When you spend less per person on pharma, you can have lower corporate taxes. It’s all about trade-offs.

Although I don’t study pharma prices, I could not resist the irony I saw reading the WSJ today while I tried not to choke on my oatmeal.  Evidently Pfizer Inc. wants to acquire AstraZeneca at least partly to take advantage of lower corporate tax rates and move much of its operations to the United Kingdom.  Of course, business considerations such are more likely to be driving this, but as they walk out the door, why not aim this  Cassandra-like warning that other countries are more competitive, and we should lower corporate tax rates?

Not so fast! Two things to keep in mind: If the US regulated drug prices the way that other countries do, including the UK,  maybe the US government could also afford to lower its corporate tax rate.  According to the OECD, total expenditure on pharmaceuticals and other medical non-durables, (adjusted for cost of living with US$ purchasing power parity) is $995 per person. How about the UK? A paltry $374 per person! The OECD average is $497. Even Switzerland, long known to be more like the US in many ways in healthcare, spends $530 per person, probably because you can’t have US pricing when you are surrounded by countries that don’t. And with this magnitude of difference, I’m guessing this is unlikely to be the mix/intensity or quantity of drugs used. It’s probably mostly price.

Essentially,  quite apart from the pharma price effect on health insurance premiums for those of us with private insurance, we probably give back whatever we take in corporate taxes by paying higher prices for drugs via Medicare Part D. The  industry strenuously avoided price regulation or studies of cost-effectiveness under the Medicare Modernization Act while expanding their market.  The Affordable Care Act did extract some discounts, but nothing like those of other countries. Just one more example of how health care prices are a drag on the economy, and an example of rent-seeking and capture gone rampant. 

A second aspect is how much governments actually collect vs. what they charge, in effect, the sticker vs. the real price. Again, tax policy is not my area, but I did study comparative politics and American political development in grad school. In the UK tax rates might be lower, (apart from  higher sales tax and income tax than the US),  because  I’m guessing that the UK tax code offers companies a lot less flexibility for corporate loopholes:  the membrane between tax lobbyists and officials in the Westminster system of government is usually a lot less porous.  Maybe other countries simply collect a higher proportion of taxes levied.

PS—By the way, I still blog here!  Keith wrote to me and said he was sending out a search party sometime ago. I’m on what they would lovingly call at the NYT “book leave” from the blog,  to write about another critical health care issue, the Relative Value Update Committee (RUC) and physician fees. So, for now, I’m popping my head in very sporadically.

What goes up may also come down: Congress and Medicare fee updates

A new survey of physicians finds just 7 percent support eliminating fee for service payments, but there’s good news: physicians support improving the quality of care and limiting services that provide little benefit. Rewarding quality of care and reducing unnecessary utilization is exactly the focus of a new bill in Congress to replace the current Sustainable Growth Rate (SGR) which is a formula that determines the annual updates applied to Medicare physician payments.

The current bill addresses a significant flaw in the SGR: payment updates are applied uniformly and nationally, regardless of individual or practice parsimony/excess. Originally, back in 1989, policy experts discussed the possibility of disaggregating the expenditure targets and updates by region (as it is in some countries), but that never happened.

So, acknowledging that the SGR is an imperfect cost containment mechanism, at least the SGR does try to reward providers when costs are contained, and correspondingly reduce fees when expenditure targets are exceeded. The latter situation is uncomfortable for all however; in practice, cost-containment is hard to do.  The payment update was supposed to fluctuate like a thermometer, based on success in meeting Medicare expenditure targets. When the thermometer is forecast to dip below zero, there is pressure on Congress to stop the mercury falling.  Here is an alarming video advertisement prepared by the Texas Medical Association that gives you a flavor of that pressure. Granted, 25% cuts are too large, but the cuts get more extreme precisely because Congress forestalled prior year cuts–something that is not made clear, as if the cuts today have little to do with the past.  As I have argued previously,  the problem is that Congress is like Ulysses and the Sirens. Congress is unable to resist intervening if there are cuts likely.

The bottom line: provide individual or practice-based updates for higher quality and cost-effective care. If that fails to hold down expenditure, Congress needs to let payment updates go up and down in order for the incentives to work.

How many colonoscopies can one physician do in a day?


The graph and the accompanying Washington Post article  by Peter Whoriskey and colleagues shows the implications of overvaluing some medical procedures. The article compares how many procedures are performed  with the number of services a physician would normally be expected to provide in a day. To be sure there’s an expectation that the clinic patient population varies, and that physician skill, and physician familiarity might shift an individual’s mean time upwards or downwards. However, assuming the data used to estimate times  for the purposes of calculating times is representative, the survey times should be close to  the average times in clinics.  TheMedicare Payment Advisory Commission, the Congressional agency charged with reviewing Medicare payments, has suggested the underlying data could be improved.

I’m currently working on a book on this intriguing and complex process. An article I wrote with colleagues last year in Health Affairs showed that Medicare accepts 90 percent of the American Medical Association’s Relative Value Update Committee (RUC) recommendations. The RUC provides estimates of the times for physician services, based on surveys of physicians. That rate of acceptance is falling as Medicare’s feet are increasingly held to the fire by greater publicity and interest by Congress.

‘Medical homes’ may provide the same convenience benefits of concierge medicine

Yesterday I posted on concierge medicine. One reason people choose these arrangements is faster access to their doctor. The US consistently under-performs in terms of access to same-day or next-day appointments, according to Commonwealth Fund international surveys that measure access across countries. If people can’t get an appointment, they go to the ER or put off necessary care altogether, so it’s important. However, (perhaps in a small part a response to the shame brought by international comparisons), there is a new emphasis on addressing timely access to appointments. One approach is the development of the ‘medical home’ model. Many aspects of the medical home model stress the kind of personalized attention and responsiveness to patients (through continuity of care and knowledge of t16420120-classic-analog-clock-pointing-at-9-o-clock-isolated-on-white-backgroundhe patient, and phone/email access) found in the concierge model, although I am definitely not saying they are the same! But I do think it’s interesting that there are alternatives to the concierge model aimed at improving the patient experience that also make sense in terms of improving health. It’s not perfect, but it’s a start.

In addition, once you get there, concierge medicine supposedly minimizes the time spent in the waiting room. That could also reflect the healthier patient population. But on average, across all kinds of practices, people actually only wait 21 minutes.

That doesn’t seem like long to me, but it may feel like a long time in actuality—does the perception of time get warped in the waiting room? Perhaps it’s like the studies quoted in Daniel Kahneman’s book ‘Thinking, Fast and Slow’ on how time is experienced differently. I hate to wait too, but within limits, it’s usually not enough time—I sometimes feel like I’m being yanked from reading something extremely engaging–right at the moment when they call my name. I’d like to say, “can’t I just finish this terrific article?”

Concierge Medicine: An Answer to the Crisis in Primary Care? Really?


Courtesy of the National Library of Medicine
Courtesy of the National Library of Medicine

From time to time we hear about concierge medicine. It’s always interesting, if a little frustrating, because  it either polarizes people—to some it’s a model of the future; to others, a scourge—or is met with a long yawn. Maybe it’s my enthusiasm for the larger topic of physician reimbursement, but I always find it’s a model that points to larger, more significant issues that do warrant attention. And this is particularly when someone actually has a number (rarely). It gets to the heart of markets in health care. Some argue they should have the freedom to select this model if they can afford it. And after all, the dirty secret of many more equitable health systems is a certain amount of ‘choice’ that quietly occurs for the affluent—it’s just on a different scale in those countries, and miraculously (mostly) kept in check. But is it the solution to our primary care crisis, really? The American Academy of Family Physicians is pretty cautious about this model and rightly points out the access issues that arise from charging large annual fees.

A key question is, what are the incentives for physicians to take this route? A recent survey suggests 6.8% of physicians would “embrace” direct pay or concierge medicine.  The article paints a rosy financial future for physicians adopting this practice model. I’m not going to critique the survey methods— I’ll limit my comments to the substance of one article reporting the finding, but, I do question the significant gains in practice profitability. It is likely only a solution for a tiny group of physicians and patients.

The positive spin on concierge medicine of course, leaves aside the sick and complex patients who might want—and need—all the time in the world, and numerous visits. I suspect there is a ceiling on ‘unlimited visits’ —what would happen to the profitability of a practice when more than one patient makes their 90th appointment in six months?

The profitability of this model can’t only be administrative costs—even though everyone loves to slam insurers—it’s more likely explained by the fact that on average, the services are underutilized due to the average risk profile of the patients. The ‘frequent flyers’ need to be a tiny proportion of the roster for this to work.

Second, a study Sherry Glied and I published last year in Health Affairs  quantified the large gap between US primary care physician incomes relative to specialist incomes in other countries.  But maybe the problem with making a living for primary care and specialty physicians alike is not just overhead, but partly efficiency and scale. Concierge medicine is a response, apparently to the fact that the “business model of the independent or small practice is likely not sustainable and they just having a harder time keep[ing[ the lights on.” We might like the idea of a lone Norman Rockwell physician  (no one talks about the low overhead of a long-suffering wife doubling as receptionist and book-keeper), with his stethoscope in his leather bag, but integration into larger entities is necessary in many areas of the economy.  Concierge medicine responds to the fact that we don’t always like the depersonalization and bureaucracy of large organizations; but large organizations are often required for efficiency reasons. Investments in information technology  for one, create scale incentives.  Therefore, it’s not really keeping the lights on, but the fact that a larger practice might better afford those lights.

Like many so-called innovations in health care, and policy more generally, it depends on the risk selection and the assumptions about where the efficiencies are. In K-12 education I think we’ve gotten beyond that; many parents will be skeptical of a new model only tested in high SES areas. But in health care policy, sometimes people extrapolate findings, based on a small healthy subset, to the health care system as a whole.

From the ‘A graphic is worth a thousand words’ Department

From the Commonwealth Fund, a potential post-election scenario for the uninsured:

Source: From “Health Care in the 2012 Presidential Election: How the Obama and Romney Plans Stack Up,by Sara R. Collins, Ph.D., Stuart Guterman, M.A., Rachel Nuzum, M.P.H., Mark A. Zezza, Ph.D., Tracy Garber, M.P.H., and Jennie Smith.

November 7 and after

“This is not the story you have heard about the budget. You have probably heard a terrifying tale of dysfunction and impending doom, with the catchphrase “the fiscal cliff” used by budget wonks to describe all the automatic changes scheduled for January 1. It’s a story of disaster that could arrive by accident and must be prevented at all costs. Every aspect of this narrative is inaccurate.”

“… if Obama wins, starting on January 1, everything that has held true in Washington for the past two years flips upside down. Even tax reform, which the two parties have endlessly discussed but failed to agree on, will suddenly become very easy, because instead of using reform to make people pay more, any new reform will tax people less.”

Jonathan Chait, New York magazine

Jonathan Chait carefully teases apart scenarios under a red or blue Oval Office victory.  Although rarely appreciated by commentators, there are almost limitless possibilities here for the winning side to engage in credit claiming and considerable opportunities for leverage.  Chait provides readers with a more comprehensive guide to a post-Obama victory than a Romney victory,  but even so, his description of the game as it could unfold is terrific.

Atlas Chugged

Atlas chugged.

Ayn Rand’s “The Fountainhead”

Before the New York Board of Health’s recent decision to place some restrictions on the purchase of sodas over 160z, the American Beverage Association distributed this postcard all over the city, and they also had delivery trucks painted with the message. I put the card near my computer as a sort of ironic talisman, since I was completing a project on Mayor Bloomberg’s extraordinary public health reforms. Skeptics may not realize it, but life expectancy is increasing in New York City.

The more I stared at this card, the more this muscular man seemed familiar. I’m always teaching the importance of symbols and framing in health policy. He’s supposed to look like the Lady Liberty, holding the soda as a beacon of… (sugar?).  Or maybe he is the man on the cover of Ayn Rand’s book The Fountainhead ? Perhaps he’s Atlas (groaning under the weight of that enormous 32oz Sprite)?  Either way, this image raises the question of whether we have superficial and cartoonish debates in health policy–freedom, liberty, bureaucracy, all on a postcard–or is this actually a great encapsulation of these issues?

Overall though, I’m troubled that beverage producers, of all businesses, would have the courage to make pernicious linkages between libertarianism, athleticism and muscularity, and that no one would notice this contradiction.