Annual U.S. Total Economic Cost of Overweight and Obesity Pegged at $270 Billion

by Clive Riddle, January 14, 2011

The Society of Actuaries this week an 80 page report on their study findings: Obesity and its Relation to Mortality and Morbidity Costs.

The study quantified the following economic impact:

• Total annual economic cost of overweight and obesity in U.S. - $270 billion
• Total annual economic cost in Canada - $30 billion
• Total annual U.S. economic cost of obesity - $198 billion (73% of U.S. total)
• Total annual U.S. economic cost of overweight - $72 billion (27% of U.S. total)

The study also broke down the total U.S. and Canada annual economic cost ($300 billion) by specific causes:

• Total cost of excess medical care caused by overweight and obesity: $127 billion (42.3%)
• Economic loss of productivity caused by excess mortality: $49 billion (16.3%)
• Economic loss of productivity caused by disability for active workers : $43 billion (14.3%)
• Economic loss of productivity caused by overweight or obesity for totally disabled workers: $72 billion (24%)

For the study, lead researchers and actuaries Don Behan and Sam Cox reviewed nearly 500 research articles on obesity and its relation to mortality and morbidity, focusing primarily on papers published from 1980 through 2009.  Don Behan FSA, FCA, MAAA tells us that "there is substantial evidence that overweight and obesity are becoming world-wide epidemics, and are having negative impacts on health and mortality. As actuaries, we are working with the insurance industry to help incentivize consumers through their health plan design to focus on health and wellness, which will hopefully help curb the weight and health problems we face today."

Overweight is defined as a body mass index (BMI) of 25.0 to 29.9 and obese as a BMI of 30.0+.  (Extremely obese is 40.0+). The study cited the following current percentage of population with applicable BMIs:

	USA	Canada	Combined
Overweight	19.2%	17.4%	19.0%
Obese	7.4%	7.6%	7.4%
Extremely Obese	4.2%	4.7%	4.3%

The study goes on to examine the relationships and impact of Obesity with Cardiovascular Disease, Diabetes, Cancer, Osteoarthritis, Asthma, Renal Disease, In-Hospital Infection, and other conditions; as well as disabilities and excess mortality caused by obesity, all from an actuarial perspective.

The study concludes that “perhaps the most convincing results concern the effect of overweight and obesity on cardiovascular disease and diabetes. Relative to normal weight, the relative risk of death from CVD increases significantly for overweight men and women…About 60 percent of diabetes is directly related to weight gain… Several papers provide empirical evidence that obesity is significantly related to increased risk for certain cancers (Renehan et al., 2008b). The relationship is complex and depends on the site of the cancer. Overweight and obesity are significantly related to a variety of negative effects on the body, such as delayed healing of joint injuries, increased risk of arthritis, impaired function of internal organs, and interference with hormone balances. …..The negative effects play a role in a cycle of overweight, depression and decreasing physical activity, which results in increased use of the health care system…Increasing BMI also is related to development of asthma …Many empirical studies found that obesity significantly increases the risk of death, that is, all-cause mortality … The relationship between BMI and all-cause mortality is often found to be U-shaped or J-shaped, since underweight also is associated with increased mortality. The few studies of insured groups generally agree with population results.”

World Alzheimer's Day- September 21st

by Clive Riddle, September 21, 2010

In observance of World Alzheimer's Day, Alzheimer’s Disease International has issued the World Alzheimer Report 2010. Here’s ten quick facts we gathered from the report:

1. There are 35.6 million people living with dementia worldwide in 2010
2. The total estimated worldwide costs of dementia are US$604 billion in 2010
3. Total dementia costs account for around 1% of the world’s gross domestic product
4. The total estimated worldwide costs of dementia are US$604 billion in 2010
5. Direct medical costs account for 16% of total dementia costs
6. Direct social care costs account for 42% of total dementia costs
7. Costs of informal care (unpaid care by families, etc.) account for 42% of total dementia costs
8. About 70% of worldwide dementia costs occur in Western Europe and North America
9. If dementia care were a country, it would be the world’s 18th largest economy, ranking between Turkey and Indonesia
10. If dementia were a company, it would be the world’s largest by annual revenue, exceeding Wal-Mart (US$414 billion) and Exxon Mobil (US$311 billion).

Dr Daisy Acosta, Chairman of Alzheimer’s Disease International tell us,. "this is a wake-up call that Alzheimer’s disease and other dementias are the single most significant health and social crisis of the 21st century. World governments are woefully unprepared for the social and economic disruptions this disease will cause."

Here, verbatim, is what the report recommends at this point in time:

• Governments worldwide should act urgently to make Alzheimer’s disease a top priority and develop national plans to deal with the social and health consequences of dementia. Several countries have moved forward to develop national plans, including France, Australia and England. It is critical for other governments to follow suit.
• Governments and other major research funders must increase research funding to a level more proportionate to the economic burden of the condition. Recently published data from the UK suggests that a 15-fold increase is required to reach parity with research into heart disease, and a 30-fold increase to achieve parity with cancer research.
• Governments worldwide must develop policies and plans for long-term care that anticipate and address social and demographic trends and have an explicit focus on supporting family caregivers and ensuring social protection of vulnerable people with Alzheimer’s disease and other dementias.
• The scale of what is facing us elevates this to a global challenge, which must be addressed as a top WHO priority and on the G-20/G-8 agenda.

Analytics in the People's Republic of China

By Clive Riddle, September 17, 2010

 This week, the National Predictive Modeling Summit was held in the Washington DC area. During the Thursday afternoon workshop on International Analytics issues, Rong Yi, PhD, Senior Consultant at Milliman, Inc. gave a presentation on Predictive Analytics and the People's Republic of China.

Here’s some of what Rong had to share on health care and analytics in the People's Republic:

• 22% world’s population, 2% world’s health care resources.
• China’s health care spending is 4.7% of GDP.
• 2/3 of the population are in the rural area, supported by only 20% of health care resources.
• Chronic conditions account for 80% of deaths in China
• Hypertension: 18.1% of population (160 mil), increased by 33% in 10 years.
• Diabetes: 9.7% (92 mil) adult diabetes, 15.5% (148 mil) prediabetes.
• Overweight and Obesity: 8.1% children age 7-17, 22.4% adults
• 14 different ministries and commissions are involved in China’s public health and healthcare policymaking
• Rural Coverage: the New Cooperative Medical System started in 2003,  with 100% reach at village level as of 2010
• Urban Coverage: Workers medical insurance started in 1998; Residents medical insurance started in 2007
• Private insurance: Chinese insurers dominant, foreign insurers 5% in market share; Starting in 2011 foreign insurers are allowed to enter the China market for individual and group health insurance
• Reform includes an investment of 2,000 new hospitals in 2009-2012; 3,700 new community health services centers, and 11,000 new community health services stations
• State of Predictive Analytics:  (1) No claim-based predictive modeling at the present time; (2) commercial use of scoring methods and HRA tools include-  HRA research committee under China’s CDC, Proprietary HRA tools developed on China’s data, and specific scoring tools, e.g., ICU scoring systems, disease-specific scoring; (3) Disease risk prediction models based on health screening data on large population in which long term risks are modified using long-term factors such as lifestyle and behavioral factors (smoking, exercise)

Workers Comp: Medical Benefits Slice of the Pie is now the biggest

by Clive Riddle, September 10, 2010

The National Academy of Social Insurance (NASI) has just released a 112 page report: Workers Compensation Benefits, Coverage and Costs 2008 which provides  comprehensive data on workers' compensation cash and medical payments for the nation and for each state, the District of Columbia, and federal programs.

This year, for this first time ever, the report finds that medical benefit claims exceed cash compensation payouts. Here is a summary data table provided by the NASI:

Figure 1: Workers' Compensation Spending, 2008
Type of Spending	Billions of Dollars	Percent  Change
Total benefits paid	$57.6	4.4
Medical payments	29.1	8.8
Cash benefits	28.6	0.3
Employer costs	78.9	-6.7
Amount per $100 of Covered Wages	Per $100 of Payroll	Dollar Change
Benefits paid	$0.97	$0.03
Medical payments	0.50	0.03
Cash payments to workers	0.48	-0.01
Employer costs	1.33	-0.11
Source: National Academy of Social Insurance, 2010.

Continual health care inflation, utilization and other medical cost escalators are blamed. John F. Burton, Jr., chair of the report panel tells us: The growth in medical spending may reflect both higher prices for medical care and greater use of services. The increase is the continuation of a long-term trend since 1980, but this is the first year that payments for medical care were more than half of all workers' compensation benefits."

However, one additional factor is probably in play. Given 2008 data would be the first year to reflect the great recession, intuitively one might assume the cash compensation slice of the pie was diminished by a shrunken work force.  So while health care costs are an easy target and typically a deserved scapegoat, the economy would seem an equal explanation for why the pie is being sliced up differently.

Have you taken a prescription drug during the past month?

by Clive Riddle, September 3, 2010

CDC’s National Center for Health Statistics has just released a Data Brief: Prescription Drug Use Continues to Increase: U.S. Prescription Drug Data for 2007-2008  [Gu Q, Dillon CF, Burt VL. Prescription drug use continues to increase: U.S. prescription drug data for 2007-2008. NCHS data brief, no 42. Hyattsville, MD: National Center for Health Statistics. 2010.]

Here’s a laundry list of what you can glean from the eight page report on U.S. prescription drug use:

• 48% had taken a prescription drug(s) during the past month, up from 44% ten years prior
• 31% had taken two or more prescriptions during the past month, compared to 25% ten years prior
• 11% had taken three or more prescriptions during the past month, compared to 6% ten years prior.
• 52.8% of those with health insurance had taken a prescription drug during the past month, compared to 28.5% without health insurance
• Among children (under age 12), less than 10% used two or more prescription drugs in the past month and only 1% used five or more.
• Among older Americans (aged 60 and over), more than 76% used two or more prescription drugs and 37% used five or more.
• The prescription drugs used most of for children aged 0-1 were Bronchodilators for Asthma (5.7% used)
• The prescription drugs used most of for adolescents aged 12-19 were CNS stimulants for ADD (6.1% used)
• The prescription drugs used most of for adults aged 20-59 were Antidepressants (10.8% used)
• The prescription drugs used most of for adults aged 60+were Cholesterol lowering drugs (44.9% used)
• Total U.S. spending for prescription drugs was $234.1 billion in 2008, more than double what was spent in 1999

The report is based on the National Health and Nutrition Examination Survey (NHANES) which examines a range of other aspects of national health and nutrition components as well, designed to monitor the health and nutritional status of the civilian noninstitutionalized U.S. population using a nationally representative survey population.

Health Systems Organizing Themselves Around Individuals

by Clive Riddle, June 11, 2010

This week Benjamin Isgur, Director at PricewaterhouseCoopers’ Health Research Institute gave a presentation in the Healthcare Web Summit event, Healthcare in the Decade Ahead: HealthCast: The Customization of Diagnosis, Care and Cure.

In Ben’s words, what the folk at PWC’s Health Research Institute see in the decade ahead with respect to global trends for health systems, is that the “cost pressures are still there, but we’re seeing a new way forward for sustainability and systems being more efficient and effective, by organizing themselves around individuals.” The headline of his third slide said it all: “Individuals will be at the center of diagnosis, care and cure.”

Ben’s presentation was based on a paper published by their Institute, entitled HealthCast: The Customization of Diagnosis, Care and Cure. The report reflects proprietary research conducted by PwC, including more than 200 in-depth interviews in 25 countries with thought leaders and executives representing government, hospitals, pharmaceutical companies, insurance companies, clinicians, academics and the business community and a survey of 3,500 individuals in seven countries and 590 leaders of health plans, providers, government, employers, physician groups and pharmaceutical/life science firms in 20 countries.

Ben’s case for why today’s health system model must change:

1. “Both young and old consumers are developing chronic diseases in record numbers, leading to an explosive consumption of resources that is driving up spending and creating liabilities for future generations. Following a global recession, health leaders are under pressure to show more value from rising health costs.”


2. “Converging influences in health. Chronic diseases are driven by social, economic, genetic and behavioral factors that are largely unaddressed by today's medical delivery system.”


3. “Technology is leading healthcare into a new era of "mass customization," following other industries such as auto manufacturing, media, and entertainment. The use of metadata is changing the behaviors of individuals and health systems.”

Ben’s presentation used international and domestic cases to support their thesis that the trends ahead for the U.S. are really part of global overarching  developments. For example, in discussing how chronic disease now affects young and old, driving up spending, he shared this Australian experience regarding “drivers of health spending in Australia in respiratory disease (which affects the young) and neurological disease (which affects the old)”:

Respiratory cost drivers:	Neurological Cost Drivers:
Volume per case: 84%	Volume per case: 25%
Price: 9%	Price: 5%
Disease Rate: 4%	Disease Rate: 4%
Ageing: 3%	Ageing: 48%
Population: 0%	Population: 18%

Other key trends Ben addressed in the same manner:

• Health reform is moving the status quo to customized care
• Funding is being redistributed from sickness to wellness
• Incentives are being designed to encourage partnership
• Electronic medical records and IT ease collaboration, customization
• Patient communication is supporting shared decision-making
• Workforce models will be more flexible and efficient

In summary, Ben stated these are the vectors of change for customization and individual engagement:

• Regulatory reform that focuses on efficiency
• Funding that is redistributed
• Incentives that encourage partnership
• EMRs and IT that ease collaboration
• Patient communication that supports shared decision- making
• Workforce models that are flexible

The toolkit PwC prescribes to address this change includes:

1. Coordinated care teams: Consumers want coordinated care. Integrated care networks that share information, care and accountability for patient outcomes are likely to become models for the future.
   
2. Fluent navigators: Individuals lack the knowledge and skills they need to navigate the health system and understand their choices. In a patient-centered health system, there will be a growing need for consumer advocates beyond friends and family. PricewaterhouseCoopers sees the role of healthcare-fluent navigators being played by pharmacists, community workers and possibly the emergence of a new professional field much as financial planners emerged with the rise of consumer-directed investing.
   
3. Patient-experience benchmarks: In a patient-centered health system, more attention will be paid to understanding and meeting consumer expectations. Many health systems already are tracking and publicly reporting on patient-centric metrics of care, such as cleanliness, wait times and physician satisfaction, allowing patients to make more informed decisions.
   
4. Care-anywhere networks: The definition of access is being redefined by telehealth, wireless mobile devices, remote monitoring and new care delivery models that move care from hospitals, nursing homes and physicians’ offices and into patients’ homes, which increasingly are wired with networked devices.
   
5. Medical proving grounds. Through collaboration and investment, some regions and other countries are positioning themselves to be medical proving grounds, or centers of excellence in medical innovation and care as a way to attract patients, researchers and providers looking for the shortest path to access and innovation.

PwC’s Recommendations for adopting a convergence viewpoint:

• Encourage partnership
• Reward competition and innovation
• Fund wellness
• Empower shared decision-making
• Develop dynamic workforce models
• Enable IT

1.      “Both young and old consumers are developing chronic diseases in record numbers, leading to an explosive consumption of resources that is driving up spending and creating liabilities for future generations. Following a global recession, health leaders are under pressure to show more value from rising health costs.”

2.      “Converging influences in health. Chronic diseases are driven by social, economic, genetic and behavioral factors that are largely unaddressed by today's medical delivery system.”

“Technology is leading healthcare into a new era of "mass customization," following other industries such as auto manufacturing, media, and entertainment. The use of metadata is changing the behaviors of individuals and health systems.”

What to make of the CMS National Health Expenditure Report

by Clive Riddle, January 5, 2010

CMS’ Office of the Actuary today issued their annual report on the National Health Expenditure Accounts. CMS states the report contains good and bad news. On one hand, “nominal health spending in the United States grew 4.4 percent in 2008, to $2.3 trillion or $7,681 per person.  This was the slowest rate of growth since the Centers for Medicare & Medicaid Services started officially tracking expenditures in 1960.” On the other hand, “health care spending continued to outpace overall nominal economic growth, which grew by 2.6 percent in 2008 as measured by the Gross Domestic Product (GDP).”

CMS states that “the 4.4 percent growth in 2008 was down from 6.0 percent in 2007, as spending slowed for nearly all health care goods and services, particularly for hospitals. However, health spending as a share of the nation’s GDP continued to climb, reaching 16.2 percent in 2008, up 0.3 percentage points from 2007.” Jonathan Blum, CMS Director of Center for Medicare Management tells us “this report contains some welcome news and yet another warning sign. Health care spending as a percentage of GDP is rising at an unsustainable rate.”

One of the supplemental reports: the Nation's health dollar - where it came from, where it went, provides a nice brief summary pie chart that breaks down as follows:

The Nation’s Health Dollar, Calendar Year 2008: Where it Came From:

• Private Insurance - 33%
• Medicare - 20%
• Medicaid/SCHIP – 15%
• Other Public – 13%
• Out of Pocket – 12%
• Other Private – 7%

The Nation’s Health Dollar, Calendar Year 2008: Where it Went:

• Hospital Care - 31%
• Other Spending- 25%
• Physician and Clinical Services - 21%
• Prescription Drugs - 10%
•  Nursing Home Care - 6%
• Program Administration and Net Cost - 7%

Digging into other supplemental files provided with the report, it’s interesting to examine trends in the portion of public vs. private funding of spending, and the subset of private spending from consumer out of pocket payments, which we compiled as follows:

% of Total National Expenditure	2008	2005	2000	1995	1990	1980	1970	1960
Total Public Payments	47.3%	45.4%	44.1%	45.8%	40.2%	42.0%	37.5%	24.5%
Total Private Payments	52.7%	54.6%	55.9%	54.2%	59.8%	58.0%	62.5%	75.5%
Consumer Out-of-pocket	11.9%	12.5%	14.2%	14.4%	19.1%	22.9%	33.3%	46.9%

The continual shift between public and private funding is certainly apparent, as is the decline in the portion accounted by consumer out of pocket payments. While much has been made over ever increasing consumer cost sharing, that concern has been expressed in absolute, as opposed to relative terms. Relative to total national health expenditures, consumer out of pocket costs continue to decline as a percentage. Of course the shift towards private funding is the cause- as more consumers are covered by public vs private programs over time and public cost sharing requirements are generally much less than private cost sharing.

Here’s some other highlights CMS noted in regard to the actual numbers comprising where these dollars went or came from:

• Hospital spending in 2008 grew 4.5 % to $718.4 billion, compared to 5.9 % in 2007, the slowest rate of increase since 1998.
• Physician and clinical services’ spending increased 5.0 % in 2008, a deceleration from 5.8 % in 2007.
• Retail prescription drug spending growth also decelerated to 3.2 % in 2008 as per capita use of prescription medications declined slightly, mainly due to impacts of the recession, a low number of new product introductions, and safety and efficacy concerns.
• Spending growth for both nursing home and home health services decelerated in 2008.   For nursing homes, spending grew 4.6 % in 2008 compared to 5.8 % in 2007.
• Total health care spending by public programs, such as Medicare and Medicaid, grew 6.5 % in 2008, the same rate as in 2007.
• Health care spending by private sources of funds grew only 2.6 % in 2008 compared to 5.6 % in 2007.
• Private health insurance premiums grew 3.1 % in 2008, a deceleration from 4.4 % in 2007.

Simpson’s Paradox and U.S. Infant Mortality

by Clive Riddle, December 3, 2009

There’s a little tingle you feel when you encounter a term for a phenomenon you’ve previously observed. Maybe not Spiderman’s “spider-sense” tingle, but a tingle none the less. So, a tingling I did detect when reading yesterday’s  Wall Street Journal article, “When Combined Data Reveal the Flaw of Averages.” There I learned about Simpson’s Paradox. Surely I came across it countless times in statistics classes and conferences, but my eyes must have been glazed over.

In non-technical terms, as the WSJ article puts it, “Simpson's Paradox reveals that aggregated data can appear to reverse important trends in the numbers being combined….’It's the magic of weighted averages,"’ says Princeton University economics professor Henry Farber.”

The WSJ article cites Simpson’s Paradox impacting current unemployment figures, baseball comparisons between Derek Jeter and David Justice, UC Berkeley admission rates and a study of Kidney Stone treatments.

For me, it brought déjà vu regarding a report CDC's National Center for Health Statistics released last month: "Behind international rankings of infant mortality: How the United States compares with Europe."

Consistent with numerous studies indicating the U.S. compares unfavorably with Europe regarding various key health outcomes, this report indicates the U.S. infant mortality rate lags behind our European counterparts, and in fact ranks 30^th in the world. As indicated in the table below compiled from the study, the U.S. incurs 6.9 infant deaths per 1,000 live births, worse than all but one country cited below and far off the mark from a rate of 2.4 in Sweden.

So what’s really going on behind the numbers? If one digs one level deeper, one would attribute the higher overall U.S. numbers to a much higher preterm birth rate, given that pre-term births globally experience a higher mortality rate. Stopping there, the conclusion would be to focus solely on reducing the preterm birth rate (an admirable goal.)

Fair enough, the U.S overall infant mortality rate would decline if the preterm birth rate declined. But dig another level deeper, into morality rates by gestation, and one will see that the U.S. mortality rate is highest for full term births, but compares much more favorably with premature births. Thus if the U.S. lowers its preterm birth rate, it won’t improve in overall comparisons, because of unfavorable experience with full term births, which comprise close to 88% of all U.S. births. Thus focus needs to be given on the mortality for our full term cases.

	Infant Mortality Rates (Deaths/1,000 Live Births)
Country	%Preterm	Overall	22 wks+	24-27 wks	28-31 wks	32-36 wks	37 wks+
U.S.	12.4%	6.9	5.8	236.9	45.0	8.6	2.4
Austria	11.4%	4.2	4.1	319.6	43.8	5.8	1.5
Czech Republic	7.0%	3.4	3.7
Denmark	6.9%	4.4	4.4	301.2	42.2	10.3	2.3
England	7.5%	5.0	4.9	298.2	52.2	10.6	1.8
Finland	5.6%	3.0	3.4	315.8	58.5	9.7	1.4
France	6.3%	3.6	3.9
Germany	8.9%	3.9	4.1
Greece	6.0%	3.8	4.0
Hungary	8.6%	6.2	6.6
Ireland	5.5%	4.0	4.6
Italy	6.8%	4.7	4.0
N. Ireland	6.6%	6.3	4.0	268.3	54.5	13.1	1.6
Netherland	7.4%	4.9	4.6
Norway	7.1%	3.1	3.0	220.2	56.4	7.2	1.5
Poland	6.8%	6.4	6.8	530.6	147.7	23.1	2.3
Portugal	6.8%	3.5	3.9
Scotland	7.6%	5.2	4.9	377.0	60.8	8.8	1.7
Slovakia	6.3%	7.2	6.7
Spain	8.0%	4.1	4.0
Sweden	6.3%	2.4	3.0	197.7	41.3	12.8	1.5

Accelerated and Deferred Strategic Maintenance

By Clive Riddle, October 22, 2009

As the Great Recession kicked in, two phenomena were documented in a number of studies: 1) accelerated utilization of services from employees and dependents with their existing health plan coverage, due to impending loss of coverage from layoffs or fear of potential loss; and 2) deferred maintenance with health care services by the uninsured, underinsured and those with broader coverage that sill involved material cost sharing.

Now impending national health care reform may be bringing about similar polar trends regarding strategic actions and resources deployed by all types of health care organizations: A) Accelerated steps taken by those organizations concerned that their applicable activities might be curtailed or inhibited post-reform; and B) Deferred activity by health care organizations that have adopted a “wait and see” philosophy until specifics of reform become tangible and apparent.

As opposed to consumer health care behavior derived from the Great Recession, which can by more readily quantified through survey and other research findings, such organizational behavior is evidenced only anecdotally.

But start networking with those involved in the business of health care, and it is difficult to escape a mounting sense of such anecdotes, particularly regarding deferred strategic maintenance. Now everyone loves a good reason to procrastinate, and “waiting until we see the specifics of what reform shakes out” has become a great reason de jour for executives to say no to requests for everything from planning meetings, conference attendance, capital purchases, programming changes, product development, and promotional campaigns.

Of course there are those who aren’t afraid of possibly spinning some wheels and take some risks in order to “hit the ground running.” But a combination of recession driven economic pressures that inhibit strategic initiatives, combined with the temptation to avoid the risks and unrewarded costs of spinning wheels, seem to motivate a growing number of health care organizations to defer their Strategic Maintenance for another day. So the question is, how soon is that Day going to be?

Medicare Drug Coverage and the Impact on Overall Health Care Spending

By Clive Riddle, July 8, 2009

An important paper reporting on results of an NIH funded study : “The Effect of Medicare Part D on Drug and Medical Spending”was posted online last week with the New England Journal of Medicine: [Volume 361:52-61 July 2, 2009 Number 1] and authored by Yuting Zhang, Ph.D., Julie M. Donohue, Ph.D., Judith R. Lave, Ph.D., Gerald O'Donnell, M.S., and Joseph P. Newhouse, Ph.D..

The pharma industry for decades has been a proponent that appropriate prescription coverage can have a positive impact on overall health care costs. Certainly Medicare policy advocates argued the point in the debate leading up to establishment of Medicare Part D prescription coverage earlier this decade. Now that time has passed, the opportunity has arisen to examine the actual data to address this issue.

The study examined over 35,000 Medicare members from Pennsylvania’s Highmark Blue Cross Blue Shield from 2004 through 2007. The study included a control group with employer based retiree drug coverage that did not change after Part D took effect, and had $10 to $20 copayments with no spending limits or coverage gaps. Three groups were also examined that had no or limited drug coverage before Part D, and then enrolled as in Part D plan as of January 2006. One group had no previous drug coverage, and the other two had previous drug benefits with quarterly spending limit caps.

The study found that the cost of introduction of Part D benefits for those with no or very limited prior coverage was approximately offset by savings in overall health care costs, but overall health care spending did increase for those with more generous prior coverage.

In comparison to the control group, after introduction of Part D, the average total monthly drug spending was $41 higher (74% increase) for enrollees with no previous drug coverage, $27 (27% increase) higher among those with a previous $150 quarterly cap, and $13 higher among those with a previous $350 quarterly cap (11% increase.) Furthermore, overall monthly medical expenditures (excluding drugs) were $33 lower in the group with no previous coverage, $46 lower in the group with a previous $150 quarterly cap, but $30 higher in the group with a previous $350 quarterly cap.

The study concluded that “The offsetting reduction in medical spending in the two groups with the most limited previous benefits was probably due to improved medication adherence among enrollees with chronic conditions.” The study also addressed the overall health care cost increase for the group with more generous prior coverage: “Why did medical spending rise in the group with a previous $350 quarterly cap (the most generous previous coverage among the three intervention groups), as compared with the no-cap group? The additional use of prescription drugs in all three groups probably included both overuse of some drugs and underuse of others, but the proportion of the increase that was overuse may have been highest in the group with the most generous previous coverage. Our finding that the use of oral antidiabetic drugs did not change significantly in this group is consistent with this hypothesis.”

The References section at the end of the report is well worth browsing, as links to various prior studies are provided. Beyond the References provided in the report, I found two other studies that proved to be of particular interest while researching this topic:

The AARP Public Policy Institute published “How Prescription Drug Use Affects Health Care Utilization and Spending by Older Americans: A Review of the Literature” by Cindy Parks Thomas, Ph.D., Brandeis University, Schneider Institute for Health Policy, in April 2008. Key conclusions from this 57 page report include: (1) “Prescription drug coverage can produce cost offsets from reductions in non-drug services, such as hospitalizations and emergency visits.”; (2) “Studies that incorporate increased longevity into spending projections suggest that cost offsets may diminish over time.”; and (3) “Strict benefit limits of all kinds decrease prescription drug use and increase use of other medical services, including acute and long-term care services.”

Baoping Shang, and Dana P. Goldman of the RAND Corporation; National Bureau of Economic Research (NBER) published results in 2007 from their study “Prescription Drug Coverage and Elderly Medicare Spending” (with preliminary results published in 2005) that examined Medicare Supplement (Medigap) enrollees with and without prescription coverage. They found that “Medigap prescription drug coverage increases drug spending by $170 or 22%, and reduces Medicare Part A spending by $350 or 13% (in 2000 dollars). Medigap prescription drug coverage reduces Medicare Part B spending, but the estimates are not statistically significant. Overall, a $1 increase in prescription drug spending is associated with a $2.06 reduction in Medicare spending.”

The Genormous Generic Market

By Clive Riddle, June 11, 2009

“Ginormous” is out. “Genormous” is in, at least if Pfizer is editing the Unabridged Dictionary of Pop Buzz Words, as they continue to go on record that they are pursuing generic growth. This week the Associated Press reported that Pfizer “expects to expand its offerings for generic pharmaceuticals by adding products to the business” quoting Dave Simmons, Pfizer President of Established Products. A couple of weeks ago Pfizer licensing agreements with two Indian based companies was reported as a major signal of their strategy to seek growth through generics and emerging markets.

Continued growth in generics would seem a smart recession and health reform based strategy. But generic growth has been sustained through this and the prior decade through good times as well. Let’s have a look at a few of the factors driving these Genormous numbers: 

• The Average price of generic vs. brand prescriptions: Brand: $119.51 ; Generic: $34.34 [Prescription Drug Trends, September 2008, Kaiser Family Foundation] 

• Average Rx Copay by Tier: Generic Tier $10; Preferred Tier: $26; Non Preferred Tier: $46; Fourth Tier: $75 [Kaiser Family Foundation Employer Health Benefits 2008 Annual Survey] 

• Generic Fill Rates: 65% of all prescriptions and 21% of drug sales [Prescription Drug Trends, September 2008, Kaiser Family Foundation] 

• Generic Fill Rate by $ Differential between Generic/ Preferred Brand Copay: $ 0- 5: 47.6%; $ 6-10: 49.2%; $11-15: 51.6%; $16-20: 52.6%; $21+ : 55.0% [The American Journal of Managed Care, June 2007, “Copayment Differentials and Generic Utilization” ] 

• Employer Strategies to Reduce Pharmacy Costs: #1 Mentioned response (75%) was "Promote greater use of generic drugs" (2nd highest response - 48%- was "Improve management of specialty drugs" [Mercer Survey] 

• The 2009 Survey of Health Care Consumers found that 3 in 10 consumers switched medications in the past year, with 38% of them switching to save money [Deloitte Center for Health Solutions] 

• IMS Health reports that "annual U.S. prescription sales growth of 1.3 percent in 2008, to $291 billion. Dispensed prescription volume in the U.S. grew at a 0.9 percent pace. Factors influencing the market’s slower growth in 2008 included higher demand for less-expensive generic drugs, lower new product sales, and reduced consumer demand due to the economic turndown." [IMS Annual U.S. Pharmaceutical Sales Report] 

• Under Medicare Part D, generic drugs were dispensed 88 percent of the time when generic substitutes were available [DHHS OIG, “Generic Drug Utilization In The Medicare Part D Program” November 2007]

Wasted Away in Medical Bankruptcyville: Jimmy Buffet meets Warren Buffet

by Clive Riddle, June 5, 2009

Just published this issue in the American Journal of Medicine, by David U. Himmelstein, MD et al, is: Medical Bankruptcy in the United States, 2007: Results of a National Study. Here’s what Harvard’s Doctor Himmelstein has to say about what this study means to you: “unless you're Warren Buffett, your family is just one serious illness away from bankruptcy.”

Now before you go file a legal change of name to Warren Buffet, you should know the paper’s authors are strong advocates of a particular position: a single payer health plan, and their conclusion is that health insurance in its present form will not protect you from medical bankruptcy, only Warren Buffet or a single payer plan will.

The headlines from the press releases regarding the study indicate medical bills cause 62.1% of all bankruptcies. That claim might be open to some interpretation, given 29% of debtors attributed medical bills as the reason for their bankruptcy. Here’s the table from the study that arrives at that figure:

• 29%: Debtor said medical bills were reason for bankruptcy: 29%

• Medical bills >$5000 or >10% of annual family income: 34.7%

• Mortgaged home to pay medical bills 5.7%

• Medical bill problems (any of above 3) 57.1%

• Debtor or spouse lost >2 weeks of income due to illness or became completely disabled 38.2%

• Debtor or spouse lost >2 weeks of income to care for ill family member: 6.8%

•  Income loss due to illness (either of above 2): 40.3%

• Debtor said medical problem of self or spouse was reason for bankruptcy: 32.1%

• Debtor said medical problem of other family member was reason for bankruptcy: 10.8%

• Respondents listing any of above 62.1%

But quibbling over the above that is not to take away from the seriousness of the findings they present, only to provide some disclosure to those unaware. So without digressing into an argument for or against a single payer health plan, certainly it hard to argue that various health insurance policies exist in the marketplace which leave patients seriously underinsured, and a number of these underinsured patients, in addition to the uninsured, found themselves in bankruptcy.

Thus the threat of medical bankruptcy does indeed loom over more than the uninsured population. In this recession and season of health reform, it is a very key issue. So here’s some of the other highlights from the study conducted by Doctor Himmelstein and friends from Harvard Medical School, Harvard Law School, and Ohio University and funded by the Robert Wood Johnson Foundation:

•  Demographically: 60.3% of medical bankruptcies had attended college, 66.4% had owned a home and 20% included a military veteran or active duty soldier.

• While many of the demographics are very similar, there are a few notable differences in the demographics of those experiencing medical bankruptcies vs. non-medical bankruptcies: Employment (75.5% medical vs. 85.0% non medical); market value of home ($141k vs. $159k); and a lpase in health coverage occuring sometime in the two years before bankruptcy (40% medical vs. 34% non medical)

• Primary causes of medical bankruptcies: Hospital bills 48%; drug costs (19%); doctors' bills (15%) and insurance premiums (4%). Also, for 38% of cases, lost income due to illness was a factor.

•  Out-of-pocket medical costs for the bankrupting illness averaged $17,943.

• In 1981, using the same methodologies, medically-caused bankruptcies were 8% of total bankruptcies. In 2001, the figure was 46.2%

• 92% of these medical debtors had medical debts over $5,000 or 10% of pretax family income

• More than 75% of bankrupt families had some form of health insurance

Increased and Decreased Utilization: The Recession Driven Paradox and Behavioral Economics

by Clive Riddle, April 23, 2009

Here’s two headlines from the past week:

• Thomson Reuters Study Finds More Patients Postponing Medical Care Due to Cost
• As Employers Cut Health Care Costs, Employees Increase Utilization

So how does one reconcile the Thomson Reuters report that “20 percent of U.S. households postponed or cancelled care in the past year,” with the International Foundation of Employee Benefit Plans (IFEBP) survey that found “plan participants, perhaps fearing an impending layoff, are increasing utilization of their benefits”?

It’s quite easy actually, when you overlay the employees “fearing an impending layoff” from the IFEHBP survey with this finding from the Thomson Reuters study: “the percentage of households with employer-sponsored insurance showed a notable decline since the start of the recession, declining from 59 percent in early 2008 to 54.6 percent in early 2009.” We have one sector, fueled by those without coverage, that are delaying care greatly influenced by cost concerns, and another sector, fueled by covered employees uncertain about their future employment, that are accelerating their care while they still have coverage.

Behavioral economics would kick in here as we reconcile this on-the-surface paradox. Let’s consider a few Behavioral Economics concepts:

• Status Quo (Default) Bias: People have a strong ‘status quo’ bias and often fail to take pro-active action to change the default
• Hot vs Cold States: People’s decisions under aroused or ‘hot’ states tend to be significantly different from ‘cold’ calculated decisions
• Loss Aversion: People prefer avoiding losses rather than acquiring gains. Studies suggest that losses are as much as twice as psychologically powerful as gains
• Hyperbolic Discounting: Consumption now and in the near future is preferred to consumption into the farther future; The greater the uncertainty about this future the less the preference

One could argue that the Status Quo default is to receive a service when it is prescribed by a doctor, and to not receive a service when it hasn’t been prescribed or referred by a provider. One could also argue that a person that has lost, or perceives they will lose their health coverage, is in a ‘hot state’, and that persons told by their doctor they require services are in a ‘hot state.’

We can apply these assumptions in the following table of how consumer decisions fit the two survey scenarios, along with another scenario of those lucky enough not to be worried about their health care coverage. We would imply that “self referred” means you are contemplating a service that hasn’t been prescribed, maybe triggered by some direct to consumer advertising, advice from a friend, internet research or other such information.

Service:	Lack Coverage	Fear Losing Coverage	Stable Coverage
Self referred elective potential service	Default: No service State: Hot Decision: Won’t move from default due to dollar/time loss aversion and hyperbolic discounting that dollar savings today is greater than future health benefit	Default:No service State: Hot Decision: Will move from default due to covered benefit loss aversion and hyperbolic discounting that value of covered benefit and health service today is greater than future considerations	Default: No service State: Cold Decision: Won’t move from default because there are low loss aversion considerations and value of health benefit is no greater now than in the future
Provider referred/ prescribed elective potential service	Default: Receive service State: Hot Decision: Will move from default due to dollar/time loss aversion and hyperbolic discounting that dollar savings today is greater than future health benefit	Default: Receive service Decision: Won’t move from default due to covered benefit loss aversion and value of covered benefit and health service today is greater than future considerations	Default: Receive service State: Hot (health need) Decision: Won’t move from default because there are low loss aversion considerations and value of health need is greater now than future considerations
Any service perceived or actually considered to be non-elective	Default: Receive service State: Hot Decision: Will move from default only if dollar/time loss aversion exceeds health loss aversion and hyperbolic discounting that dollar savings today is greater than future health benefit	Default: Receive service Decision: Won’t move from default due to covered benefit loss aversion, health loss aversion and value of covered benefit and health service today is greater than future considerations	Default: Receive service State: Hot (health need) Decision: Won’t move from default because of high health loss aversion and value of health need is greater now than future considerations

The Thomson Reuters Study validated that many people will postpone care for other reasons than cost, but cost has moved to the top of the list: They found that: “One in five U.S. households postponed or cancelled medical care over the past year, up from 15.9 percent in 2006 when the survey last addressed this issue. Among 2009 respondents who postponed or cancelled care, 24.1 percent said cost was the primary reason. In 2006, the primary reason cited was lack of time......The majority of postponed services (54.7 percent) were for physician visits, followed by imaging (8 percent), non-elective procedures (6.3 percent), and lab or diagnostic tests (5.7 percent).”

The full Thomson Reuters Study is available on the Thomson Reuters website.

Rx Increases: The Price is Wrong?

By Clive Riddle, April 17, 2009

If there was a pharmaceutical version of the CBS game show The Price Is Right, you might not fare well after you were told to “come on down.” Your guesses might not hit the mark given the recent round of increases throughout the prescription drug industry.

The Wall Street Journal this week ran a story by Barbara Martinez and Avery Johnson, “Drug Makers, Hospitals Raise Prices,” in which they noted “the prices of a dozen top-selling drugs increased by double digits in the first quarter from a year earlier” illustrated by the following increases using Credit Suisse data:

• Bristol-Myers Squibb Sprycel (Luekemia) up 32.7%,
• Pfizer Sutent (Kidney Cancer) up 14.3%.
• Pfizer Viagra (Erectile-dysfunction) up 20.7%
• Eli Lilly Cialis (Erectile-dysfunction) up 14.2%.
• Eli Lilly Strattera (ADHD) up 15.6%

Credit Suisse data by pharmaceutical company included:

• Johnson & Johnson averaged 10.0% increases
• Pfizer averaged 9.9% increases
• Eli Lilly averaged 7.9% increases

The Journal cites Express Scripts claims experience of 10 – 15% price increases on brand products over the past year, and quotes Credit Suisse's Catherine Arnold: “I don't think I have ever seen anything quite like this," as she attributes the increases to positioning higher prices before the government starts demanding greater discounts.

Also this week, AARP released their annual “Rx Watchdog Report”, a 71 page study on Trends in Manufacturer Prices of Prescription Drugs Used by Medicare Beneficiaries. They found these prices increased 8.7% during the past year, while increases during the past six years ranged between 5.3% and 7.4%. Prices increased for all but 7 of the 219 brand name drugs included in the study.

Meanwhile, AARP found that prices for the 185 generic drugs most widely used by Medicare beneficiaries fell 10.6% on average, during the past year. Maybe “The Price Is Right” needs to start featuring generic products.

What's the current state of things in the Convenient Care Industry?

By Clive Riddle

After attending two sessions on retail medicine at the World Health Care Congress today, here's what we found out:

John Agwunobi, MD, EVP Professional Services for Wal-Mart shared the following statistics for Convenient Care visits at Wal-Mart locations, through their various contracted providers:

• adults comprise 79% of visits, 21% of visits are for children
• 55% of patients have no insurance coverage
• Patient surveys indicate, had the Wal Mart convenient care location not been available, 40-50% of patients would have seen a primary care physician; 20-35% of patients would have used an urgent care facility; 10-15% would have gone to an ER; 5-10% would have foregone treatment
• 90+% of patients indicate overall satisfaction
• 25-40% of visits are for immunizations & screenings; and 60-75% of visits are to treat common illnesses

Doctor Agwunobi also discussed the Wal-Mart $4 Generic Prescription program, which is offered to all Wal-Mart customers and is proactively promoted through the Convenient Care locations. The program involves 361 generic prescriptions covering up to 95 percent of prescriptions written in the majority of therapeutic categories. Nearly 30 percent of $4 prescriptions are filled without insurance. The $4 prescriptions now represent approximately 40 percent of all filled prescriptions at Wal-Mart.

Web Golinkin, President and CEO, of RediClinic discussed RediClinic customer experiences, noting that RediClinic is a partner of Wal-Marts. Mr. Golinkin is also President of the Convenient Care Association and shared the following insights regarding the Association and industry as a whole:

• There were 150 clinics when the Convenient Care Association founded less than two years ago to more than 950 today nationwide, with 1,500 projected by the end of 2008.
• Overall, the clinics have treated more than 2.5 million patients in 36 states
• Surveys indicate 16% of consumers have tried a clinic and between 34 to 41% say they intend to

Golinkin stated the potential obstacles or events that could slow industry growth would be if:

• The industry suffered future systemic clinical quality issues
• A shortage and/or increased cost of Nurse Practitioners (NPs) and Physician Assistants (PAs) occurred
• If various states continue with additional regulatory impediments (clinic licensure requirements, restrictions on NP/PA scope of practice and prescriptive authority, physician oversight requirements, corporate practice of medicine prohibitions, etc.)
• If increased Operator/business model failures occur. He noted that there have been some failures, commented that this should be expected with any industry having relatively lower barriers to entry but higher ongoing working capital requirements. He felt there will be a shakeout with consolidation.

Michael Howe, CEO of MinuteClinic, states their organization's strengths include:

• They are "Right Size” engineered for efficiency and high quality
• Proprietary Electronic medical record system embedded with standardized “best practice” protocols
• Facilitates measurement of results and continuous quality improvement
• Interoperability drives continuity of care back to the Medical Home
• Consumer friendly - with convenient locations in consumer pathway, and “Lifestyle conscious” hours and “walk in” scheduling
• “High touch” capability of practitioners drives compliance
• Patient Referral system facilitates the creation of “Medical Homes”when lacking

He cited an independent external research study conducted by Market Strategies in April 2007 indicating a patient satisfaction rate, as well as the percent likely to recommend, of 97%. He noted that MinuteClinic adheres to national standards of practice guidelines, (which have been adopted by their Association) but also is the first retail health care provider to be Joint Commission accredited.

Howe also cited a peer reviewed study from September 2005 through September 2006 of 57,000+ MinuteClinic evaluations of acute pharyngitis, looking for outcome measures to include adherence to best practice treatment guideline in presence of negative or positive RST, use of back up confirmatory strep culture testing in presence of negative RST, and documented rationale when antibiotic was prescribed in presence of negative RST. The study indicated an overall adherence rate of 99.15%.

Health Risk Incentives

Increasingly, payors offer incentives to complete health risk assessments (HRAs) and/or interventions. Not to mention myriad quizzes in magazines, on Web sites ranging from Hoodia hawkers to the American Heart Association , but we'll focus on the MCO-sponsored HRAs today.

When a plan asks "clinical questions," expectations of benefit and/or negative consequences often arise. More transparency around how, when and why HRAs drive payor behavior would be welcome, as well as the role patients' clinicians should play.

Let's assume that inducements for completing a HRA are intended to accomplish some combination of the following:

1. Increase awareness of modifiable risks

2. Increase awareness of less modifiable risks, e.g. family history

3. Increase likelihood that modifiable risks will be addressed

4. Increase awareness of preventive health overall

5. Seek medical advice as HRA suggests appropriate

6. Increase payor awareness of high-risk members, and targeting of appropriate interventions

Studies assessing progress toward #3, 5 and 6 could be claims, survey and/or chart-based. We can track health outcomes, events like hospitalization and drug/medical trend. But there's more than ROI involved. What about unintended negative effects on members? Some possibilities:

--False reassurance, since HRAs cover only a few risk factors

--Catalyst for denial, since "bad news" may not have been delivered in that format previously

--Oppositional behavior, since lack of questions regarding members' known conditions may be seen as unresponsive to their needs

--Resistance to disease management stemming from HRA completion may arise, since the relationship between the two could be perceived as intrusive (careful message crafting can avoid this)

--As an automated tool rather than a one-to-one conversation, HRAs may induce or enhance a feeling of disassociation from the plan / health system

HRAs remain a good idea, but as yet they are a blunt instrument. Hopefully, we are heading toward baseline HRAs and tracking customized by member claims; integration into longitudinal patient data that includes survey and claims data; periodic chart audits to complement these data. Perhaps most importantly, such data can enable plans to act more proactively in partnership with clinicians and third party associations toward eliciting and helping to address health issues that are troubling the member.

For example, payors are generally not helping members with complex and concomitant chronic conditions find knowledgeable and coordinated care, which often would require no more than disciplined claims sifting. Patients often experience a trial and error process that costs both them and the plan extra money, with adverse health outcomes as well. Center of excellence programs are only the tip of the iceberg for optimizing inputs.

It’s strange that HRA data collection forms are less sophisticated than many "marketing research" surveys. For the most part, HRAs do not permit open-ended data collection, branching or piping, so everyone basically sees the same questions. Moreover, HRAs seem fairly far behind the literature. For instance, we are finding that not all LDL is created equal; multiple inflammatory /autoimmune conditions may be related, etc. The "goodwill investment" in HRA completion is fairly substantial and merits the most actionable questions possible.

Yes, the typical subject areas of BMI, depression, smoking, diabetes, cholesterol, HTN and MVAs all relate to health status and cost, but it is not always clear how in what patients, nor how HRAs can optimize care in the year(s) following this snapshot. An HRA may be one of the few plan touch points related to her health that a patient ever sees (EOBs and flu shot reminders notwithstanding). Many plan e-mails, which should be dynamic and personal, are somehow presumptuous, condescending and irrelevant all at the same time -- we can do better.

Industry/MCO collaborations are often based on the flimsiest of targeting algorithms, when the claims, charts, and the humans involved (clinicians, patients, payors) hold so much information that could improve those algorithms. As EHRs and PHRs are developed, how well are they integrating these data?

Incidentally, the methods paper for the first study of patient medication adherence to integrate claims, charts and surveys at the physician and patient levels is now in print (disclaimer: I am a co-author). This kind of project demonstrates that claims can be used for more than cost comparisons, surveys can drive more than product-specific marketing and chart audits can do more than fulfill HEDIS requirements.

Thoughts?