Category Archives: Health Economics

How Insurance Companies Save Millions in Denying Care

Posted on by

3/23/23 Propublica: How Cigna Saves Millions by Having Its Doctors Reject Claims Without Reading Them

A few excerpts:

  • Cigna, one of the country’s largest insurers…has built a system that allows its doctors to instantly reject a claim on medical grounds without opening the patient file, leaving people with unexpected bills…Over a period of two months last year, Cigna doctors denied over 300,000 requests for payments using this method, spending an average of 1.2 seconds on each case, the documents show. 
  • Before health insurers reject claims for medical reasons, company doctors must review them, according to insurance laws and regulations in many states…This process helps avoid unfair denials…Cigna adopted its review system more than a decade ago, but insurance executives say similar systems have existed in various forms throughout the industry…At UnitedHealthcare….built a similar system to let its doctors quickly deny claims in bulk.
  • Cigna eventually designated the list “PXDX” — corporate shorthand for procedure-to-diagnosis. The list saved money in two ways. It allowed Cigna to begin turning down claims that it had once paid. And it made it cheaper to turn down claims, because the company’s doctors never had to open a file or conduct any in-depth review. They simply denied the claims in bulk with an electronic signature.
  • Cigna knows that many patients will pay such bills rather than deal with the hassle of appealing a rejection [for lower cost denials]…In one corporate document, Cigna estimated that only 5% of people would appeal a denial resulting from a PXDX review.

My take: It is a hassle to appeal denials. It is not surprising to me to hear about this reporting; it confirms the fact that insurance companies are focused primarily on cost and not patient care.

Related blog posts:

Ocotillo Cactus on the Sendero -Hugh Norris Trail, Saguaro National Park (Tucson, Az)

Consolidation and Competition in Health Care

Posted on by

JS King. NEJM 388: 1057-60. On Consolidation and Competition — The Trials and Triumphs of Health Care Antitrust Law

Key points:

  • “Historically, the United States has relied nearly entirely on market competition to control prices and promote quality in health care. Yet health care markets haven’t been healthy for some time. Over the past 30 years, health care consolidation has gone largely unchecked by federal and state antitrust enforcers, which has resulted in higher prices, stagnant quality of care, and limited access to care for patients.”
  • Consolidation has been both horizontal (eg. two competitors merge), vertical (eg. hospital acquiring physician groups. or insurance acquiring pharmacy benefit manager) or cross-market (eg. merger of hospital in two separate regions)
  • “Private-equity firms have recently invested heavily in health care providers, purchasing hospitals, emergency services and staffing companies, and specialist-physician groups, such as anesthesiology groups…Studies have found that acquisitions by private-equity firms have led to consolidation and increases in hospital charges and net income.”
  • “Mergers are often justified with promises of improved quality or patient access, evidence supporting these claims is lacking.”
  • “Antitrust law aims to protect consumers and competitive markets from anticompetitive practices and the harms described above. Three federal laws — the Clayton Act, the Sherman Act, and the Federal Trade Commission Act — along with legislation in nearly all states form the foundation of antitrust law.”
  • “Despite these enforcement options, the U.S. health care industry is the most consolidated it’s ever been… In the 1990s and early 2000s, the FTC lost six consecutive horizontal hospital-merger cases…[subsequently] federal agencies didn’t challenge another hospital merger for nearly a decade.”

My take: Consolidation is happening in all components of health care, including hospitals, insurance companies, pharmaceutical companies and physician groups. This leads to higher costs, fewer choices and possibly staff shortages. At the same time, each segment of health care is incentivized to consolidate, in part for financial gain and in part to negotiate with other consolidated segments.

Related blog posts:

Why GlaxoSmithKline v Teva is Important for Medication Affordability and “Please Look at My Baby”

Posted on by

SS Tu, A Sarpatwari. NEJM 388: 483-485. A “Method of Use” to Prevent Generic and Biosimilar Market Entry

This article explains how generic and biosimilar companies have tried to navigate the ‘patent gamesmanship’ that brand-name manufacturers have used to delay competition for their products beyond the typical 20 years after an application is filed.

Key points from this article:

  • “The Hatch–Waxman Act, provided a partial solution by explicitly authorizing manufacturers to market generic drugs if they don’t claim any indications protected by active method-of-use patents.3 Such skinny labeling enables generics manufacturers to market their products for older, non–patent-protected indications without infringing later-issued method-of-use patents…43% of products that were the first available generic formulation of a brand-name drug included skinny labels”
  • The article delves into the  GlaxoSmithKline v. Teva case which centers on the overlapping potential indications for the beta-blocker carvedilol. Teva had used skinny labeling to get approval for hypertension (HTN) but was sued by GlaxoSmithKline as carvedilol can be used for congestive heart failure (CHF).
  • Much of the case centers on the paradox that “by law, generics [& biosimilars] manufacturers are required to use very similar labels” as the labeling of original products even though the generic has requested approval for a much narrower approval. In this case, when the Teva generic was used for CHF, GlaxoSmithKline sued since the product was approved for HTN.
  • Another example: Humira has “more than 70 patents on inventions ranging from the active pharmaceutical ingredient and primary indications to the drug’s purity, various formulations, and secondary indications.” For a generic/biosimilar to address all of these (potentially-endless) patents is a huge barrier.
  • Based on this ruling, “brand-name manufacturers can thus now create labels that reference material related to new method-of-use patents and then sue generics manufacturers for patent infringement.”
  • “Lack of action by both the Supreme Court and Congress would allow brand-name drug manufacturers to wield a powerful new weapon to delay or deter the entry of generic and biosimilar drugs, which could have important implications for health care costs and patient welfare.”

My take: My prediction is that these tactics by drug manufacturers, despite their extensive financial connections with lawmakers, will eventually backfire and result in extensive changes to the regulations regarding exclusivity and pricing.

Related blog posts:

In an unrelated article in the same issue, Golda Grinberg provides a first-hand account of how families could benefit by the consideration of hospice in children with extensive medical problems. NEJM 2023; 388: 486-487. Please Look at My Baby — When Clinicians Should Say the Word “Hospice”

“To the surprise, perhaps even shock, of the SICU team, we tossed an option B onto the table: if we truly could not extubate, we suggested, maybe we should skip the trach and transition to comfort care….When presented with a child in whom previous extubation attempts had failed and who was becoming more deconditioned by the day, the SICU team had made the standard, safe, and familiar recommendation for an acute problem: place a trach… It would have been tremendously helpful if, from the beginning, we’d had an open conversation with our son’s medical team and discussed all the options.”

My take: Most parents are happy with their medical decisions for their children. However, it is not uncommon to hear parents say many years later that they wished that they had been informed of the long-term dire outlook of their children and the possibility of deescalation of care in children with severe medical conditions before embarking down the ‘standard’ path.

Related blog posts:

No One Would Design U.S. Healthcare System This Way

Posted on by

S Corlette, CH Monahan. NEJM 2022; 387: 2297-2300.

There are a lot of problems with the U.S. Healthcare system. This article focuses on healthcare coverage.

The U.S. has a patchwork system of health insurance coverage “in which people’s access to services and level of financial protection — not to mention whether they have coverage at all — varies depending on their birthplace, age, job, income, location, and health status…Many people in the United States work for employers that do not offer insurance or do not sufficiently subsidize it, making it unaffordable for lower-income workers.”

“No one would purposefully design the system we have. Unlike many of our peer countries, the United States has never had a centrally planned, cohesive system to help its citizens obtain and pay for health care services. Ours is a system built on happenstance, unintended consequences, and gap filling…”

“The United States has made sporadic efforts at creating a national system of health coverage…These efforts all foundered in the face of opposition from health insurers, the American Medical Association, and other health industry stakeholders, as well as concerns about the proposals’ costs.”

“Americans who have “good” insurance today may be surprised to learn that they, too, are vulnerable. Underinsurance is a growing problem, as fewer and fewer Americans are able to afford their share of costs. Premiums and deductibles continue to increase as health care costs rise, straining the budgets of families, employers, and state and federal governments. Unless and until policymakers curtail the power of health care monopolies to drive up costs and do more to limit health care prices across our array of public and private coverage systems, virtually everyone’s access to affordable care is at risk… the primary reason millions of Americans remain uninsured or have insurance coverage that leaves them financially exposed is the high costs in our health care system. Constraining the growth of costs while reducing inequities in access and outcomes will require new but difficult reforms.” 

My take: There are no simple solutions to the high costs of our health care or to assuring adequate coverage. At every level, there are excessive costs which undermine these goals:

  • Hospitals charge exorbitant fees and try to monopolize markets
  • Insurance companies have split loyalties and often deny expensive but necessary care
  • Pharmaceutical companies charge as much as the market will bear even with older generics. Increasingly, newer medications are very expensive
  • Health care providers have no incentives to constrain costs. Even salaried physicians may feel complicit by being part of systems owned by hospitals and venture capital firms which have excessive charges.
  • Wasteful (low value) practices are widespread

Related article: NY Times, Eric Reinhart 2/5/23: Doctors Aren’t Burned Out From Overwork. We’re Demoralized by Our Health System.

Excerpts:

“For decades, ‌at least tens of thousands of preventable deaths have occurred each year because health care here is so expensive…

Although deaths from Covid have slowed, the ‌disillusionment among health workers has ‌only increased. Recent exposés have further laid bare the structural perversity of our institutions‌‌. For instance, according to an investigation in The New York Times, ostensibly nonprofit‌ charity hospitals have illegally saddl‌ed poor patients with debt for receiving‌‌ care to which they were entitled without cost and have exploited tax incentives meant to promote care for poor communities to turn ‌‌large profits. Hospitals are deliberately understaffing themselves and undercutting patient care while sitting on billions of dollars in cash reserves. Little of this is new, but doctors’ sense of our complicity in putting profits over people has ‌grown more difficult to ignore…

And many physicians are now finding it difficult to quash the suspicion that our institutions, and much of our work inside them, primarily serve a moneymaking machine…Our health care institutions as they exist today are part of the problem rather than the solution.”

Related blog posts:

What’s Wrong with Noncompete Clauses

Posted on by

NY Times (1/9/23): Lina Khan: Noncompetes Depress Wages and Kill Innovation

This editorial provides a rationale for the FTC’s proposal to eliminate non-compete clauses.

Background: “When you’re subject to a noncompete clause, you lose your right to go work for a competing company or start your own, typically within a certain geographic area and for a certain period of time…In theory, noncompete clauses promote investment and innovation by assuring companies that their employees can’t run off with valuable secrets. And, again in theory, workers should be paid more in exchange for agreeing to sign a contract that restricts their autonomy. But the reality looks very different.”

Key points:

  • About 1 in 5 U.S. workers are subject to noncompete clauses.
  • “Noncompete clauses systemically drive down wages, even for workers who aren’t bound by one.”
  • Employees do not receive additional compensation for signing a noncompete clause. “Employers often spring them on workers after they’ve accepted a job, when their bargaining power is effectively zero.”
  • “Noncompetes reduce entrepreneurship and start-up formation…and keep innovative ideas from breaking into the market.”
  • “Noncompetes are the type of restriction that Section 5 of the F.T.C. Act, a federal law passed by Congress more than a century ago, is supposed to prevent.”
  • There are alternative ways to protect company secrets like nondisclosure agreements
  • California does not allow noncompete clauses (since 19th century) and this “hasn’t kept the California economy — the world’s fifth-largest — stuck in the Stone Age.”

My take: Elimination of noncompete clauses would be good for doctors (and other workers) and for the economy as well. Established business with market dominance will need to use other ways besides coercion to keep talented employees when noncompete clauses go away.

Siesta Key Beach, FL

Favorite Posts 2022

Posted on by

Thank you to those who have helped me this past year with this blog –colleagues, friends and family. Wishing all of you a good 2023. Here are some of my favorite posts from this past year:

GI:

Nutrition:

Liver:

Endoscopy:

Health Policy:

Humor:

Most Popular 2022 Posts

Posted on by

The list of the most viewed gutsandgrowth blog posts in 2022.

Links to Posts:

Fewer Malpractice Cases Per National Practioner Data Bank

Posted on by

DM Studdert, MA Hall. NEJM 2022; 387: 1533-1537. Medical Malpractice Law — Doctrine and Dynamic

This article reviews the topic of malpractice and the hurdles for plaintiffs to establish liability. Some of the interesting points:

  • “Patients lose about 80% of medical malpractice trials.3 However, fewer than 1 in 20 claims end in courtroom verdicts; about one third are settled out of court with a payment to the patient, and the remainder are dropped or dismissed.3“
  • “NPDB data reveal a remarkable phenomenon: the number of paid claims against physicians has decreased by 75% in the past 20 years.” The potential reasons include tort reform, greater openness about medical errors may have reduced patients’ inclination to sue, better medical care (no evidence of this), and incomplete NPDB data. With regard to incomplete data, this can occur with “corporate shielding” in which institutions assume liability and payment responsibility in claims against physicians, thus averting reporting requirements).

In the graph, “payments have been adjusted to 2021 dollars using the consumer price index for all urban consumers (https://data.bls.gov/PDQWeb/cu. opens in new tab).”

Related blog post: “Physician-Patient Relationship is Not Necessary to Sue Docs for Malpractice”

“Gaming” U.S. Patent System by Big Pharma

Posted on by

NBC News: ‘Gaming’ of U.S. patent system is keeping drug prices sky high, report says 

Excerpts:

Drugmakers are able to extend the patents on their drugs, keeping generics off the market, through a process known as “evergreening”… The excessive use of the patent system — by drugmakers Bristol-Myers Squibb, AbbVie, Regeneron and Bayer — keeps the prices of the medications at exorbitant levels, often at the expense of American consumers, according to the report from the Initiative for Medicines, Access & Knowledge, or I-MAK, a nonprofit organization that advocates drug patent reform.

“They get the power, they get the monopoly and they start hiking their prices,” said Priti Krishtel, a health justice lawyer and a co-founder of I-MAK…

The U.S. patent system is meant to reward innovation by permitting drug companies to sell new medications on the market and barring other manufacturers from making generic versions for a set period of time — usually 20 years. Once the patent expires, generics are allowed on the market, often at a lower list price than the brand-name drug.

But drugmakers often extend their patents by making small tweaks to the drugs, sustaining their monopolies for several years...

Humira, a rheumatoid arthritis drug from the Chicago-based biotech firm AbbVie, generated $17.3 billion in annual sales in 2021. There are 311 patent applications for the drug, 94% of which were sought after FDA approval. AbbVie’s original patent on the drug expired in 2016, but it won’t face competition until 2023...

The practice of extending patents doesn’t always go unchallenged. In some cases, generic manufacturers sue the drugmakers to get their drugs on the market, Lemley said. However, he added, those lawsuits often end in settlements between the companies.

My take: As bioethicist Arthur Caplan states, this is an unethical practice and “we need to be rethinking the rules of patenting.” There is no good reason why patients in the U.S. need to be paying 5 times as much for adalimumab as patients in Europe.

Related blog posts:

Knik River, AK

A$$inine Pricing of Indomethacin Suppositories

Posted on by

K McKee et al. Gastroenterol 2022; 163: 543-546. Open access! Rectal Nonsteroidal Anti-inflammatory Drugs for Post-Endoscopic Retrograde Cholangiopancreatography Pancreatitis Prophylaxis: A Case Study in a Price-Escalation Era

During the pandemic, several of the pharmaceutical companies have helped improve the reputation of the industry by expeditiously developing life-saving therapies and vaccines. At the same time, many have continued with outrageous price increases of generic medications. An example of this is rectal indomethacin which is used for the prevention of pancreatitis after ERCP. In this commentary, the key points:

  • The current price in the U.S. for this previously inexpensive medication is now $429 (in 2021) (previously $17). For patients, this charge is often multiplied by hospital billing departments and is frequently NOT covered by insurance as the manufacturer has not filed a new drug application with the FDA (new indication).
  • The authors note that rectal diclofenac would be a suitable alternative with similar (?better) effectiveness but is currently not available in U.S.
  • The government could allow importation of either diclofenac or indomethacin (see Table below for costs of these medications in other countries). “If the government used the powers granted in the Medicare Modernization Act of 2003, the price gouging problem caused by rectal NSAIDs could be swiftly solved without the need for expanding the US manufacturing market.” This would drop the “price of this potentially lifesaving prophylaxis by 99.24%.”

My take: I am still grateful to Mark Cuban (Why I No Longer Need to Be A Billionaire | gutsandgrowth) who is much more likely to fix the generic drug pricing problem than our government which has been reluctant to take measures against big pharma.

Related blog posts: