a billion dollars or two of initial outlay compared to the Medicare and Medicaid annual budget (Table 3 here) of over $1 trillion? 

Only the best IT services vendors should have been considered as lead implementer and integrator.  I'd have limited the choice to just the reputed heavyweights IBM and Accenture, with just may be HP (which acquired EDS) as a third possibility. These have the heft, the expertize and the reputational stakes to ensure they deliver well, and any subcontracting and resultant responsibility should have been left to them.  Instead, HHS seems to have invited  bids from multiple vendors with doubtful credentials and selected the lowest cost bidder, Canada's CGI Group which - no surprise - has flubbed the job.  HHS compounded the problems by having its own under-resourced and ill equipped CMS be the lead integrator and coordinator of 55+ contractors and being slow to lay down the specs.

Where do we go from here?  While a lot of his routine administration has been far from satisfactory Obama has shown he can deliver on matters that he intensely focuses on.  Examples include his getting Bin Laden and FEMA's effective response to Hurricane Sandy (a contrast to GWB's "Heck of a job, Brownie" 2005 Katrina debacle) that enormously helped his re-election.  Now he and his team need to have the same focus and oversight over implementing Obamacare and not leave it largely just to Health Secretary Sebelius and the HHS.  The online exchanges should work smoothly before December 15 and in any case easily complete all enrollments by the extended deadline of March 31, 2014.  This should help people overlook the earlier troubles like they did with GWB's drug plan for seniors.   It will improve Obamacare's standing in the polls and solidify President Obama's legacy of transforming health care for the better.

Thursday, September 19, 2013

Health Secretary Should Do Much More

In fairness Health (HHS) Secretary Kathleen Sebelius has done more than most of her predecessors going back to the Nixon Presidency.  The top spot should go to Donna Shalala who at the end of her tenure in the Clinton presidency was described by the Washington Post as "one of the most successful government managers of modern times."  Sebelius comes second but that's a low bar to cross. 

Why? Because Republican administrations tend to favor providers and industry players over consumers, and Republican appointees account for ten out of the last 14 health secretaries.  That leaves just two other Democratic appointees, Joseph Califano and Patricia Harris.  They each lasted two years under President Carter - too short a time to make a big impact in a presidency facing many challenges and distractions.

Sebelius on the other hand is enjoying a long tenure at an extraordinary time when the crushing US health care burden and its affordability are prime public issues.  2009 and 2010 were ideal years for an optimal overhaul because of the focus on health care reforms and Democratic control over both houses of Congress plus the White House.  Sebelius could have helped achieve this through insightful ideas, sound advice to the President, and publicizing compelling data to pressure lawmakers beholden to industry interests.  She didn't do this and compounded President Obama's failure to achieve a better outcome.

While Obamacare is better than nothing it falls far short of "Medicare for All" that would have simply extended a popular and streamlined program while dramatically cutting costs.  Lowering the age of Medicare and paying for it by raising taxes needed only a House majority (which Democrats had till 2010) and 50 Senate votes and hence could not be filibustered.  This approach could at least have been used as a credible threat or bargaining chip to overcome Republicans opposition to a so-called strong public option.  That meant a Medicare style choice for Americans under 65 competing with private plans that again would have lowered costs and forced efficiencies.  Ezra Klein floated a version of this idea in the Post back on Jan. 20, '10 and Sen. Bernie Sanders (I-Vt.) another on Feb. 25, '10.  Neither happened and the watered down Obamacare that emerged is in essence a national version of Romneycare.

Apart from being unwieldy and complex Obamacare fails to substantially address the root cause of high US costs, which are exorbitant prices for health services and products.  These in turn are due to lack of market competition and cleverly engineered scarcities of providers, particularly doctors. Sebelius and HHS have done pitifully little to lower prices, but there's time even now for them to lay the foundation for dramatic improvements down the line.  HHS can say they're too embroiled and overwhelmed presently with getting all those health exchanges under Obamacare up and running, but this excuse for inaction shouldn't last beyond Feb. 2014.

I had outlined the path for systemic health care reforms in my March 28, 2011 post.  Sebelius can help move many of these along.  The actions she should take can be divided into three categories:

a) Revelations that enhance general awareness and other indirect actions to influence or pressure Congress into passing remedial laws that restore efficiency and market competition.

b) If Congress at (a) still doesn't act, working with other agencies including the states to achieve much of the same reforms.

c) Take corrective administrative actions where no changes in laws are necessary.  This should be the easiest being totally within her control, if the Obama administration is on board with it.

There are some key steps in each type. 


Sebelius should use her vast data, research and legal resources to compare the US system with those of other leading economies, proposing specific  legislation that corrects anomalies.  She should have respected experts without industry loyalties (they are a miniscule percentage of the total but enough can be found) to estimate resultant cost savings.  There's no reason why US health prices shouldn't drop down to approach those in "inefficient" Europe that otherwise has a higher cost of living. Her actions should include:
  • Highlighting the impact of doctor shortages and the trend of doctor practices merging or being bought over by hospitals.  This increases provider market power enabling them to defend or worsen pricing abuses and resist cost-containment reforms, like replacing fee for service with "outcomes-based payment".  Such revelations will push lawmakers towards allowing increases in doctor supply internally and from abroad as described in my Sep. 11, 2010 post. As part of this Congress should promptly undo their awful 1997 provision freezing medical residencies. Doctor lobbies snuck it into the Balanced Budget Act, neatly shifting the job of choking doctor supply from their own private bodies on to the government.  Just raising the cap on residencies isn't enough - the whole provision and the concept of the cap needs to go.
  • Estimating and then publicizing the savings attainable if Medicare is allowed to directly negotiate drug and medical device prices with manufacturers.  This is the way public health agencies abroad do it, paying under half the price charged in the US.  Congressional Republicans have opposed this ostensibly to avoid Big Government but the savings can appeal well to their own Tea Party faction that pushes for lower spending.  The timing may be opportune since Tea Partiers are getting used to finding common cause with liberals in another area - opposition to military intervention in Syria.  Ideally, the whole wasteful G.W. Bush era Medicare Part D (drug plan for seniors) should also be overhauled so it is directly administered by Medicare.  Seniors can then get their drugs more easily and completely free, at lower cost to taxpayers than the present system needlessly involving and favoring private insurers as middlemen.
  • Reviving the case for a strong public option while quantifying the savings from increased buying leverage and cutting out private insurer overheads and profits.  Republican aversion to a bigger government role can be balanced out by their desire to cut spending as well as taxes.  Savings that reduce Obamacare subsidies and health costs can facilitate these objectives, and be well timed as a way out of the looming clash on budgets and raising of the debt ceiling.

If Congress remains intransigent or gridlocked, I spelled out on Aug. 25, '12 how HHS can achieve a lot of reforms simply by working with the states and other federal agencies.  That's because a lot of barriers to health  market competition and efficiency are a result of state laws that can be remedied and updated by them without need for federal action.  These include licensing and US residency constraints that keep out well qualified foreign doctors, hurdles in establishing new hospitals, and burdensome regulations and malpractice laws. Some actions by Sebelius should be:
  •  Advising states on ways to ease provider shortages and lowering prices.  To achieve this HHS should ideally consult with states and come up with model state legislation that willing states can adopt to replace their existing laws. Such state laws can include allowing foreign doctors to practice without US residency requirements, telemedicine, ease in setting up new hospitals, tort reforms and malpractice caps. 
  • Working with other federal agencies like the USCIS to allow in more foreign doctors on professional visas.  Also with the anti-trust authorities to block mergers of hospitals and physician practices that are likely to increase their pricing power.  When such mergers are cleared on claims of increased efficiency and economies of scale there should be an automatic policy to get an equal number of new hospitals and doctors in the area.  This way the provider marketplace will remain competitive and negotiating leverage of public and private payers will not decline.
  • Encouraging and enlisting the support of powerful yet presently comatose non-governmental bodies for health reforms.  Topping my list of such bodies is the National Business Group on Health (NBGH) as I wrote in March.  These large employers can collectively counter-lobby and neutralize the influence and the financial contributions of our powerful health groups to political leaders.  If their backing of reforms causes health prices to drop dramatically, the large employers will derive almost unimaginable savings and return on investment on their reform drive. They and their employees incur about 10% of national health care expenses.  And thanks to them the other 90% of savings will lift the government budgets and all other payers.
Actions that HHS should take on its own - but hasn't so far - will hugely help patients and payers.  Some big ones are:
  • Eliminate the about 80% higher payments for doctors employed by hospitals which are billed as "outpatient services", as compared to identical services by doctors in private practice. This has enabled hospitals and doctors to game the system and is behind the rapid trend of hospitals employing doctors.  Medicare and other payers consequently pay much more for the same services, often delivered at the same location.  Why didn't HHS spot and stop this anomaly beforehand and is still taking so long to fix it? The extra amount paid is a "facility fee" to ostensibly cover hospital overheads.  This is unjustified considering that their centralized system for handling billing, appointments, etc., and their economies of scale should lower, not raise costs. 
  • Simplify and make transparent the very complex system of payment rates to hospitals and providers.  Flat, national base rates for procedures and treatments should be modified by only a couple of parameters, like cost of living index and malpractice insurance rates. In doctor payment rates there are well publicized problems of their imbalances between primary care doctors and specialists, and across specialties.  Fixes include changing the assignment of relative value units (RVUs) across specialties, and HHS can and should expedite this process.
  • HHS should use its enormous resources of data and researchers to compile accurate statistics on revenues and salaries of providers, payment rates, and how they compare with other countries.   My Mar. 1, '10 post describes how our privately compiled data heavily understates incomes of doctors.  Health experts and academics are silent on where all the excess money paid for overpriced treatment goes, especially with hospitals showing so little profit or net cash flow. HHS should get all the facts out, enabling better policy and decision making. 

HHS has recently released useful information that can help consumers at the expense of the industry.  But even this has been done belatedly and incompletely, seemingly under pressure from above, or to comply with obligations under Obamacare.  For instance Sebelius made public charges and Medicare payments data for the top 100 procedures and for 3,000 hospitals. This was readily compile-able all along and I wish she'd done this in 5 months instead of taking 5 years.  Worse, it understates total payments by only revealing the hospitals' take.  It excludes major items like surgeon and anesthesiologist fees without explicitly clarifying this fact.  This makes apple to apple international comparisons difficult since foreign hospitals typically quote package prices that include everything. 

In sum, Sebelius and HHS can easily rev up efforts as described above if they're motivated by public spirit or pressed by the Obama administration to do so.  That can dramatically change the trajectory of health prices and expenditures, while maintaining or improving quality.  The WSJ on Sep. 18 reported on the expected slowdown in health expenses to an "only" 6.1% increase next year and a slower move up as percent of GDP going out.  But with the right steps I'd expect far better results, with expenses static or actually declining as percent of GDP from the current 18% over the next couple of decades.


Tuesday, June 18, 2013

Ranbaxy Tarnishes India's Image

In US medical care the system and the laws are manipulated to allow providers to get away with outrageous prices.  "The $2.7 Trillion Medical Bill" of June 1, '13 in the NY Times by Elizabeth Rosenthal is the latest in a stream of recent articles exposing such overpayments in comparison with other countries.  As at the end of my last post I've frequently made favorable references to India, where high quality medical care can be available at a fraction of the cost.

But India remains a developing country where a lot can go wrong.  Even giant corporations here can engage in illegal and damaging practices because of a culture of cutting corners and unscrupulous business leaders thinking they can get away with it.  Some do even worse.

The poster case for such shenanigans is Ranbaxy, which is India's largest pharmaceutical company.  "Dirty Medicine" on May 15, '13 in Fortune details the long-term criminal fraud at Ranbaxy which makes generic Lipitor for millions of Americans, not just products for third world countries.  As the article said:

"On May 13, Ranbaxy pleaded guilty to seven federal criminal counts of selling adulterated drugs with intent to defraud, failing to report that its drugs didn't meet specifications, and making intentionally false statements to the government. Ranbaxy agreed to pay $500 million in fines, forfeitures, and penalties -- the most ever levied against a generic-drug company.  ...

 "It is not a tale of cutting corners or lax manufacturing practices but one of outright fraud, in which the company knowingly sold substandard drugs around the world -- including in the U.S. -- while working to deceive regulators. The impact on patients will likely never be known. But it is clear that millions of people worldwide got medicine of dubious quality from Ranbaxy." 

Ranbaxy's misdeeds occurred with the knowledge and complicity of its top management including then chief and owner Malvinder Singh.  As consequences like actions by USA's FDA were catching up with them, Malvinder Singh and his brother Shivinder Singh sold the company in 2008.  The hapless buyer was Japan's Daiichi Sankyo that paid $4.6 billion, including $2 billion for the Singh brothers' 34% stake.  Daiichi Sankyo seemed unaware of the real extent of Ranbaxy's wrongful practices and its resultant troubles (despite Malvinder's indignant assertions to the contrary) and is seeking legal remedies

Ranbaxy itself may repair its image quickly with its unscrupulous former owners gone and succeeded by a more ethical Japanese owner, but the damage to the Indian generics industry may last longer.  Lax domestic oversight should take much of the blame.  Notably, all the wrongdoing was detected and exposed only by foreign agencies, and none all these years by the Indian authorities.  The Indian government could have done a lot to ensure quality control that would not only have protected India's international reputation but more importantly the health of its own people.  It can even now make amends by acknowledging past problems and promising vigorous remedial measures, but sadly is showing little signs of doing so.  Instead in a knee jerk reaction, as I had seen too often during my own tenure in government, it is vehemently and unconditionally defending all Indian generic drug makers. 

In its June 3 statement release the Government of India "hit back" at the "reports of malpractices of pharma manufacturing in India."  It asserts that the Pharma sector "is highly regulated" and that "vested interests are raking up isolated issues reported regarding technical deficiencies on manufacturing".  It says "Government has strong reason to believe that some of the spurious drugs detected in the international markets, alleged to be exported from India, are desperate attempts by other countries getting affected by the strength of Indian pharma industry."  It also cites figures showing the size of the industry (so what?) and talks of the many tests and certifications.  The problem with the latter is that they mean little if they're based on falsified or invented data.  

I'd hope for a more enlightened approach.  Given endemic corruption drug inspectors may give advance warning of "unannounced" site inspections and accept doctored samples for testing as described in the Fortune story.  The Indian authorities should be devising systems that ensure frequent and random testing of drug samples (perhaps simultaneously by two unconnected laboratories) and genuine surprise visits.  Done right, this will protect Indians and far from harming the "good" pharmaceutical companies, it will instead more quickly restore the credibility of the Indian drug industry.  There's also the matter of pursuing strong penalties against wrong-doers.  Alleged sample fraud and data falsification as described in the Fortune story should be thoroughly investigated and the full force of criminal law applied to anyone found guilty.

What about Ranbaxy's future prospects?  Under its new owners and management it already seems to be cleaning up its act. A so-called public interest litigation (PIL) case is pending in the Indian Supreme Court to cancel Ranbaxy's license and issue broader court directives to Indian regulators for better oversight.  The former looks unlikely to happen, and skittish Indian customer pharmacies that had been wary of Ranbaxy following its US troubles now seem to have had their fears allayed.  

But with Malvinder Singh and his clan I'd still have misgivings.  They're no longer in pharmaceuticals but have huge ongoing holdings in health care, including the Fortis group of hospitals, where given their past conduct they can do a lot of damage.  For example, in pursuit of profits they can pressure their doctors and employees to perform unnecessary but lucrative surgeries and treatments.  Whether by government directives, investor pressure or bad publicity in the media, I'd like to see this Singh family relinquish all control over sensitive health care institutions.  It will also be fair if Daiichi Sankyo can claw back a lot of what they paid to acquire Ranbaxy.  Whether or not this happens is an open question.  Knowing they were selling a lemon the Singh brothers would have tried inserting protective clauses in the sale agreement that the unsuspecting Japanese may have signed on to as "routine."

The bottom line is that India promises much in health care products and services, but customers should be wary and choose carefully, to sift the good from the bad.

Friday, May 31, 2013

Write and Wrong

There are - finally - more articles in the popular media exposing price gouging as the root cause of high US health costs.  But two big concerns remain.

First, such writings are still too few and far between to sufficiently penetrate public consciousness to create the political climate and pressure for reforms that align health prices with other countries.  Besides, the message continues to be drowned out by the flood of red herrings and misinformation put out by pundits funded by the health industry, and naively accepted by the media.

For example, type something like "why are US health prices so high" into Google search and you'll get a stream of articles and quotes blaming unnecessary care or treatment for high costs.  This "quantity" argument is quite false since Americans in aggregate get far less care than Europeans in terms of doctor visits (40% less) and hospitalization (20% less) according to OECD health data. This dwarfs any "excess" care Americans receive in the likes of MRIs, heart bypasses and knee replacements. There are also the many sins of omission - you'll see very few articles in health journals on US pricing anomalies, and none that honestly analyze the reasons for them, or how they can be addressed.

Second, and a bigger concern is that even articles sounding the alert on prices contain serious mistakes about root causes and where the money goes, which derail the quest for best solutions.  Why does this happen? One reason is that the authors have spent so much time unearthing and exposing the fact of overpricing that they've little left over to go into tedious research about the reasons.  Most or all authors happen to be "outsiders" getting little help (or even deliberate misinformation) in quest of answers from health experts and academics beholden to their industry.

There's also a psychological mindset as we tend to ascribe the best motives to our doctors who typically care deeply about their patients.  We (wrongly) transfer this trust in doctors to their powerful associations like the AMA that seek to maximize their members' benefits.  To achieve such objectives these bodies manipulate the political system to the extent it lets them, even at heavy cost to the overall economy or societal welfare.  Writers who don't see this are giving a free pass to our doctors while blaming greedy management, bureaucrats, insurers, drug companies and trial lawyers with less benign personae.  While all these players contribute to higher prices the maximum benefit goes to doctors, so the most needed reforms  will cause their earnings to drop.  And conversely, avoiding reforms opposed by doctor groups almost guarantees continuance of overpricing. 

 Here to my mind are five examples of some welcome facts mixed with misstatements and oversight that can lead away from good solutions:

1) Steven Brill in his famous Mar. 4 / Feb. 20, '13 "Bitter Pill" Time article admirably exposed outrageous charging by US health providers.  He further drove home this message in various media interviews, including on Jon Stewart's Daily Show on Feb. 21.  His biggest mistake lay in ignoring his own dictum of "following the money" to declare that "Everyone in health care makes money (from overpricing) except for doctors."  He says most of the excess money goes to the hospitals' top executives, citing hospital CEO salaries even in "non-profit" University hospitals that are multiples of those of their university presidents.  Actually, under 1% of large hospital revenues typically go towards C-Suite (including CEO) salaries.   Also, administrative heads of departments in hospitals are not bureaucrats but invariably senior doctors in a dual role.

So where do most of hospital excess revenues (i.e., those over and above what their European counterparts would take in for equivalent services) go?  A lot of it goes to doctors either in the form of salaries or perks hidden (for PR and tax purposes) as expenses. About the latter, think of lavish family vacations passed off as conferences, luxury cars expended as work vehicles, and payments on large homes treated as home offices.  Hospitals zealously guard their books which is why Brill who spent most of his energies digging into details of overpricing may not have grasped how the money is really spent.  Other than excess compensation there are of course other big buckets of unnecessary expenses or inefficiency as well.  These include bottlenecks due to regulations or union contracts, administrative costs due to a complex insurance system and fear of litigation, and sheer ineptness in a system devoid of market competition.

2)  Bill Keller, former executive editor of The New York Times and as well informed a person as any, acknowledged how even he was led to believe that high US health costs were due to too much care.  As he wrote in the Times' "Carrots for Doctors" on Jan. 27, '13 he finally learned the true culprit was prices.  His main point was that pay-for-performance (P4P) will do little to improve "our absurdly priced, underperforming health care system" and he did well to highlight the role of pricing. 

But Keller remains mistaken about the true cause of overpricing (which is managed scarcity of doctor supply and the market power of hospitals) and ways to correct this.  He is duped by the doctors' propaganda of "the high price of malpractice insurance being a favorite, and genuine culprit."  (It actually averages just 3.2% of doctors' revenue according to this site.)  He also over-emphasizes the role of single payer systems in keeping prices down, suggesting a damaging converse that in its absence (as it's "politically unpalatable") we must live with high prices.  See examples in the point below to debunk this.

3) Ezra Klein has been key in mainstream coverage of pricing issues as in his Mar. 3, '12 "Why an MRI Costs $1,080 in America and $280 in France".  However, his views like in his Feb. 25, '13 Wonktalk with Sarah Kliff discussing Brill's Time article overemphasizes the need and role of "rate-setting" as the answer.  Rate-setting is where the government, typically in a single payer system according to Klein, lays down the rates that hospitals can charge for various services and procedures.  This implies that prices can only be brought down significantly if we bring about a single payer system, which is a non-starter with Republicans.  While I'm all for single payer which can solve a lot of problems it is by no means the only viable option.

A parallel route can achieve similar or better results while being acceptable (at least in theory) to Republicans and free market thinkers.  This includes introducing real competition through trade, allowing new hospitals with disruptive business and operational models be set up and letting the supply of doctors rise.  Take the example of top Indian and Thai hospitals with prices that are a third of European hospitals (or a sixth of what US hospitals typically get) that are magnets for medical tourism.  Their prices are not determined by any kind of rate-setting but by market forces, and unlike US hospitals they disclose their "real" prices for various procedures and services up front.

4) Scott Gottlieb in his "The Doctor Won't See You Now..." March 14 Op-Ed in the WSJ lambasts Obamacare for "making the local doctor-owned medical practice a relic."  He says this happens because Obamacare (a) favors hospital owned accountable care organizations (ACOs), (b) replaces fee-for-service with flat pricing, and (c) is "mandating all medical offices install expensive IT systems."

 Dr. Gottlieb rightly questions the savings potential of ACOs, and the long standing anomaly of Medicare paying higher rates for services by doctors as hospital employees than those in private practice.  But most of his remaining narrative is flawed.

Rates paid to US doctors in private practice are multiples of those paid to their European counterparts - it's just that prices for doctor services in hospitals is more egregious.  So it isn't a case of hapless doctors being so squeezed as to throw up their hands in private practice, but of being lured into hospitals with even more lavish pay packages and shorter hours.

Flat pricing is what takes away the incentive for wasteful and unneeded care, not to talk of stopping to reward bad care and medical mistakes with more fees for additional services.  World class hospitals abroad that attract medical tourists have flat pricing. This enables them to quote up front for surgical packages, in contrast to the hideously opaque US pricing system.

The government is right to use the carrot (subsidies for conversion) and stick (lower payments for holdouts) policy to get medical establishment to migrate to electronic health record keeping (EHR).  It improves efficiency, makes prior patient history easily accessible and exchangeable for better treatment, lowers costs long term and reduces medical mistakes.  Thanks partly at least to the government push over half of doctors and 80% of hospitals have switched to EHRs, up from 17% and 9% respectively in 2008.

5) Lisa Krieger in her Feb. 5, '12 "Cost of Dying" in Mercury News exposed overpricing without even realizing it as she was focused instead on unnecessary end of life care for her 88 year-old father. She doesn't question the $323,000 charges at Stanford Hospital for 10 days of stay with mostly standard tests and care.  Just the stay in their intensive care unit (ICU) was billed at $25,000 per day.  Ms. Krieger sympathizes with the hospital for receiving "only" $67,800 from Medicare ($6,780 per day!) so that, according to her, they'd need to make up their losses by overcharging private insurers. 

In contrast my 94 year-old father-in-law was taken to one of Pune's (India) best hospitals - Ruby Hall Clinic - this past month.  He was there for eight days receiving essentially the same treatment and tests as described by Ms. Krieger for her father.  It included MRI's, CT Scans, pathology tests, feeding tube, oxygen mask, round the clock nursing care, etc.  He too was in the ICU, in the cardiac care section (CCU) with a deluxe private room.  He passed away after eight days despite all efforts.  There isn't a more upright, decent and engaging person than he was, but that's another story.  His total bill as a private and cash paying patient was about $3,000, or $400 per day, that too at the most upscale and priciest hospital by Pune standards.  That's 6% of the rate at which "stingy" Medicare paid Stanford Hospital, or 1% of what Stanford would have charged an uninsured patient.

Our sky-high health care prices and resultant financial and budgetary morass is an offshoot of a corrupt legislative environment influenced by powerful medical interests.  While the popular media articles drawing long overdue attention to such prices are welcome, the above examples show the need for much more in-depth reporting of the true reasons and fixes for this.  Only then can public awareness and outrage rise enough to force politicians to act.