Health Affairs

Millions more Americans are expected to join the ranks of the insured in 2014 under the Affordable Care Act (ACA) — and with the expansion in coverage will come additional expense. Even so, the rate of spending growth in the health sector will head in the opposite direction, continuing a slowdown that has lasted well beyond the 2009 recession.

In its eight annual report on health spending, PwC’s Health Research Institute (HRI) projects that 2014 medical cost trend will be 6.5 percent–a full percentage point lower than our estimate of 7.5 percent for 2013. Taking into account typical adjustments to benefit design such as higher deductibles, HRI projects a net growth rate of just 4.5 percent. That’s encouraging news for the people and companies purchasing care but presents enormous challenges for a sector already feeling a financial squeeze.

The recession and slow economic recovery have clearly affected health care spending. But we have identified other factors. More efficient care delivery combined with creative cost-reduction efforts by employers and the health industry, have acted to dramatically slow what had been double-digit growth for the sector. Early elements of the ACA are beginning to nudge down payments. What we don’t know yet is whether this slowdown represents early signs of the move away from fee-for-service medicine or merely the latest squeeze on the spending balloon in which costs pop up elsewhere.

“The real challenge of human biology, beyond the task of finding out how genes orchestrate the construction and maintenance of the miraculous mechanism of our bodies, will lie ahead as we seek to explain how our minds have come to organize thoughts sufficiently well to investigate our own existence.”

The initial enthusiasm following the mapping of the human genome has given way to a more circumspect outlook. With the exception of a small number of promising interventions, advances in genomic science have yet to yield a critical mass of therapeutic breakthroughs – thus forestalling the birth of the era of precision medicine (PM).

While a comprehensive genomic understanding of disease and concomitant molecular-based patient taxonomy would doubtless hasten the arrival of PM, a significantly less costly alternative offers a promising interim approach. A methodology known as collaborative filtering (CF) which has already achieved widespread use in advertising and marketing, has the potential to offer powerful insights not only to advertisers and others desiring to influence purchasing behavior but also to physicians, allied health care professional, patients, and their families by offering personalized advice and recommendations regarding health and disease.

CF relies directly on aggregated subject/user behavior to reveal complex and unexpected patterns that would otherwise be difficult to capture using known data attributes. Recommendations generated from analyses of these patterns have demonstrated significantly greater reliability than those using more traditional demographic categories. The core idea behind applying CF to clinical decision-making is to make decisions about a patient based on historical data derived from multiple “similar” patients presenting multiple “similar” cases. As Victor Streecher explains, “collaborative filtering in the health area could match the coping strategies, medical decisions, and preferences of similar others with specific needs and interests of the user.”

Families typically spend more on health care than on any other product. Yet today’s ratings culture with its stars, grades, and scores on everything from hiking boots to mountain villas has yet to establish credible, easy-to-use quality guides for doctors, hospitals or health insurers.

Consumers have never had as much at stake in the health care system and can’t afford to make the wrong choices because they lack the right information. A growing number of people with insurance today are moving into high-deductible plans that put the purchasing pressure on the consumer. Now, with the Affordable Care Act (ACA) about to steer millions of newly-insured Americans into marketplaces known as exchanges, government and industry need to collect and distribute real-time patient feedback that offers viable quality and experience comparisons.

Patients’ yeas or nays already add up in this era of value. The ACA has shifted reimbursement policies toward quality, moving from fee-for-service to outcomes-based payment. Insurers that serve Medicare beneficiaries stand to gain at least $5 billion in bonus payments linked directly to patient feedback. Medicare also rewards hospitals that provide high-quality care through its Hospital Value-Based Purchasing Program. Aside from the financial benefits, providers and insurers have much to learn from seeing how they rank across the competition.

For consumers, however, word of mouth still trumps reviews and ratings. PwC’s Health Research Institute (HRI) surveyed 1,000 consumers in late 2012 and found that nearly half (48 percent) read a multitude of reviews, but only one-third acted on those ratings in health care decisions. At the same time, about half said they want payment policies to be tied to their feedback.

It’s no secret that, four years ago, President Obama cut a deal with the pharmaceutical industry. He promised that so long as the drug companies did not block health reform, federal law would continue to prohibit Medicare from negotiating drug prices. Instead, the pharmaceutical industry would get 30 million new customers and remain free to set drug prices for Americans. This single policy will cost Medicare and U.S. tax payers hundreds of billions of dollars over the next ten years.

If Congress wants to contain long-term Medicare spending and keep health care affordable in America, lawmakers should start with the low-hanging fruit: the excessive prices Medicare and our citizens pay for drugs.

Medicare easily pays between 150 and 300 percent of the average cost of prescription drugs in the other wealthy nations. Recently released data from the International Federation of Health Plans make the point. A monthly supply of Lipitor (a common cholesterol medication) costs about $100 in the U.S.; the same drug costs about $6 in New Zealand and $48 in France. Nasonex (commonly prescribed for nasal infections) costs Medicare about $108 for a monthly supply; the same drug costs France $17 and Canada $29. At best, the United States subsidizes the prescription costs of all other wealthy nations; at worst, we are simply dupes.

Much has been made of the slowdown in health spending growth and the role played by the economy. I have to confess that my first take, after studying plots of business cycles and health spending, was that health spending “had a mind of its own” and paid no attention to business cycles. Consider the two most recent recessions depicted in the chart below. During the recession of 2001, health spending growth actually shot up at the same time that the growth in gross domestic product (GDP) was dropping, and continued to rise even after the recession officially ended.

During the Great Recession, spanning December 2007 through June 2009, the growth in health spending dropped by about 2 percentage points and then leveled off while GDP growth dropped by nearly 10 percentage points and then quickly rebounded to a more normal long run rate of growth (though not sufficient to make a large dent in unemployment). I hope you can see why I was skeptical of a predictable relationship.

Following the third straight year in which the Centers for Medicare and Medicaid Services estimated the growth in national health expenditures to be a record-low 3.9 percent, considerable speculation on the causes of slower spending growth has come from a variety of sources. There seems to be a consensus among actuaries, academics, and other analysts that the recession and the associated increase in unemployment and decline in insurance coverage led individuals to cut back on their use of health care services. (See here, here, But, while the recession is clearly associated with the dramatic slowdown in spending growth from 2007-2009, there is also evidence that the slowdown in spending preceded the recent recession and seems to be continuing during the modest economic recovery.

Observers of this more general trend have begun to suggest that fundamental structural changes in the health system are playing a role in recent spending trends. The ability of some high profile providers and health systems to achieve high quality outcomes with greater efficiency has garnered a lot of attention and some suggest that more salaried employment of physicians could be altering the practice patterns that developed under a fee-for-service system. Others have pointed to patient-centered medical homes, accountable care organizations, and other payment and delivery system reforms as potential contributors to the slowdown in spending growth. The Obama administration has also argued that the Affordable Care Act has started to have a moderating effect on spending growth.

The extent to which the economy versus broader systemic changes has been driving slower spending growth has enormous implications for forecasting future spending trends. If the economy has been the primary driver of recent trends, we should expect spending growth to return to historically high levels as the economy recovers. The Congressional Budget Office (CBO) and the CMS actuaries have revised their Medicare and Medicaid forecasts downward to reflect the latest trends, but both entities seem to suggest that spending growth over the long term will return to historical levels. If, however, more structural changes are at work, then perhaps there is reason to be hopeful that health care spending growth will continue at a rate much closer to the rate of growth in the economy.

Diagnostic and Statistical Manual of Mental Disorders (DSM-5), the association’s comprehensive guide that sets the classification, diagnosis, and treatment of mental disorders across the United States and the world. In an April 24 Health Affairs Web First analysis and commentary, Helena Hansen of New York University and coauthors argue that the revision process for the DSM-5 missed crucial population-level and social determinants of mental health disorders and their diagnoses.

Some of these include environmental factors triggering biological responses that manifest in behavior; differing cultural perceptions in defining normal and abnormal behaviors; and institutional pressures, such as insurance reimbursements, disability benefits, and pharmaceutical marketing. At stake, the authors believe, are billions of dollars in insurance payments and the accurate diagnoses and treatment of patients.

To address future DSM revisions, the Hansen and her colleagues propose the formation of an independent, multidisciplinary task force; the commentary outlines how this task force would operate.

Poorly manufactured and fraudulent medicines kill thousands of people around the world each year. For infectious diseases like malaria and HIV, shoddy medicines also accelerate drug resistance and dramatically alter the course of epidemics. With few new drugs under development, recent progress against these major killers in the poorest countries is precarious.

Bad drugs have become a big problem for one major infectious disease in particular: tuberculosis. If we don’t solve this issue, we may see the gains we’ve made against TB slip away.

According to the World Health Organization, global TB cases continued on a slow downward trend in 2011. While this is good news, the disease still claimed 1.4 million lives that year—more than any other infectious disease except HIV/AIDS. Meanwhile, multidrug-resistant TB cases rose to 630,000 worldwide. Resistant TB is deadly and costs significantly more to treat. For example, curing a single case of it in the United States can cost more than $200,000. Treatment takes two years, and the side effects can be severe, including nausea, vomiting, joint pain, and even hearing loss.

The April issue of Health Affairs, released today, examines how all high-income countries are struggling to achieve the “Triple Aim” — better health and better health care at lower cost. The articles in this issue find that the United States and other high-income countries have much to learn, with the “trade” in strategies and tactics likely to flow both ways.

Join us on Thursday, April 11, for a briefing on the April issue. Support for the new Health Affairs volume was provided by The Commonwealth Fund, Britain’s Nuffield Trust, and the Institute of Global Health Innovation at Imperial College London.

Drug Payment And Pricing — How Do US Practices Compare With Other Countries?

A featured study by Panos Kanavos of the London School of Economics and Political Science and coauthors compared prescription drug prices among selected countries that are members of the Organization for Economic Cooperation and Development in 2005, 2007, and 2010. Depending on how prices were adjusted for the volume of drugs consumed in the various countries, drug prices in the United States were between 5 percent and nearly 200 percent higher than in the other nations studied. A key contributing factor is that the United States takes up new and more expensive prescription drugs faster than other countries. The authors recommend that the United States require pharmaceutical manufacturers to provide more evidence about the value of new drugs in relation to cost before use of such drugs is reimbursed.

The recent moves by states to bring their Medicaid prescription drug benefits under managed Medicaid plans has fully taken root: the percentage of Medicaid prescriptions filled under managed Medicaid plans jumped from 19 percent in September 2011 to 46 percent in June 2012. As yet, the impact this might be having on patient care has not been examined. While it is early days to see the impact on health outcomes and whether better preventive services are being provided at lower cost, any changes in the utilization of prescription drugs can be an early indicator of longer term impact.

At the IMS Institute for Healthcare Informatics, we have looked at four states — Kentucky, New Jersey, New York and Ohio — and compared changes in the use of anti-psychotic, respiratory and diabetes medications between patients who switched to managed Medicaid coverage and those who remained in fee for service. Although this is a limited-scale review, we thought this could be a useful contribution at a time when state (and federal) decision-makers are crafting plans that will have important long-term impacts on many Americans from 2014 on.

While our analysis shows there are early signs indicating a change in care received by patients, the lack of consistent measureable change suggests that states’ efforts to bring better care at lower costs to their Medicaid beneficiaries has yet to be fully realized.

The Indian Supreme Court announced a decision this week that allows drug makers to continue developing cheaper generic versions of the leukemia drug Gleevec in that country. The case centered around whether certain patents held by the brand-name drug’s manufacturer were true inventions. The decision was shaped in part by the complexities of Indian patent law, which is considered far more stringent than U.S. patent policies.


The issue of secondary patenting or “patent evergreening,” to extend the life of a brand-name drug and whether secondary patents represent true innovation was the subject of an October 2012 Health Affairs article by Tahir Amin and Aaron Kesselheim.

On Monday, March 25, the Supreme Court will hear arguments concerning the legality under antitrust laws of “pay for delay” or “reverse payment” settlements, in which a brand-name drug manufacturer pays a patent challenger to keep the generic competitor out of the market until an agreed-upon date. A Health Affairs Blog post written last year, when the Supreme Court decided to take the case, FTC v. Watson Pharmaceuticals, provides a great overview of the issues that will be before the Justices on Monday.

In the post, Bill Sage of the University of Texas and John Golden of Harvard, examine the legal issues surrounding these controversial settlements. They also point out that, in deciding the case, “the Court will influence a much larger debate over innovation in health care markets.

David Muhlestein’s survey of the Accountable Care Organization landscape leads the Health Affairs Blog most-read list for February. Also on the month’s top-ten list are three posts dealing with patient engagement by Chas Roades, Paul Wicks and John Hixson, and David Rothman. These posts accompanied the publication of Health Affairs’ February issue, “New Era of Patient Engagement.”

The most-read list also includes two posts by Tim Jost on implementing the Affordable Care Act, as well as posts on medical education, pharmaceutical pricing, and the process of setting Medicare reimbursement rates for physicians in different specialties. The full list appears below:

Primary care access. With insurance coverage set to expand under the Affordable Care Act (ACA), 44 million people live in areas where the projected increase in demand for primary care providers is greater than 5 percent of current baseline supply. Of those, seven million people live in areas where demand for primary care providers will exceed supply by more than 10 percent, Elbert Huang and Kenneth Finegold write in a February 20 Health Affairs Web First study.

With the national average for this shortage expected to be in the range of 1.5-2.4 percent, the findings of this study emphasize the need to promote policies that encourage more primary care providers to practice in areas where shortages will be exceedingly high, say Huang, an associate professor at the Pritzker School of Medicine at the University of Chicago, and Finegold, an analyst in the Office of the Assistant Secretary for Planning and Evaluation, Department of Health and Human Services.

Rx drug monitoring. A February 13 Health Affairs Web First study finds that prescription monitoring programs, although originally designed to help law enforcement and regulatory agencies spot possible illegal activity, are now also helping health care providers improve patient safety and quality of care.

The march toward 2014 continues, as the Department of Health and Human Services issued on February 20, 2013 a final regulation covering the essential health benefits, actuarial value, and accreditation requirements of the Affordable Care Act. (See a fact sheet on the rule here.)

The ACA requires non-grandfathered health plans in the individual and small group market to cover ten categories of essential health benefits (EHBs). The EHB requirement is intended both to ensure that consumers in these markets have adequate coverage and to improve competition among health plans by standardizing coverage choices. Most of the EHBs are services already covered by most health plans, such as hospitalization or pharmaceuticals, but some, such as habilitative services or pediatric oral and dental care, are not commonly covered and thus represent a coverage expansion. The EHB requirement will also improve mental health coverage in the individual and small group market, as noted in a separate issue brief released with the final rule.

The proposed regulation now finalized was published on November 26, 2012, and was discussed in an earlier post.

Soon after Sanofi Pharmaceuticals’ Inc. August 2012 launch of the biologic drug ziv-aflibercept (brand name Zaltrap) into the U.S. market, its price triggered an unusual act of defiance on the part of oncolAogists. Physicians from Memorial Sloan-Kettering Cancer Center stated in a New York Times op-ed piece that they wouldn’t prescribe the drug because it cost twice as much as Genentech’s Avastin (bevacizumab), a competing biologic drug with similar expected clinical outcomes for colorectal cancer patients. In response, Sanofi said they would reduce the price of the drug by 50 percent.

Doctors and prescribing hospitals stand to benefit hugely from Sanofi’s pricing move, while payers and patients do not, at least over the next several months and likely much longer.

To understand why involves questions about pharmaceutical price setting and the arcane world of ‘buy and bill’, the system for physician-administered drugs under which doctors first buy drugs at one price and then submit for reimbursement for the drug to a third party payer (and the patient). The system as applied in fee for service Medicare, the public insurer of adults aged 65 and older and the largest insurer of cancer-related treatment in the U.S., is illustrative of larger concerns. In 2009, Medicare spent approximately $11 billion on physician-administered drugs.

Below, we explain how this “buy and bill” pricing system works, and how it operates in the case of ziv-aflibercept. We also examine the policy implications of the ziv-aflibercept episode and offer some thoughts on how Medicare could improve the way it sets pharmaceutical reimbursement rates.

Art Kellermann and David Auerbach’s look at the effects of health care costs on middle class incomes leads the Health Affairs Blog most-read list for January. Next on the list are three posts by Tim Jost looking at the implementation of the Affordable Care Act and the continuing legal battles over the law. Also in the top ten are Katherine Hempstead’s take on what Massachusetts public opinion can teach us about restraining health care spending; Richard Frank and Jack Hoadley’s argument in favor of requiring manufacturers to pay a minimum rebate on drugs covered under Medicare Part D for those beneficiaries who receive the program’s Low-Income Subsidy; and Coretta Mallery and Marilyn Moon’s look at methods for increasing stakeholder involvement in research.

The full list is below.

Editor’s note: For more on the attitudes of Americans toward medical care and empowering patients to be active participants in their own care, see the February issue of Health Affairs, “New Era Of Patient Engagement.”

The attention now devoted to defining the proper role of patients and consumers in clinical decision-making is unusual, both in terms of who is addressing the issue and the intensity of the concern. Once, it was physicians and bioethicists who took the lead; now it is health policy analysts and health care administrators. Their aims go well beyond improving doctor-patient communication or promoting patient autonomy. The primary goal is to enlist patients in the effort to bring fundamental change to health care delivery.

The obligations conferred upon or assumed by patients have changed dramatically over the past half-century. Well into the 1950s, prevailing norms reflected Talcott Parsons’ formulation of the sick role. Patients were duty-bound to seek medical care when ill and follow physicians’ orders. In the 1970s and ‘80s, the new field of bioethics successfully challenged this paradigm, demanding that physicians obtain patients’ informed consent for all interventions, particularly in end-of-life decision-making.

Current expectations are different, less concerned with bioethical principles like autonomy and more committed to the idea that unless patients are genuine partners in medical decision making, altering the health care delivery system is not likely to succeed. The goal is not to advance patient rights but to transform patterns of care.

For the third year in a row, national health spending in 2011 grew less than 4 percent, according to the CMS Office of the Actuary. However, the report said modest rebounds in pharmaceutical spending and physician visits pointed toward an acceleration of costs in 2012 and beyond. CMS’s analysts make much of the cyclical character of health spending’s relationship to economic growth and also forecast a doubling of cost growth in 2014 to coincide with the implementation of health reform.

This non-economist respectfully disagrees and believes the pause could be more durable, even after 2014. Something deeper and more troublesome than the recession is at work here. As observed last year, the health spending curve actually bent downward a decade ago, four years before the economic crisis. Health cost growth has now spent three years at a pre-Medicare (indeed, a pre-Kennedy Administration) low.

Antibiotic resistance is a major concern confronting our health care system, and there is tremendous pressure on the Food and Drug Administration (FDA) to “do something” about it. Unfortunately, the FDA is responding by approving drugs that are likely to do more harm than good.

FDA advisory committees are supposed to provide independent advice from experts across the country, but recent meetings have left observers wondering whether too many FDA advisory committee members are providing neither scientific nor independent advice, and whether the committee process itself is fundamentally flawed. These concerns dovetail with essential questions about FDA objectivity and scientific judgment in its review of antibiotics.

For example, a few weeks ago, the FDA approved a new drug for multidrug-resistant tuberculosis (TB) — bedaquiline, to be sold under the name Sirturo — shortly after data reviewed by FDA scientists indicated a higher death rate for the new drug compared to the usual standard of care. The FDA’s Anti-Infective Drugs Advisory Committee had publicly reviewed the TB antibiotic on November 28, 2012.