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Friday, April 29, 2011

It's an intelligence test

Now that more parties have had a chance to digest the draft ACO regulations, a consensus of opinion appears to be forming. Not that wisdom always resides with the crowd, but there appears to be a bit of skepticism as to how this will work and whether this will work at all? John Inglehart, the founding editor of Health Affairs wrote a piece in the NEJM this week. I think the key question he raises near the end of his essay...


The ACO Regulations — Some Answers, More Questions

NEJM | April 13, 2011 | Topics: Medicare and Medicaid
John K. Iglehart

The proposed regulations are a work in progress, and they raise almost as many questions as they answer. CMS has requested comments on almost every major provision of the rule and granted interested parties 60 days (until June 6) to respond. Key questions relate to many dimensions of the delivery system, whether the care is provided by medical groups, faculty practice plans, or ACO-aligned physicians practicing in affiliated hospitals.4,5 For instance, how will CMS calculate savings when the time comes? How will CMS feed timely data to ACOs to track cost and quality trends? How will ACOs be designed to avoid running afoul of the antitrust laws? And how likely is it that very few medical groups will actually apply for ACO status because most are persuaded that the risks outweigh the possible benefits?
I think I know the answer based upon a recent piece in POLITICO...

NO GO ON ACOs— The Everett Clinic has decided to take a pass on becoming a full-blown ACO after five years in a demo designed to test the delivery system model. The clinic’s CEO, Mark Mantei, said the proposed rule CMS has published is far from perfect and the clinic — which treats 250,000 patients — intends to put all its eggs in the Medicare Advantage basket. Mantei tells POLITICO Everett is moving to sign up all its patients in the managed care program because the proposed ACO regulation doesn’t do enough to reward “high-performing” providers. The POLITICO Pro story

Let me see... Here is a large practice that has lived the ACO for five years, which has presumably underwritten much of the IT infrastructure. They have elected to not pursue ACO status because the risks outweigh the benefits. Of the pilot project participants, the Everett Clinic received the smallest bonus payments. From David Lips
The Dartmouth-Hitchcock Clinic received the most: $6.69 million. Marshfield Clinic got $5.78 million, and the University of Michigan Faculty Group Practice received $1.24 million. Everett Clinic, a group practice of more than 300 physicians in the state of Washington, received the smallest payment for cost savings: $129,268. (Payments for all five years have yet to be calculated.) Everett Clinic paid more than $1 million in up-front infrastructure costs. The average up-front payment was $489,000 plus $1.26 million in operating costs in the first year. These costs are low estimates considering that the provider systems in the demonstration project had already absorbed other integration costs before the project got under way.
These numbers appear to reflect only the second year of the program and certain players did better as time passed .The Marshfield CLinic got a whopping 16 million dolloars in the final year of the program. However, of the ten demonstration projects, four received no shared savings during the entirety of the project and the Everett Clinic received a tiny sum. Dartmouth, which did so well the second year did increasingly poorly, getting only slightly more than $300K in its last year of participation.

The Everett Clinic has decided that despite having already invested a million bucks it is not worth staying in the ACO game. Tell me why any other organization would now elect to take such risks if they are entering into the game without such a head start when one of the early adopter with a huge head start has decided it is not worth competing in this arena? This is an intelligence test.

Saturday, April 23, 2011

Throwing down the gauntlet - Are you a market denier?

There is a piece in today's New York Times highlighting the bipartisan resistance to the Medicare Independent Payment Board proposal. What sounded like a good idea in the heat of contentious discussions regarding health care reform now sounds problematic to basically everyone when they have a chance to reflect and ask basic questions such as "Now how is this going to function?".

I can see how parties were seduced to buy into this initially when there were so many contentious issues on the table. The question arose as to how pricing and cost issues would be dealt with in the brave new world of health care reform. About the same time the AMA linked RUC was widely revealed to be a source of perverse pricing which has undercut the ability of primary care to survive. No one could resist the temptation to use the simple add another layer of bureaucratic control to fix this problem ... viola, let's make an independent board and hoping for the miraculous success of deus ex machina worthy of Greek tragedy, and move on to some other sticking point.

Now that we have moved on to actual implementation, the folly of administrative price controls and the ramifications of the deployment of a politically driven board creating prices for one sixth (and growing) of the American economy has begun to hit home. This issue is not specific for the newly conceived payment board. It has been a long-standing problem with the RUC as well, as could be expected for any mechanism that attempts to set prices for an entire industry through administrative means. However, this issue is now front and center since it is part of a larger problem of how growing health care spending is bankrupting our economy.

There are criticisms from both Democrats and Republicans. For the most part, they are off base from both sides of the political spectrum and display a remarkable ignorance of basic economics. I am not surprised. I am sure they would characterize my comments as being completely ignorant of basic politics. I view that as being proof of my contention that this issue needs to be moved out of the political realm as much as possible since as far I am concerned no political solution is compatible with basic economics.  Political entities are best for setting the basic rules we should operate under and they rapidly become untenable management tools when they assume primary control of allocation of scarce resources.   History is filled with examples of failure and I challenge anyone to identify examples of ANY successes.

The problem with administrative pricing, whether concocted by the RUC or some other "independent" board is that prices are supposed to reflect value to the buyer of services and value is entirely context dependent. Administrative entities are inherently incapable of factoring context into their calculations because context is always changing and has essentially infinite variations. Because of this inability to account for the most important element associated with understanding value, there is only one thing that can come from any attempt to fix prices through such entities. The prices will virtually always be wrong and not reflective of actual value to the consumer. On the rare occasion that the price is right, one can ascribe this to the blind squirrel principle.

The stakes are high. There are always more wants than there are resources to fulfill them. While mentioning rationing is the political equivalent of touching the third rail, denying we need a mechanism to allocate scarce resources is like denying the existence of gravity. No amount of political angling will make it go away. Politicians want to promise they can use increasingly complex bureaucratic interventions to create a world where the laws of economics can be skirted. Just one more rule and we can get people to behave the way we want them to behave. Hope springs eternal.

Prices are simply signals. They tell people that the rest of the world believes that items priced highly have value while those with lower prices have less value. No independent board can figure out what the value of literally an infinite number of services which will be delivered in ever changing and infinite number of contexts. They will send the wrong signals and prompt those providing medical services to to waste their time delivering things to patients which provide little or no value and fail to provide incentives to deliver services which patients need, want, and will add value. This is where the real waste is produced.

Within educated classes, there are certain concepts which are viewed as litmus tests. If you believe that the extermination of six million Jews did not happen in WWII, you are labeled as a Holocaust denier and viewed as a crank (rightfully so). If you fail to accept the evidence that the world is billions of years old and the product of processes which have gradually shaped and changed the world, you are a denier of evolution. There are those who refuse to accept that HIV is caused by infection by a retrovirus, despite mountains of data in both humans and animal models.  It is hard to be in the intellectual mainstream if you fail to accept these concepts. However, it is the norm within the intelligentsia to be a market denier, despite the overwhelming evidence that no entity implemented by humanity is superior in allocating scarce resources than price coordinated markets.

Are you a market denier? Is this a matter of an informed decision, a belief system which you are loath to question, or something which you have given little thought to despite embracing strongly? The only way one can buy into payment boards setting prices in health care is to be a market denier, whether you realize it or not. As we move into the next stage of contention in the political realm, I would simply appreciate it if those who are market deniers are simply transparent about it, state that they do not trust markets to allocate scarce resources within the health care realm, define the mechanism which they propose to replace the market, and identify examples in history where such approaches have worked better than markets. Good luck, you will not find any.

Sunday, April 3, 2011

Broadening the gainsharing of ACO's

I am about 100 pages into the ACO final rules. I am trying to get my head around how the risk/gain sharing as proposed will play out. However, it occurred to me that there is one constituency which has been completely ignored; patients. Why are they not part of the gain/risk sharing equation? Yes, it could be argued that they are an indirect part of the equation in that saving of the Medicare program will be passed on in the form of lower taxes....maybe.

Why not make them direct participants in sharing of risk or financial gains? There are lots of ways to structure such a program. If physicians receive a financial windfall from spending less money why shouldn't their patients share in that windfall? It can be implied that money saved is a consequence of withholding specific elements of care or substitution of low cost vs. higher cost interventions. Why shouldn't patients be involved in these decisions, specifically when it involves their care? They have much at stake and the reality is it is their money as well.

There are all types of circumstances where this might be deployed. If a patient elects to have conservative medical management for a problem which has also has an expensive interventionalist approach, why not share the savings with that patient? If a patient elects to use the cheaper statin drug (or perhaps elects not to take the drug at all), maybe it should be their financial windfall? Such a mindset might be very reasonable when we are dealing with NNT scenarios which are in the thousands. Would it be unreasonable for a patient to want the rebate instead of the drug which he/she has only a one in thousands chance of benefit from?

Deployment of such a program would almost certainly spur the development of an entire industry counselling patients regarding what types of treatments and tests to decline. Yes there is risk that patients might decide to forgo treatment which is recommended by their physicians. I think this is a certainty, not just a possibility.  I have no doubt that creation of gain sharing where patients have a chance to take the cash and not the care will result in many people taking the money.  However, in a world where patient autonomy is valued, where do we draw the line in terms of intervening when people with decision making capacity decide to deploy their own resources in a way we disagree with.  We simply need to be persuasive enough to convince patients that what we offer is worth the money they will forgo. It won't be easy to deploy and it will provide many gaming opportunities, but what else is new? Remember the alternative is what is presently proposed where insurers and providers collude to covertly ration care.

I wonder if the Center for Medicare and Medicaid Innovation would be receptive to this type of innovation? 

Feeding my NNT fedish

I came across another interesting blog on the Efficient MD site -

Nothing absolutely earth shaking but this piece reinforces the concept that present practices, particularly relating to recommended interventions which MAY prevent some future event, do not make sense to apply universally. Should patients be placed upon statin drugs? If the options are presented in a truly unbiased fashion, what percent of specific patient groups should be buying in and what percentage should be declining the intervention?

This has relevance to the newly announced ACO rules. Within the long list of quality measures is one for mammography screening for women age 40-64. Didn't the US Preventative Services group come out with the position that starting screening of all women at 40 was not justified on the basis of risk/benefit assessment? This is a contentious arena where there is no real consensus on whether women this young actually benefit from mammography. However, physicians are to be provided with financial incentives to nudge (coerce) women to have screening starting at age 40. What percentage of appropriately informed women would elect to forgo such screening if presented with the relevant NNT data?

The list of preventative health measures is likely to grow, driven not by the science but by the politics of medicine. What is a doc to do when the NNT numbers are less convincing than the $$$ numbers?

Saturday, April 2, 2011

Natural gas - a new game changer

There is a world of events outside of health care, important events. The reality is that the amount of health care we can deliver is limited by the amount of wealth we can generate and the amount of wealth we can generate is dependent upon energy. Roll the clock back to the late 19th century and the revolution in how people live was facilitated by two energy breakthroughs; the discovery of oil at an energy source and the deployment of electrical grid. Prior to the availability of these energy sources, we were very dependent upon animal and human power and the world as we conceive it in developed world is inconceivable without oil (and related fuels) and electricity.

Since the discovery of oil in Titusville Pennsylvania in 1859, the oil business has been punctuated by booms and busts, and predictions of the near term end exhaustion of oil. Despite these predictions, the discovery of new reserves and expanded production has been the norm, not the exception. Still, predictions of peak oil production are consistently raised, although the date of impact is pushed out on the time horizon.

Two observations call the peak oil assumption into question. The first are observations and theories put forth over the past 30 years by the former (and now deceased) Cornell professor Robert Gold. Gold held a number of very contrarian positions regarding the origins of hydrocarbon based fuels, most notably that oil and gas are not fossil fuels. Gold claimed that the real fossil fuel was the oxygen in the atmosphere and that we were more likely to run out of oxygen needed to burn oil and gas before we exhausted oil and gas supplies.

Gold's positions were not without controversy, perhaps less based upon the particular ideas he put forth and more based upon the consideration that they were not his original ideas. Much of the abiogenic oil literature was published in Russian well before Gold's limited popularization of the idea in the English language. Gold was criticized for taking credit for theories which were likely not his original ideas.

Gold also put forth an very interesting hypothesis regarding the origins of life on earth, suggesting that life began inside of and not on the surface of the earth and that the fuel which drive early life was hydrocarbons from deep within the earth. This work was published in the Proceedings of the National Academy of Sciences in 1992.

One of Gold's early predictions was that gas should be found at depths which would preclude a biological source. His predictions were validated in the mid 1980's when natural gas was discovered in Oklahoma more than 9 kilometers beneath the surface of the earth. In today's WSJ, Daniel Yergin wrtoe a piece entitled "Stepping on the gas".

Yergin, author of "The Prize" a history of the oil industry (and another book "Commanding Heights" also well worth reading), describes two technological innovations which allow for better access to gas reserves. The two techiniques, "fracking" and horizontal drilling, have literally exploded the available domestic natural gas reserves. The estimates are that we have 2500 TRILLION cubic feet of known natural gas reserves, enough to supply our current needs for more than 100 years. We have so much gas that prices are falling! This fuel is cleaner and cheaper than what we are using.

So what are the barriers to conversion of cars and other vehicles to natural gas? Companies such as UPS are already moving in this direction.  However, there are crippling regulations which block the widespread deployment of conversion kits in the domestic care market. Licensing requirements force shops interested in conversions to pay $10K fees annually for each model and engine type.
The purpose of such stifling regulations is unclear and the barriers to widespread deployment of a cleaner, cheaper, and domestically available fuel are purely political.  Why spend huge sums subsidizing alternative energy sources which are not likely to be economically feasible when we are sitting on huge natural gas reserves? 

Bodes poorly for the housing industry

Pardon my straying from the world of health care but I simply could not resist making this brief, but I believe telling observation. I have lots of interactions with affluent, young adults, both in my professional domain as well as personal domains. These cadres are the most likely individuals who will be entering into the housing market in the next decade. However, I have noted a dramatic shift in their mindsets. Whether this shift is a local aberration or indicative of a more widespread change in sentiment is an open question.

We had a meeting of our trainees to discuss the challenges of home and work balance. One message which was universally embraced by all of the junior faculty as well as senior trainees was the advice to younger physicians and students to NOT BUY A HOUSE! With the change in the housing market making resale difficult, many of their peers had found themselves saddled with homes when they are called upon to move to their next professional station. Their response was perfectly rational; rent and don't buy until you are certain you will be staying for a while.

I also observed this in my children's cohort. These are individuals who want to maintain the flexibility required to pull up roots and move to where they can find opportunity. This means that they do not want to be saddled with the responsibility of selling a home. When this responsibility was also associated with the real likelihood of a substantial financial windfall, it was worth the trade off. Now that this is not the case, why take the risk? Housing has been transformed from a relatively liquid and high yield investment into an illiquid one which has limited prospects of any near term returns.

I offer these observations not as any proof of a sea change, but to raise the possibility that this might be happening and that this change in attitude, if widespread, may mean the recovery in housing will be delayed more than is widely appreciated. If young physicians, who have the financial means to purchase starter homes, are making rational decisions to delay these purchases indefinitely, who will be buying homes. If the children of affluent parents who can provide down payments are deciding against buying homes are also delaying home buying, who is left?

Friday, April 1, 2011

It can't be real

I must be in a dream. It simply cannot be real. First, I read:

Hospitals’ Race to Employ Physicians — The Logic Behind a Money-Losing Proposition - NEJM | March 30, 2011 | Topics: Health Care Delivery

The basic premise of this piece is even though it seems foolish for hospitals to spend lots of money to buy practices where it appears they will continue to lose money well into the indefinite future, there is still wisdom in their actions. It is all about market power. All I can keep thinking about is Milo Minderbinder of Catch 22 fame and the conversation between Milo and Yosarrian.
Y: “I don’t understand why you buy eggs at seven cents a piece in Malta and sell them for five cents.”
M: “I do it to make a profit.”
Y: “But how can you make a profit? You lose two cents an egg.”
M: “But I make a profit of three and a quarter cents an egg by selling them at four and a quarter cents an egg to the people in Malta I buy them from for seven cents an egg. Of course, I don’t make the profit. The syndicate makes the profit. And everybody has a share.”
Sounds like health care reform....

Then comes the announcement of the ACO final rules, with much fanfare from the Feds along with a marquis piece, also published in the NEJM, by Don Berwick ( A series of press releases and FAQ documents made their way into my email inbox. The CMS press release focused on the legalities associated with waivers required to deal with the anti-kickback requirements, sort of exceptions to Stark laws. The proposed rule includes provisions to relax antitrust laws that currently prevent close collaboration between physicians and hospitals. Rural providers and new ACOs with less than 30-percent market share would be given leniency. For larger proposed ACOs, the Federal Trade Commission would have 90 days to determine whether the new entity would violate antitrust laws. However, this sounds like a legal minefield. The waiver of the kickback laws is required to implement the gain sharing provisions but it sounds as though entities will need to put themselves in an Alice in Wonderland realm of ambiguous compliance purgatory:


Centers for Medicare & Medicaid Services
Room 352-G
200 Independence Avenue, SW
Washington, DC 20201
Office of Media Affairs
FOR IMMEDIATE RELEASE Contact: CMS Office of Media Affairs
Mar. 31, 2011 (202) 690-6145

....For the anti-kickback statute and CMP only, certain financial relationships that are necessary for and directly related to the ACO’s participation in the Shared Savings Program and fully comply with an exception to the physician self-referral law.

What is fully compliant? Does that mean perfectly compliant? Talk about exposed and vulnerable? 

I also reviewed the ACO "Fact Sheet". The best way I could describe this is it represented aspirational document. There was no detail but the message was clear; we want better, faster. cheaper. Don't we all.
The Berwick piece in the NEJM is is well summarized by Dr.Berwick himself:
Whatever form ACOs eventually take, one thing is certain: the era of fragmented care delivery should draw to a close. Too many Medicare beneficiaries — like many other patients — have suffered at the hands of wasteful, ineffective, and poorly coordinated systems of care, with consequent costs that are proving unsustainable. CMS believes that with enhanced cooperation among beneficiaries, hospitals, physicians, and other health care providers, ACOs will be an important new tool for giving Medicare beneficiaries the affordable, high-quality care they want, need, and deserve.

The flaw with this entire approach is not what it aspires to accomplish. Who can argue with creating a more patient centric approach to care? The problem is that the approach taken applies both a financial and a regulatory squeeze. He basically admits that no one is sure as to the form which the ACO will take!  Given enough innovators, we can figure out how to deliver care in more creative ways for less money. Trying to do more with less in a stifling regulatory environment which simply sucks the fuel out of the innovation engine and will not work. There is absolutely no guarantee that the era of fragmented care is drawing to a close.  As physicians bail from this grand experiment the fragmentation may be worsened. If you want to improve communication get rid of HIPPA!

I know we are on the wrong track because no where in the conversations I am privy to is the sentiment that what we need to do is simply be driven by delivering better care to patients. There is a huge amount of energy being devoted to figuring out how not to be a victim of this entire exercise and thinking about patients (while discussed) is not central to virtually any survival strategy which I have heard articulated. It is about survival and behavior of people and groups is rarely laudable when survival is an issue. 
Large health systems are positioning themselves to avoid taking a mortal hit, even if it means buying eggs for seven cents and selling them for five cents. Individual practitioners are either hitching their wagons to large entities (whose short term strategy is to not bleed to much) or wait it out, hoping to see the entire initiative crash and burn, or jumping in later after they can define the winners.

I will want to see the actual final rule regulations, once drafted before I can really have an informed opinion. However, my sense is that we have reached a tipping point. The framework of these proposed ACO rules is simply to complicated. It is untested at best and at worst already shown to be ineffective. It will introduce more moving parts into a system which was already too complex. I think the idea is these regulations may be transformational but I suspect they will be transformational in the same way that adding sugar to your gas tank is transformational. They will render the vehicle unusable. It is command and control manipulation at its worst.