Cliniomics

Efficient Healthcare part 2

2008-03-13T13:31:00.000-07:00

Last week, I wrote about how increasing competition could reduce the total cost of healthcare. While reducing hospital stays and increasing the capacity of physician clinics would be an effective means of increasing competition, a series of laws presently prohibits doctors from opening their own day surgery centers.

The Stark Laws prevent physician self referrals. These laws were designed to prohibit kickbacks to physicians for diagnostic testing. The reasoning was largely to protect patients, who have limited transparency into financial relationships their physicians have, from being unnecessarily directed to diagnostic centers that in turn pay the doctor for the referral. It was meant to limit conflicts of interest that patients would not be privy to. It has since limited doctor's offices from expanding their business to include diagnostic testing and surgery centers.

While preventing kickbacks is a noble cause, the Stark laws create a barrier in the market's ability to grow. The Sherman Laws were designed to distribute market share and prevent monopolies. Antitrust suits commonly arise when a single firm is occupying too much space in any single market. For clinicians, then, the two laws are at odds with each other.

Physician practices are only permitted to grow as a function of their clinical practice. Stark laws prevent new divisions such as diagnostic imaging or labs to be created under the same business entity. This requires other entities to create ancillary services. Limiting practices from opening these divisions limits the total capacity of a market and thus potentiates a Sherman violation: should one diagnostic center suddenly capture a majority of the market share, most of the professionals who could respond with new businesses are limited in their ability to do so.

A trend is emerging for physicians to disclose their financial and consulting relationships with patients. This is the professionalism expected of doctors and is gaining traction. As this trend continues and even becomes compulsory, then the worries of the Stark Law began to fall away. In order to reduce the cost of healthcare, it is important to give physicians the ability to expand their businesses and create a more competitive economy. Until a re-thinking of the interaction of Stark Laws and Sherman Laws occurs, competition will be limited.

Sherman law:
http://www.stolaf.edu/people/becker/antitrust/statutes/sherman.html

Stark Law:
http://www.aishealth.com/Compliance/HCFA/StarkII.html

Cliniomics Podcast 4

2008-03-01T11:06:00.000-08:00

Google gets their sticky mits on patient charts, back surgery might be a overrated, stem cells show us how they deal with surgar, and the cost of heathcare goes up.

http://jama.ama-assn.org/cgi/content/abstract/299/6/656

http://content.nejm.org/cgi/content/short/358/8/794

http://online.wsj.com/article/SB120355185318681367.html

http://www.reuters.com/article/healthNews/idUSKIM15269420080221

http://www.cnn.com/2008/TECH/02/21/google.records.ap/index.html

Cliniomics Podcast Episode 3

2008-02-09T15:43:00.000-08:00

Stent procedures improved, new bone protein found, FDA lacks oversight, Wall Mart to open 400 new clinics, controlled diabetes may be harmful and tattoos to deliver vaccines.

An Easy Way to Find Efficiencies in Health Care

2008-02-01T09:19:00.000-08:00

With the ongoing emphasis of working towards making healthcare more affordable, new policies and methodologies will have to emerge to bring efficiencies to the way physicians practice, hospitals bill and payers reimburse. One practical way to achieve new efficiencies has been tested in the market, albeit not in the medical market, time and time again: increase competition. One simple innovation to increase competition is to make it easier for physician specialty groups to open their own surgical centers and diagnostic imaging locations.

Medical procedures are largely performed in hospitals. Hospitals make money by housing a large group of physicians and charge facility fees. Some procedures, like major surgeries, require large scale operations that a large institution can provide at relatively low marginal cost. Other procedures like minor surgeries and diagnostic imaging are also performed at hospitals as well keeping the relative distribution of facilities concentrated.

Competition is thus a function of the number of hospitals in any given market. Given the scale required to build and maintain a hospital or medical center, the barriers to generating a new hospital are large. But, consider the implications if physician offices were incentivized to create their own day surgery centers (which are much smaller than hospitals) and imaging locations. Although hospitals require large scale, a single operating room or MRI machine is much simpler to create and has an immediate return on investment for even a small group of surgeons.

As an example, suppose a group of 4 general surgeons purchased a small building and created one operating room. Each of the four surgeons could schedule a single day in their own operating room for minor day surgeries like appendectomies and tonsillectomies. The physician group would collect facility fees and have no problem keeping the OR busy.

Consider, too, if this example group of 4 surgeons owned an MRI machine. I should state that surgeons require some sort of diagnostic imaging before they begin a surgery. It's a fundamental tool in diagnosing a disease and determining if surgery is indicated. In this scenario, patients would get a one stop shop: they see their physician, get their imaging and have their surgery in the same place; conceivably on the same day.

What would this scenario's implications be on the overall market? It would bring a supply side shift in competition by increasing the total number of facilities patients can choose to have procedures done. Supposing demand remains constant, increasing supply would reduce the overall cost of having a procedure done by introducing increased competition. Giving consumers the choice of having their procedure done at Hospital A versus Doctor Center B forces each to compete on price and find operating efficiencies to maintain healthy margins.

To be fair, increasing hospital competition increases the power physicians have in the market. Their practice is collecting fees for seeing patients and facility fees for diagnostic imaging and surgery. All these fees amount to increased profit for the practice. However, as congress seeks to cut Medicare funding and fees all the way around, perhaps consolidation of services is just what the doctor ordered. If doctors are receiving lower marginal benefits for their services, perhaps they can make it up by expanding their businesses into other services.

Next week I'll discuss policy and legal barriers currently prohibiting physicians from making this business expansion.

Podcast Episode 2

2008-01-28T11:28:00.000-08:00

Universal health care not looking good in California, health plans stop paying for errors, a news letter for research studies and home genetic tests.

Download the show today, leave comments here in the comments section or email at feedback@labcoatinnovations.com

show002-show_notes.rtf

How a Single Payer Would Put Doctors Out of Business

2008-01-25T08:13:00.000-08:00

Four major players make up the health care field: Doctors, Hospitals, Insurance and Products Makers (drug companies and medical devices). Rhetoric is flying around describing the benefits a single payer system would have on American healthcare. Left out of this rhetoric is the real affects such a policy shift would have on those actually doling out care: physicians.

Proponents of such a system argue that it would consolidate the insurance industry and provide operating efficiencies. A single payer would also provide coverage for everyone without regard for medical history.

A single payer system is an excellent philosophy that weakens when considering the practical operations and economic consequences. A single payer system would effectively grant a monopoly to the government to administrate the health needs of 300 million citizens. Monopolies reduce competition and thus reduce innovation in providing care. Using Medicare/Medicaid as an example for a system that could be, moving to a single payer system would drastically reduce total reimbursement to physician offices. Doctors would have to seriously think about the value of treating their patients.

Medicare and Medicaid are two of the lowest reimbursing payers in the country. I consulted with a medical group this last summer to make sure the number of Medicare patients they were taking didn't rise above a certain percentage. The business case for this review was that their practice felt an obligation to see Medicare patients, though they were taking a small loss for each patient they saw. By limiting the number of Medicare patients they saw, they could both stay in business and serve the elderly.

This is the challenge a single payer would present to America. Reimbursement rates would need to be set such that small practices could afford to see patients. Reimbursement rates are moderated in the private market by competition. Insurers compete amongst each other for participating physicians. Each year, physician offices compare reimbursement rates from competing insurers and sign on with those that can supply patients at competitive rates. Insurance companies must find an equilibrium of rates to keep physicians on their panels yet keep costs low enough to attract beneficiaries. Moving to a single payer system would eliminate the competition and leave only the lowest rates.

Competition, then, is essential to keeping doctors in the game. Congress has twice proposed a cut in physician reimbursement. Should this trend continue, doctors will have to seriously consider if it's really worth it. Competition provides them the annual opportunity to stay in business by finding well reimbursing health plans. Reducing competition forgoes that opportunity and the annual decision then becomes whether or not they want to remain practicing physicians.

While hospitals and industry have the economies of scale to make up in volume what they lose on price, doctors can only see so many patients each day. When considering a single payer system, it is important to criticize the effects such a system would have on those delivering the care.

Podacst Episode #1

2008-01-10T11:07:00.000-08:00

America spends $2 Trillion on healthcare, IT guys can bomb servers, UCLA makes progress on nerve replication and 80 year olds benefit from surgery. I'm joined by Dan Schrenk, CIO of LabCoat Innovations, LLC.

A Brief Look at Democratic Health Policy

2008-01-09T09:25:00.000-08:00

As readers of this blog know by now, I'm a fairly frequent reader of the the Wall Street Journal. Today's opinion video does a great job at briefly explaining the differences in health policies between the two leading democratic candidates [Obama and Clinton]. The conversation also touches on the inadequacy of attention of health policy from the right.

Particularly revealing in this short conversation is the incrementalism approach Sen. Obama is using. As I've described before, incrementalism is a sure way to mitigate the huge pains the U.S. would feel by moving to a universal coverage plan all at once. It would further assuage the economic risks of completely overhauling our country's health insurance model. Should universal coverage turn out to be grossly more expensive than budget forecasts predict, this incremental approach would alleviate those pains.

Another highlight of this video is the focus on the uninsured. I wrote a policy paper in graduate school describing the demographics of the uninsured. Rago's comments in this video confirm my earlier conclusions: the uninsured are not those at the bottom of the economic ladder nor those at the top; they are right in the middle and are choosing not to buy insurance. For most of these individuals it is a question of marginal utility not disparate conditions.

Marginal utility refers to the concept of making a purchase decision. A person can choose to spend a dollar at one store or another. The person will spend the dollar where she recognizes more value. For healthy young males, the case for purchasing health insurance is simply not compelling enough. This is an opportunity for health insurance companies to attract these individuals with competitive rates and plans rather than a dire situation in which these individuals are fenced out of playing the game.

Finally, the question of missed opportunity. Republican candidates are embracing a market based health system but are doing little in terms of education. Largely, Americans do not understand the health insurance market. Universal coverage is easier to understand as a solution though market based strategies may provide fewer pains and more efficiency in the long run. Candidates should focus on this opportunity and begin education campaigns to highlight how insurance companies work, how they compete for business and how this competition incentivizes companies to find efficiencies in operating costs.

The Road to Health Quality

2007-12-19T07:00:00.000-08:00

The demand for quality in America's health care system is increasing. Traditionally a fee for service arrangement, payers are beginning initial rumblings of a system that pays physicians for an office visit and then a bonus for proper management of the patient. Great physicians will be economically rewarded and mediocre physicians will just make it. This focus on quality was initiated by the Centers for Medicare and Medicaid in 2007 with the expectation of a continued program in 2008. The senate is positioned to pass legislation today which will remove one billion dollars from the Medicare budget. On the chopping block is the 2008 program to incentivize physicians to report health quality information.

Physicians participating in the 2007 PQRI program were rewarded with an additional 1.5% in reimbursement from Medicare. Naturally, this didn't have doctors knocking down doors to get this implemented in their offices, but it was enough incentive for a few early adopters to give quality a try. The program has run since July of this year and will end on December 31st. Given the need to increase the quality of care and create a more efficient system, the PQRI program has been a step in the right direction.

Cutting the PQRI incentive program reduces the focus on health quality to rhetoric and removes the little progress already made. The Senate and the House found money for their political causes: $35 billion (house) and $60 billion (senate) added to the budget to cover the State Children's Health Insurance Program (SCHIP) intended for disparate kids. The new bills would have provided insurance to families whose household income could be over $80,000 annually and would draw beneficiaries out of private insurance. As easy as it was to find this money, they could not find a fraction of it to continue a physician quality improvement program.

The alternative to economic reward is economic punishment. Cutting physician reimbursement until they monitor and report their quality does not necessarily guarantee compliance. The doctor's office would have the choice to comply or they could simply limit the number of Medicare beneficiaries they see to minimize the impact of noncompliance.

Declining visits for Medicare patients are already being seen nationally. Cuts to the Medicare budget, and more specifically to physician reimbursement, has caused business managers to reflect on the utility of seeing Medicare patients. Medicare is a famously low reimbursing payer. Consequently, many practices are limiting the number of Medicare beneficiaries to a few each month. While there is no shortage of Medicare patients needing visits, physician's offices are limiting their visits and adding patients with more competitive reimbursement.

Quality reporting, then, is best achieved by offering a small incentive and realigning Medicare as a competitive payer. The 2008 PQRI program was enhanced based on the experiences of the 2007 program. Professional organizations were gearing up to prepare their physicians to be compliant. Without the incentive, physicians literally have no reason to do more work for the same money. Dropping the incentive is the congressional way of telling physicians that they care about a patient's outcome but not enough to stall them before they leave for Christmas break.

Electronic Prescriptions: Theory vs. Practice

2007-11-22T11:07:00.000-08:00

Senator John Kerry and former Speaker of the House Newt Gingrich wrote an op-ed piece in the Wall Street Journal on November 16th. In it, they outlined a few compelling reasons for all doctors everywhere to switch from the archaic method of writing prescriptions (paper and pen) to electronic submission. If the benefits are so compelling, why aren't doctors flocking to these new technologies? The answer lies, of course, in the economics of adopting these tools.

One of the most compelling arguments against electronic prescriptions so far has been cost. Sending prescriptions electronically yields a substantial amount of operating efficiencies, though only a margin of those efficiencies are realized in the physician's office. The problem starts with the doctor writing the script. To implement an electronic prescription system, the physician must also implement an office wide electronic medical record (EMR) system. EMRs are prohibitive in cost to smaller practices where a majority of physicians practice. Further, stand alone electronic prescription writing applications do not exist as stand alone products; they are add on products to the more costlier EMRs.

Besides cost, electronic prescription writing is subject to the same security concerns that any other Internet application is subject to. The HL7 interface is circumventing many of the security concerns though these systems are still open to hacking and abuse. With paper and pencil, it's hard to fake a prescription. I recall when the pharmacy called me to make sure my physician employer had meant to prescribe a "half-pound of mo-fine" for a patient. The patient was detained and the stolen prescription pad was recovered. Electronic prescription fraud would be easier to carry out. One would need to submit a prescription request using the standard interface - no stolen prescription pad required. Prevention policies are already in place, though the profit in stolen prescriptions is so great that the same hackers incented to send us all spam email could easily make their way to the health sector.

It is often noted that when the first fax machine rolled off the line it was worthless. Sure, one person could send a facsimile, but where could she send it? The value of the fax machine wasn't realized until the second fax machine was installed and it really didn't make sense until they were a standard in all offices. So too is this phenomenon in EMR (and electronic prescriptions) technology. To send an e-prescription requires the pharmacy to be able to receive the request. This requires a system wide change in the operations of medicine. Concurrent adoption of sending and receiving must occur both at pharmacies and physician offices in order for the true value of e-medicine to come to fruition.

Making medicine more efficient is imperative. Rising costs and lack of efficiencies are costing Americans greatly in their delivery and quality of care. Presently, one of the only places EMRs make sense are hospitals. A centralized place of healthcare delivery where physicians and pharmacies are tied together makes it easy for administrators to calculate and achieve a return on a large technology investment. Indeed technology has helped increase the quality of care and reduce mistakes in hospital systems like the VA. In order for medicine to make the strides Misters Kerry and Gingrich propose in their Journal piece, the market must respond with a technological solution to fit with small private practice providers.

Cliniomics Podcast Introduction

2007-11-14T14:41:00.000-08:00

Today's episode covers the structure of the new Cliniomics podcast. Brought to you weekly (probably bi-weekly at first), the Cliniomics podcast covers health news, policy, economics and includes a short editorial.

Incrementalism to Save Children's Health Care

2007-11-06T15:04:00.000-08:00

I've written before about the need for children to receive health insurance. Actually, having insurance isn't so great, but having access to regular physician visits as they grow provides at least a baseline opportunity for them to be healthy and productive adults.

Insuring children has become a major battle in the legislature these last few months. The only verifiable outcome of this whole process so far is how little government can move. Democrats want an all encompassing bill to give access to most children in general, not just those that are uninsured. Republicans realize the value of healthy children and want to cover a margin of the uninsured. The result of all this fighting is simply that the country is no where closer to having healthy children than we were 20 years ago.

This is the perfect time to make a case for incrementalism to save the kids. Driving this policy through as one large behemoth has created a road block. Incrementalism would serve as a step wise process to protect children and give them access to care they need. No one argues the value of access to care, but the devil is in the details of how this push has been made.

Partisanship is the root of all this evil. If democrats can push a big policy like this through it would be a big win for them and garner a boat load of publicity for the party at a time when primaries are just around the corner. Politically, it would also help the dem agenda in moving closer to universal health care. Currently, roughly 50% of American health care is consumed under the flag of Medicare and/or Medicaid. Another 15% of Americans are going without health care. Moving those numbers over to an extension of SCHIP would tally around 65% socialized medicine programs. However, pushing the total funding higher and increasing enrollment moves the overall percentage higher and brings the country that much closer to the 100% mark.

In its current state, the White House is going to veto anything resembling socialized medicine and congress simply doesn't have the votes to override. So, we sit at a static 50% with no hope of funding our children. Incrementalism would bring some relief sooner to children who need care now. It would not, however, be the big win the dems want nor give off a lot of glory for either party come election time.

Playing politics is a fact of life in Washington, but these politics are driven by arrogance and aimed at positioning for the presidential election. This is no way to treat our kids and is a shoddy execution of a strategy to further the case for universal health care.

Oregon Measure 50 - Convincing Kids to Start Smoking

2007-10-22T08:44:00.000-07:00

Oregonians face a difficult decision this November when they decide the fate of ballot measure 50. Measure 50 is a bill which started in the Oregon Legislature but was later relegated to a vote due to intense debate. If passed it would fund the Healthy Kids Program with tax revenues on tobacco. An estimated $152.7 Million would be raised for 117,000 uninsured Oregon children.

On the surface, this bill brings a valued program to Oregon citizens. Kids in Oregon should be guaranteed some sort of health benefit. With health insurance in its present state of flux and a diminishing number of adults receiving such care, kids are the most vulnerable to lapses in care. They also stand to gain the most from preventative and maintenance care.

This being said, the way the bill was written makes this a very challenging vote. The funding for the Healthy Kids Program is derived from an increase in tobacco tax which is written directly into the Oregon constitution. Further, it pins the escalating cost of health care on a declining trend of adult smoking thus providing a poor long term platform for children's health care.

A constitution exists to define a government. Federal, state or local, constitutions set the balance of power among branches of government and define the legal framework for which that government will operate. A constitution is a strange place for a health care platform. More appropriate for this bill would have been a law written by the legislature or, strange but possible, an executive order from the governor. I can't say exactly why the constitution was chosen for this law but this maneuver raises serious flags.

But on to more pressing matters. According to the text of the ballot measure, 117,000 kids would receive a distribution of $152.7 million dollars secondary to a $0.845 raise in the cost of a pack of cigarettes (other tobacco taxes apply as well). Doing the math, this provides each kid $1305.12 per year. I look at this as an insurance premium cost; kids in Oregon make up the risk pool while only a small percentage of those kids will likely use the insurance.

Allow me to put this into context: the average premium price for a single insurance policy in Oregon is $4,051. When you divide total health expenditures by each citizen you get a cost of $4,880 per capita. Stated another way, the going rate to cover a single person for their health needs is around $4,500. Covering children at an expected rate of about one third that rate will create a program where children have health insurance but can't use it. This will necessitate some other funding source (another tobacco tax?) to make the program truly effective. Further, between 1991 and 2004 health expenditures increased an average of 8% per year. The tax will provide a margin of the average cost to cover one Oregonian the first year and then decline rapidly after that.

Now lets look at how many people smoke in Oregon. In order to assure continued funding for the Healthy Kids Program, a critical mass of Oregonians must continue buying tobacco products. The Oregon Quit Line is a state funded tobacco prevention and cessation program. It must be effective because 18% of Oregonians smoke compared with the national average of 21%. Further, roughly half of all smokers attempt to quit in any given year. Smoking is no longer fabulous, it's addictive and fewer people are buying tobacco products this year than the year before. Healthy Kids pits one program's funding against another state agency's mission; as long as neither entity works too hard, both programs will continue to exist.

In sum, while I agree with the notion that kids should be covered by a health plan I can't get over the fact that the policy was written poorly and is unsustainable. The only way the measure could be effective is if all the kids covered by Health Kids took up smoking and raised money for their own insurance.

sources:
Healthy Kids Oregon
http://www.reject50.com/
Oregon Tobacco Quit Line
Kaiser State Health Facts

Welcome to Cliniomics

2007-10-01T14:09:00.000-07:00

Welcome to Cliniomics. I began this blog as a means to provide a narrative opinion on contemporary health policies and the effects on the greater public health. Today's health care is a much different stage than it was even 10 years ago with wild opinions about its direction and efficacy. My goal is to provide an honest assessment of innovative ideas out there and how it could potentially affect the greater good. I'll do my best to update this blog at least once every two weeks.

My opinion is just that: an opinion and should be regarded as nothing more than one man's view. I welcome discussion and counter opinion. Discussion will help everybody.

An election season approaches. A really early election season. One of the strongest pillars in the 2008 election will be the health policy of the candidates. This one view could make or break a campaign. Given the leverage this one topic has, it is important to fully understand the health policies of these candidates. For this reason, my first series in this blog will be a look into the health policies of our 2008 candidates.

Stay Tuned ...