Engineered

KFF's "Medicare: A Primer"

 Since the healthcare reform has put the issues facing Medicare front and center, it is worth spending a blog post explaining what Medicare is exactly and why it matters. On the face of it, Medicare can be explained in just a few words: it is a federal program that provides health insurance to the elderly and the disabled. Of course in practice, things are a lot more complicated than it first appears, and I highly recommend "Medicare: A Primer", an April 2010 white paper by the Kaiser Family Foundation, to anyone who is interested in learning more. What follows are a few highlights from that report. All the credit goes to KFF.

Medicare's ABC(D)

Medicare consists of four parts.

Part A mostly covers inpatient hospital services (as well as services such as home health or hospice care). It is the part funded by a 2.9% earnings tax, paid by employers and workers (1.45% each). The ACA increases this percentage for higher-income taxpayers. (45.6m people enrolled in 2009.)

Beneficiaries typically are subject to a deductible before Medicare coverage begins. In 2010 it was $1,100 for each spell of illness. After the first 60 days of inpatient days (respectively 20 days in a skilled nursing facility), patients are subject to a co-pay of $275 per day up to the 90-th day (respectively $137.50 per day up to the 100-th day).

Part B helps pay for physician and outpatient services, as well as preventive services and home health. It is funded by general revenues and beneficiary premiums ($110.50 per month in 2010, with beneficiaries with higher annual incomes paying a higher, income-related monthly Part B premium. Beginning in 2011, the ACA freezes the income thresholds at 2010 levels through 2019, instead of indexing them to inflation. This means more and more people will pay the higher premiums. (42.4m people enrolled in 2009.)

The monthly premium was set at $110.50 in 2010, although 73 percent actually paid $96.40 because there had been no cost-of-living increase in Social Security. In addition, beneficaries with annual income high enough (greater than $85,000 for an individual or $170,000 for a couple, with those values "frozen" until 2019) had to pay a higher premium, from $154.70 to $353.60. The benefits are subject to a deductible and often a coinsurance of 20%, although some benefits will be charged neither beginning in 2011.

Part C, now known as the Medicare Advantage program, allows beneficiaries to enroll in private plans, which receive payments from Medicare to provide Medicare-covered benefits such as hospital and physician services and, in most cases, prescription drug benefits. (11.5m people enrolled as of April 2010.)

Part D is the prescription drug benefit. It is "delivered through private plans that contract with Medicare: either stand-alone prescription drug plans (PDPs) or Medicare Advantage prescription drug (MA-PD) plans." It is funded by beneficiaries' premiums, general revenues and state payments The ACA also introduces an income-based premium, similar to Part B. It also gradually fills the doughnut hole, or coverage gap, explained below. (27.6m people enrolled as of April 2010.)

The KFF report explains: "Medicare Part D drug plans are required to offer either the standard benefit that is defined in law, or an alternative equal in value ("actuarially equivalent"); plans can also offer enhanced benefits." The standard benefit in 2010 had a "$310 deductible and 25% coinsurance up to an initial coverage limit of $2,830 in total drug costs [$940 out of pocket or OOP], followed by a coverage gap." In 2010, enrollees paid 100% of subsequent drug costs until they reached $6,440 in total drug costs ($4,550 OOP), after which they only paid 5% of the remaining drug costs, with the plan paying 15% and Medicare 80%. The ACA will gradually close the coverage gap between 2011 and 2020. Plans and cost-sharing amounts vary across plans and regions. The average monthly premium in 2010 was $31.94, unweighted by enrollment. 

Medicare was estimated to account for 12% of total federal spending in 2010. As a comparison, Social Security accounted for 19% and Defense Discretionary for 23%. 

Future financing challenges

"From 2010 to 2030, the number of people on Medicare is projected to rise from 47 million to 79 million, while the ratio of workers per beneficiary is expected to decline from 3.7 to 2.4. Total Medicare spending is projected to nearly double from $528 billion in 2010 to $1,038 billion in 2020," according to the Congressional Budget Office, not including spending reductions brought about by the ACA. 

"Medicare expenditures as a share of GDP are projected to rise from 3.5 percent of GDP in 2010 to 6.4 percent of GDP in 2030."

Back in 2009, Medicare Part A was expected to become insolvent in 2017 (!); however, due to recent reforms, it is now expected to only become insolvent in 2029.

Impact of the health care reform law

The ACA achieves Medicare spending reductions by:

• decreasing payment to Medicare Advantage plans (Medicare used to pay substantially more for beneficiaries who enroll in Medicare Advantage plans than in the traditional Medicare program),
• reducing annual updates in Medicare payments to hospitals and other providers (except physicians),
• incorporating delivery system reforms such as reducing payments due to unnecessary hospital readmissions.

The report also has an excellent table listing Medicare benefits and cost-sharing requirements.

For more details, please refer to "Medicare: A Primer" by the Kaiser Family Foundation.

Population Health and the Analytics Opportunity

HealthLeaders Media had a great cover story in their November issue on "Population Health and the Analytics Opportunity". For example, in a 2005 pilot program focusing on its employee health plan, Adventist Healthcare was able to select 27 of 50 high-risk patients identified by InforMed data tools as likely to benefit from interventions, and ultimately move all 27 from the high-risk to the low-risk or moderate pools for net cost savings of $350,000. Finding the highest-risk patients is also the goal of Virtua Health in its partnership with Alere Analytics, with a broader objective of avoiding the need for hospital (re)admissions. 

The article also mentions Brookdale Senior Living in Brentwood, TN, which operates about 650 senior living communities in 36 states. It was awarded in 2012 a $7.3m CMS Health Innovation Grant for a project in partnership with the University of North Texas's Health Science Center and Florida Atlantic University, with three-year cost savings expected to amount $9.7m. The goal there again is to avoid preventable readmissions - in this case for older adults. The analytics part will be handled by Loopback Analytics.

In 2012, Brookdale, through a partnership with the University of North Texas Health Science Center and Florida Atlantic University, received $2.8 million of a $7.3 million Centers for Medicare & Medicaid Services Health Innovations Challenge grant for population health management. The program expects to save more than $9 million over a three-year period.

One thing that worries me a bit is that the analytics movement in healthcare seems to have developed without much input of non-healthcare analytics professionals and academic researchers, admittedly most aware of cutting-edge techniques. For instance, the article touches upon the difficulty to correctly stratify risk: "At St. David's Health System in Austin, which is working with Brookdale on the challenge grant, 60% of readmissions recently were measured as coming from low-risk groups. "To me [this] means either that people hadn't been stratified properly, or that they were being sent home when they probably did need some kind of service or follow-up," [Brookdale's Chief Medical Officer] says." If the former reason bears even only a small part of responsibility, this would mean that analytics had not properly been implemented, incorrectly labeling quite a few high-risk people as low-risk. 

Those analytics firms mentioned above are undeniably the leaders of the pack, having demonstrated either solid results or high potential to successfully identify high-risk patients and implement interventions using cutting-edge analytical techniques. But as others throw around the Big Data and analytics buzzwords, some less competent individuals are bound to try to take advantage of the analytics wave in health care. Healthcare professionals not trained in analytics will have a hard time evaluating credentials and distinguishing errors from self-professed analytics gurus from the mere inability for a specific participant pool to successfully identify high-risk patients.

I wish more health care professionals knew to spot the fakes (the snakesoil salesmen, as I call them), and for instance were aware of the Certified Analytics Professional (CAP) designation offered by the Institute of Operations Research and Management Science as one proof of competence in the analytics sphere. The INFORMS CAP candidate handbook even has sample test questions (and their answers) that curious healthcare administrators can ask of would-be analytics partners. 

Another good - perhaps better - solution would be for CMS to champion an analytics competition among operations research programs (typically within industrial and systems engineering departments) at US universities. Every team would get de-identified data and run analytics algorithms to find the (anonymous) highest-risk patients. At the end of each academic year, finalists would be invited to DC to present their solutions to CMS staff members - somewhat similarly to the ARENA simulation competition that culminates at the annual meeting of the Institute of Industrial Engineers every May, except that student teams could use whatever software they like best, whether it is SAS or SPSS. Students who take part in the competition, and in particular finalists, would certainly be in high demand from healthcare companies with an interest in analytics (even more so if they are graduates of health systems and engineering programs such as the one at my institution). To be sure someone has solid analytics skills, in-school training of proper methods, processes and software complemented by real-life experience remains the safest choice.  

While analytics in population health offers enormous potential, it also has pitfalls if it is misused or not used well - not only because a healthcare organization would be paying someone who isn't doing the job as well as it should be done, but because patients who could have been helped and kept out of the hospital are not. 

Direct primary care

I recently heard of an interesting new model for innovative primary care. While it has been dubbed "concierge primary care" in the media, I prefer the term "direct (or direct-pay) primary care" because the idea of a concierge evokes very-well-heeled clients - in fact only one of many possible customer segments for this model, which combines personalized care delivered on a membership basis with telemedicine when needed and can provide valuable benefits to, say, the single mother who can't leave work to bring her sick child to the doctor and instead emails pictures of his eye infection, or anyone who wants to spend more than 15 minutes a visit with his primary care physician.

In a November 2012 article, Businessweek asked: "Is concierge medicine the future of health care?" It provides the example of Atlas MD, a family practice based in Wichita, KS which focuses on being affordable for all and operates on a membership fee with age-based pricing:

• Children 0-19: $10/mo with at least 1 parent membership (the practice does not handle routine vaccinations),
• Adults 20-44: $50/mo
• Adults 45-64: $75/mo
• Adults 65+: $100/mo

The membership fee covers an unlimited number of visits, house calls, all in-office procedures for free, as well as wholesale discounts for medications, labs and other services. The practice does not take insurance, but 2/3 of patients are insured - they use insurance to pay for specialty care and inpatient hospital visits, for instance.

The idea behind direct primary care is not to make insurance obsolete but instead to combine direct primary care with insurance covering not-primary care events. (This is reminiscent of car insurance: motorists pay for gas, tires, inspection, and the insurance handles repairs after a deductible has been met.) The goal is thus to decrease insurance premiums, since insurance would cover a smaller subset of claims. Hopefully, the model would also reduce hospital costs by providing better primary care and treating conditions early.

Here is a video by one of Atlas MD's cofounders:

While the doctors of Atlas MD have developed an innovative model for the public good, the Businessweek article also explains that "[m]any of these rebel doctors charge high fees and target the wealthy—visiting them at their homes, accompanying them to specialist visits, and offering them what they market as physicals fit for a CEO" - in other words, primary care for the 1% with fees to match. The model was pioneered by Howard Maron in Seattle in the 1990s. Maron handpicked 50 families for his MD2 concierge practice and charged the lucky few $25,000 a year. (The article does not provide his current rates.) He compares the experience to flying by private jet.

As primary care physicians making the shift to direct-pay, personalized primary care decrease the number of patients they see, this also means that the remaining PCPs, already in shortage, have to see even more patients. This is significant because, according to the American Academy of Family Physicians (and as cited in the Businessweek article), a traditional PCP will have an average of 3,281 patients while a concierge PCP will have only 400. The remaining 2,281 return to the traditional system and increase the average of the other, remaining PCPs. This raises the question of scalability of a model that seems to otherwise have many benefits.

Also in Washington State (like MD2), Seattle-based Qliance provides personalized medicine at lower cost: $65/month for most patients. It is now available on WA's health insurance exchange under Coordinated Care and has also launched a partnership with Cigna to combine direct primary care with lower-priced insurance. In June 2011, Qliance was dubbed "concierge health care for the middle class" in yet another Businessweek article. The article explains that "the cost of collecting money from insurers... can eat up $16 of a $60 payment for an office visit, or more than a quarter of a practice’s revenue." According to the company, Qliance's patients "incur 22 percent less in medical costs annually than average." This is a far more inspiring story of innovation, which has received a total of $17m in venture capital and will hopefully help redefine the field of primary care.

For more on direct primary care, I recommend this Forbes blog post by Dave Chase: "Health Plan Rorschach Test: Direct Primary Care." He has also authored an excellent report for the California Healthcare Foundation entitled: "On Retainer: Direct Primary Care Practices Bypass Insurance." You can read it here. Finally, Qliance was the subject of the May 2010 Health Affairs article "A direct primary care medical home: the Qliance experience."

Most read posts of 2013

My most read post in 2013 wasn't a post I wrote in 2013 - it was my April 2012 review of "The Innovator's Solution", by Clayton Christensen and Michael Raynor. While Christensen is better known for his classic The Innovator's Dilemma, I found The Innovator's Solution far superior. My review highlights why.

Here are my 10 most popular posts written in 2013, in decreasing number of total views:

• Malcolm Gladwell on Cognitive Elite Institution Disorder (October)
• Decision-making under uncertainty using robust optimization (January)
• Skills industry-bound MS/PhD grads should have (May)
• Kidney exchange and integer optimization (November)
• HBR OnPoint on "Find Your Focus" (November)
• Transient advantage (August)
• Analytics in advocacy (May)
• Algorithmic prediction of healthcare costs (May)
• An international perspective on cost-containment strategies (May)
• Book review: "Decisive" by the Heath Brothers (April)

Old-time favorites that keep collecting new pageviews include "Industry or academia" (January 2011), "Innovation: Boston's Route 128 and San Francisco's Silicon Valley" (January 2012), "Industrial engineering in hospitals" (May 2010), "Solitude and leadership" (May 2011) and "Tips for PhD success, Part 1" (October 2010). Enjoy! My first "real" new post of 2014, on direct primary care, will go live on Monday.

Affordable Healthcare

One quick mention of the November issue of the Harvard Business Review, since the December issue is already out - the "Globe" feature is on practices at innovative Indian hospitals to deliver world-class health care affordably. What struck me most in this article is that, although the authors - Vijay Govindarajan and Ravi Ramamurti, respectively of Dartmouth and Northeastern University - begin with a modest "India might be the last place on earth where you'd expect to find health care innovation," the hub-and-spoke model it describes is eerily similar to the system strategy guru Michael Porter and his co-author Thomas Lee advocate as one of their six recommendations to fix U.S. healthcare in the previous (October) HBR issue. (I wrote about Porter's and Lee's proposal here.)

In a hub-and-spoke configuration, high-quality talent and specialized equipment are concentrated in urban hubs, while spoke facilities are "arrayed around the hubs to reach underserved patients in far-flung towns and villages." The idea is for the spokes to serve not as mini-hubs but as gateways providing diagnosis, routing treatment and follow-up care. Porter and Lee also advocate a better use of resources by addressing equipment duplication. The authors of the present article, however, do point out significant cultural differences between the U.S. and Indian models that might make the Indian model difficult to implement. For instance, "even when Western hospitals consolidate, their aim is to gain market power rather than to lower costs."

A key element supporting the hub-and-spoke is the increasing use of telemedicine. According to the authors, the concentration of the difficult cases in the hubs has the following effects:

• Attracting and retaining doctors seeking to improve their skills rapidly.
• Developing and continually updating treatment protocols that reduce errors.
• Creating specialists in relativel rare subspecialties of medicine.
• Promoting innovation that suits local conditions.

Furthermore, general physicians are encouraged to become specialists (and specialists to become super-specialists). The hospitals make significant use of support staff, from paramedics to nurses, to help make physicians more effective. They have also implemented new procedures "to decrease the amount of time it takes to move one patient out of the operating theater and bring in the next one."

The authors also make the fascinating point that in the U.S. (operating in a fee-for-service model), the goal is to maximize the number of procedures conducted, while the goal in India is to maximize the number of patients treated. The Indian hospitals are also frugal in their operations, for instance preferring in some cases to operate diagnostic equipment on a pay-per-use basis rather than owning it outright. This all contributes to an Indian healthcare system where the specific hospitals considered (most definitely best-in-class types) have quality measures -- e.g., survival rates for breast cancer -- similar to the measures in their American counterparts. They also argue that, while physicians' salaries are often cited in the U.S. as the root of many healthcare problems, lower wages in India do not contribute to lower costs as much as one would think. 

The HBR article serves more broadly as a summary of a research project spearheaded by Govindarajan and Ramamurti, which aims at better understanding "how some Indian hospitals are able to provide world-class health care at ultralow cost." Excellent read.

MIT Technology Review's "Tale of Two Drugs"

The November issue of MIT Technology Review investigates why drugs are so expensive in its cover article. (It also has an excellent business report on healthcare costs.) The two drugs of the article's title are Kalydeco, the first drug to treat the underlying cause of cystic fibrosis, which was approved by the FDA after only 3 months of review, and was priced at $294,000 a year. (Its price later increased to $307,000.) The company did pledge "to provide it free to any patient in the United States who is uninsured or whose insurance won't cover it", but "insurers and governments readily paid the cost" because "it offers life-savings health benefits and there is no other treatment."

In contrast, Zaltrap, which was approved to treat colorectal cancer, "worked no better in clinical trials than Roche's cancer drug Avastin, which itself adds only 1.4 months to life expectancy for patients with advanced colorectal cancer." Yet "Sanofi priced Zaltrap at $11,000 a month, or twice Avastin's price." Following unexpected resistance, it agreed to provide rebates for 50% of the price, which is not quite the same thing as dropping the price by 50%.

The author, Barry Werth, makes an important point when he writes: "The primary customers in the United States are not patients or even individual physicians, although physicians can drive demand for a drug; rather, the customers are the government (through Medicare and Medicaid) and private insurance companies." The prices we see are a result of insurers and governments picking up the tab rather than individuals: increasing the price doesn't reduce how much the drugs are used, so pharmaceutical companies try to charge as much as they can: what they think the market will bear. (Werth knows Vertex well: he wrote the famous book The Billion Dollar Molecule: One Company's Quest for the Perfect Drug about it in 1995.)

Kalydeco's price

But even Kalydeco's price is enormously high, notwithstanding its life-saving characteristics, and Werth discusses at length the concerns and protests of a group of scientists led by David Orenstein, co-director of the Palumbo Cystic Fibrosis Center and chair of the ethics committee at Children's Hospital of Pittsburgh. As a revenue management expert, what struck me in that conversation is that the physicians really wanted Vertex Pharmaceuticals, which manufactures Kalydeco, to use cost-plus pricing in setting the price (i.e., you compute the cost and add a markup because you do want to reward your investors, but since there is no other treatment you don't want to make a fortune from sick people who absolutely need it) instead of revenue (or profit) maximization. This being a publicly traded company, this argument is unlikely to gain traction with Vertex, although there is something fundamentally worrisome about shareholders who hope (do they?) that a pharmaceutical company will price its life-saving drug as high as possible so that they can reap a cushy reward from their investment.

As a mitigating factor for Vertex and Kalydeco (and something I wish the author had explained), drug prices are not only set to recoup past development costs and other drugs' failures. They are set to fund current operations: current development costs, current trials, with many promising compounds bound to fail after years in the pipeline. It also happens that Kalydeco is only designed to treat about 4 percent of the cystic fibrosis patients worldwide or 2,400 patients altogether. (It fixes what is called a gating mutation while most patients have what is called a folding mutation of a critical protein.) I don't know how much of the $307,000 tag price helps fund current operations at Vertex and how much really goes to enrich shareholders, but since it treats a chronic condition, they are looking at a potential income of $720 million a year until the drug goes off-patent, not taking into account price increases. (It is said to be valued now at $311,000.) Whether you view this as high or low depends on what they are doing with the money and what is left over - their net income.

Vertex's financials

Now, Vertex is not a newcomer in the pharmaceutical field. It was in fact created in 1989 and now counts about 1,800 employees including 1,200 in the Boston area. It worked for 13 years with the Cystic Fibrosis Foundation to develop the drug. If you look at its financial numbers on Yahoo! Finance, you'll notice that all its performance ratios are negative. It has a negative operating cash flow. It has negative EBITDA (earnings before interest, taxes, depreciation and amortization). Perhaps this has something to do with the fact that Vertex is building a $800m new campus on the South Boston waterfront. Morningstar gives it four stars but also an F in profitability (and A in growth), and a credit rating of BBB. It was recently announced it is laying off 15% of its workforce due to disappointing sales of its drug Incivek. So the question (left unsaid in the article) also becomes: if a pharmaceutical company hits it big, especially in an area where there is no alternative (and so its discovery is clearly benefiting the public good), how much should we as a society tolerate that it milks its discovery for everything that it is worth, given all the failures and disappointing results that it has had along the way and is still facing in other product lines? (Also worth reading: the JAMA editorial penned by David Orenstein and his colleagues.)

It's worth pointing out that cystic fibrosis patients with the gating mutation can be correctly identified by diagnosis tests, so Kalydeco won't be given to people who won't benefit from it - only to people who will. We used to think that technology would help decrease drug costs by better identifying the subgroups of patients who would most benefit from this or that drug, but the journalist takes a far more pessimistic view of the future, "a likely future in which extremely costly drugs are common."

Going forward

A danger, it seems to me, is that one of these days a good PR professional working for health insurers will put together a campaign where we see sick children being denied their medicine because the greedy pharmaceutical companies are eating up all the insurers' money, with their enormous prices for orphan drugs that go to only a handful of patients - and those are chronically ill to boot. Viewers will relate to the children in the ad and their common condition, and mayhem will ensue. Or put a cystic fibrosis patient on television saying "my $300,000 a year drug goes toward their $800 million brand new building on the waterfront!" (And the PR person will put an executive in the ad who laughs and says: "Heck no, that's what last year's $800 million we made in revenue from people like you paid for! Our palace is paid now! Hahaha!") Then the drug companies risk becoming the Enrons of our generation.

Werth concludes: "Ultimately, what matters in pricing a drug is its value. Vertex succeeded in pricing Kalydeco because the medicine really works, because the company's scientists knew the exact genetic profile of the people who would benefit, because they were able to show definitive clinical results in well-designed trials, and because the company ensured that the right patients got the drug and that access was no issue."

The Affordable Care Act: Summary and Implementation

If you want to make sure you understand the Affordable Care Act, I can't think of two better resources to recommend than the summary by the Kaiser Family Foundation (13 pages), and a short, visual document put together by the American Public Health Association [APHA] about selected provisions of "Obamacare" (2 pages). APHA also authored a 1-page cheatsheet on "Why do we need the Affordable Care Act?" that concisely articulates the main reasons behind the healthcare reform. Seriously, if you have any interest in healthcare reform, you have to have read those.

Much has been written about the flawed implementation of Obamacare by now, so I won't repeat what has been said before, but what shocked me the most in the press coverage was to learn that the administration had needed a McKinsey report, back in March, to show them the difference between what they were doing and the accepted best practice, known as "waterfall". (Apparently the lesson didn't stick.)

Frankly, it shouldn't have taken McKinsey for them to know that, given what was at stake, launching at scale was a terrible idea - and since CMS did launch at scale, I can only suspect that basic project management concepts that seem obvious to engineers like me sound highly esoteric or downright ridiculous to some people of high rank. Of course you never launch such a high-visibility project at scale. You start by opening the exchanges in a small state (Delaware?) and then perhaps a second one, fixing the bugs as you go in the most inconspicuous manner. Obviously you don't get the "drama" moment and the PR exposure of the all-in, large-scale launch approach, but you don't get the falling-flat-on-your-face part either.

Rosabeth Moss Kanter summarizes it beautifully in a Harvard Business Review blog post on the fact that "good management is not just details left to technocrats." The slide of the McKinsey review posted online is worth reading, especially for the two columns about the "ideal large-scale program development" and the "characteristics of this program", which comes across as a game of opposites, answering each other in neatly stacked bullet points. This is probably as close as genteel McKinsey ever came to screaming in horror the politically correct equivalent to "what in the world is wrong with you people, thinking you can get the project to succeed that way?" Fail small. Always fail small. And don't believe there will be no bugs in a tech project. 

I am also disappointed by how the conversation has evolved into health reform being mostly about helping uninsured getting coverage, so "doing the right thing for another segment of the population", instead of keeping the focus on the fact that the health reform is motivated by very real cost growth concerns that will threaten providers' financial viability down the road as well as the affordability of care for all, and thus affect everybody.

Having an uninsured person seek emergency care at your hospital means your hospital won't get paid for the services it provides - services that are more expensive to begin with than if the person had sought treatment when his disease was a more manageable state. This can't be good for the system as a whole. But even the Lexington column in the Economist describes the current situation regarding the healthcare reform as an "insider-outsider problem", instead of asking the higher-level question, of how the ACA ended up reduced to this one feature in the public's mind.

This is an issue that was noted for instance by a pollster of the Kaiser Family Foundation at a health policy workshop I attended in October: people like most provisions of the Affordable Care Act except the individual mandate, but they tend to be less aware that the provisions they like are indeed part of the ACA - and very, very aware that the individual mandate is part of the health reform. How the ACA was shrunk to the controversial individual mandate in the public opinion will certainly be the topic of many PR books to come.

Finally, for a sneak peek into the flaws of a real-world implementation, the WaPo article "Maryland struggling with technological problems with online insurance exchange" provides an important cautionary tale about a state that supported the ACA from the start. Some of the lessons learned include offering bare-bones websites instead of more complex - and more unreliable - ones, as well as pursuing strenuous outreach efforts.

I heard Rebecca Pearce - Maryland's exchange director - talk at that health policy workshop I mentioned earlier, and she struck me as a highly competent woman with sound project management skills. I remember for instance how she said she had instructed some of her staff members to create accounts on the exchanges so that they could better understand what would-be enrollees saw and the challenges they faced - exactly the sort of things that a good project manager in charge of such a daunting initiative would do.

If Rebecca Pearce was not able to extract satisfactory performance from the Maryland exchange's main contractor, as the WaPo suggests, then we also have to consider the fact that, in some cases, some contractors may be much more to blame than the administration, whether the government officials are good managers or not. But pointing the finger at tech companies with obscure names might not attract as much attention in the press.

Watch Rebecca Pearce talk about the Maryland Health Exchange in these two videos (crank up the sound for the Vimeo one):

Rebecca Pearce - Overview of the Maryland Health Benefit Exchange from The Hilltop Institute on Vimeo.

Michael Porter's strategy to fix health care

The October issue of Harvard Business Review has an excellent article on how to fix health care by Harvard Business School professor Michael Porter (of Competitive Advantage fame) and Thomas Lee, the chief medical officer at Press Ganey and the former network president of Partners HealthCare. In it, they argue that the goal should be maximizing value for patients, in a redesigned patient-centered system built around their conditions and measuring the outcomes they care about. They describe a strategic agenda with 6 components:

1. Organize into Integrated Practice Units (IPUs), i.e., organize around the customer and the need: the patient's medical condition, following the successful example of the Virginia Mason Medical Center for low back pain,
2. Measure Outcomes and Costs for Every Patient, going beyond the most easily measured and least controversial indicators (process measures) to truly gauge quality - for instance, how many diabetes patients lose their vision, have a heart attack or stroke, or undergo an amputation - building upon the Fertility Clinic Success Rate and Certification Act of 1992, which required all clinics to provide their live birth rates and other metrics and led to substantial improvements in a short amount of time,
3. Move to Bundled Payments for Care Cycles (they already exist in countries such as Germany, where they incorporate all hospital inpatient care including physician fees, and for procedures such as organ transplant in the US),
4. Integrate Care Delivery Systems, to shift from loose confederations of largely stand-alone units that duplicate services to true integrated delivery services, 
5. Expand Geographic Reach, either through a hub-and-spoke model with a leading center and satellite facilities, or through clinical affiliation, similarly to the Cleveland Clinic's Heart and Vascular Institute,
6. Build an Enabling Information Technology Platform, using common data definitions and encompassing all types of patient data.

Reimbursement and Pricing Policies for Medical Devices

According to “Evolving Reimbursement and Pricing Policies for Devices in Europe and the United States Should Encourage Greater Value” by Corinna Sorenson, Michael Drummond and Lawton Burns, “Europe more formally and consistently considers value to determine which technology to cover and at what price [compared to the US]”. The article also describes the policies both the United States and Europe have introduced to “provide temporary coverage and reimbursement for promising technologies while additional evidence of value is generated,” and outlines further actions to be taken “to ensure wise value-based reimbursement and pricing policies for all devices.”

While European decision-makers have shifted their focus from cost control to value-based policies over the past decade, the United States has been slower in adopting value-based decision processes and those have tended to focus on pharmaceuticals rather than medical devices.

The European system works as follows.

• “Market approval of a device in one country [of the European Union] should provide access to other markets through the Conformité Européenne marking process.”
• But “institutional arrangements for financing differ among countries, which can result in divergent coverage, reimbursement and pricing decisions for a particular device.”
• “Prior to making coverage decisions, European jurisdictions typically require that high-risk, innovative or costly devices… undergo a health technology assessment” and recommends for or against use, or use for only a subset of the population, based on “clinical trial evidence and cost-effectiveness data”.
• When the available evidence is insufficient or inconclusive, some European countries “offer restricted coverage for patients enrolled in studies designed to collect better data.”
• “Once coverage is determined, most European countries use prospective payment systems to determine reimbursement rates,” which may reflect value in some cases or may not, because payment systems are updated infrequently.
• To address the issue of insufficient payment for new technologies, some countries have introduced “separate or supplementary payments [lasting usually two or three years] to provide partial or total reimbursements for potential beneficial devices until they are fully captured by the payment system.”

The article also describes the American system, and emphasizes that “with limited exceptions, CMS does not currently consider a device’s comparative effectiveness or its cost relative to alternative treatment options in its pricing.” It details the concepts of “add-on payments” (for inpatient care, mostly used for implantable medical devices) or “pass-through payments” (for outpatient care, more common), which were developed to mitigate the high costs of new devices in the US. Devices must be “new and high cost” and must “substantially improve the diagnosis or treatment of beneficiaries.”

It is worth noting that “devices are rarely directly reimbursed by private insurers.” Instead, they reimburse medical procedures or episodes of care “at a specified or negotiated amount that must cover the price of the device along with other items – such as supplies, labor and facility costs – that are part of the procedure or care episode.”

The authors then outline three potential policies to improve value-based reimbursement and device pricing:

1. Fostering pre- and post-market evidence (“current requirements allow clinical evaluations of most new devices to be based on similar existing (predicate) technologies rather than the actual device in question, and the clinical data submitted to be based on a literature review alone”),
2. Exploring new approaches for assessing value (“devices have particular characteristics that introduce unique challenges to measuring their value” such as “frequent modifications following initial development” and the “learning curve” of medical professionals),
3. Linking evidence of value to reimbursement (“this approach sets different reimbursement rates for different levels of clinical effectiveness” and may also entail different copayments).