In 1999, NIH’s Institute of Medicine (IOM) issued a report titled “To Err is Human” that rocked the medical community with its conclusion that medical errors cause 44,000 to 98,000 deaths annually in American hospitals. The report sparked a significant patient safety movement that the U.S. Office of Personnel Management has endorsed in connection with the Federal Employees Health Benefits Program.

Yesterday, the IOM issued a report concluding that at least 1.5 million Americans are sickened, injured or killed each year by errors in prescribing, dispensing and taking medications. The IOM report encourages the use of electronic prescribing to reduce the number of errors. IOM also released a fact sheet on how medication errors can be prevented. This would be a good publication to widely circulate.

Rep. Nancy Johnson (R-Conn.) chaired a House Ways and Means health subcommittee hearing on the topic of price transparency, a leading Administration initiative to control health care spending. The witnesses included

Regina E. Herzlinger, Ph.D., Nancy R. McPherson Professor of Business Administration, Harvard Business School, Boston, MA (whose work impresses me),
Robin Downey, Product Development Head, Aetna, Middletown, CT,
Daniel F. Evans, Jr., President and CEO, Clarian Health Partners, Indianapolis, IN,
Stephen Brenton, President, Wisconsin Hospital Association, Madison, WI, and
Ha T. Tu, Senior Health Researcher, Center for Studying Health System Change.

In her testimony, Prof. Herzlinger proposed the creation of an SEC for healthcare:

A Health Care SEC Societal Consequence of SEC-like Health Care Regulation The U.S. securities markets contain the characteristics desired for the health care:

• Prices are fair in the sense that they reflect all publicly available information, despite the inability or unwillingness of many buyers to avail themselves of this information.
• Buyers use this information to redirect capital so that it rewards productive firms and penalizes unproductive ones.
• Information and competition continually reduce transaction costs.

The presence of these characteristics in health care would achieve two important social goals: First, they would help the uninsured and the underinsured. Second, they would divert money from health providers that offer a bad buy to those that offer a good one. The bad buy providers would shrink or improve. The good buy providers would flourish. How to Make it Happen The key to achieving these desirable characteristics in health care is legislation for a health care SEC that replicates these essential elements of the SEC model.

1. An Independent Agency with Singular Focus. The SEC is an independent agency charged solely with overseeing the integrity of securities and the markets in which they are purchased. Because of these organizational characteristics, the SEC’s mission is not muddied–it is squarely lined up with the consumer–and it can be held clearly accountable for is performance.
2. Penalties. The SEC is armed with powerful penalties for undercapitalized and unethical market participants, including imprisonment, civil money penalties, and the disgorgement of illegal profits. A corresponding health care agency would oversee the integrity and require public disclosure of information for health care.
3. Private Sector Disclosure and Auditing. The SEC relies heavily on private sector organizations, which contain no governmental representation. The new health care agency should similarly delegate the powers to derive the principles used to measure health care performance to an independent, private, nonprofit organization that, like the FASB, represents a broad nongovernmental constituency. The agency would require auditing of the information by independent professionals, who would render an opinion of the information and bear legal liability for failure to disclose fairly and fully.
4. Private Sector Analysis. The evaluation process is primarily conducted by private sector analysts, who disseminate their frequently divergent ratings. To encourage similar private sector health care analysts, the new agency should require public dissemination of all outcomes for providers, including clinical measures of quality, and related transaction costs.
5. Focus on Outcomes, Not Processes. The SEC and FASB focus on measuring the financial performance of organizations. FDR firmly rejected dictating business processes or rating businesses as appropriate roles for the SEC.

The SEC is essentially a profit center, generating a substantial surplus from its filing and penalty fees, which offset its billion dollar budget.

Another electronic health records (EHR) implementation milestone was reached today. The Certification Commission for Healthcare Information Technology (CCHIT) made its first announcement of twenty ambulatory electronic health record (EHR) products that have attained CCHIT Certified status.

CCHIT certifies EHR products under a U.S. Department of Health and Human Services (HHS) contract for functionality (setting features and functions to meet a basic set of requirements), interoperability (enabling standards-based data exchange with other sources of healthcare information), and security (ensuring data privacy and robustness to prevent data loss). According to HHS, “CCHIT will certify health IT products in three initial phases:
First, outpatient or ambulatory EHRs; Second, inpatient, or hospital EHRs; and
Third, architectures, or systems that enable the exchange of information between and among health care providers and institutions.”

HHS Secretary Leavitt said that “This seal of certification removes a significant barrier to wide-spread adoption of electronic health records. It gives health care providers peace of mind to know they are purchasing a product that is functional, and interoperable and will bring higher quality, safer care to patients.”

A Massachusetts Institute of Technology economics professor, Amy Finkelstein, is publishing an interesting paper in the always scintillating Quarterly Journal of Economics titled “The Aggregate Effects of Health Insurance: Evidence from the Introduction of Medicare.”

The abstract for the paper reads as follows:

Abstract: This paper investigates the effects of market-wide changes in health insurance by examining the single largest change in health insurance coverage in American history: the introduction of Medicare in 1965. I estimate that the impact of Medicare on hospital spending is over six times larger than what the evidence from individual-level changes in health insurance would have predicted. This disproportionately larger effect may arise if market-wide changes in demand alter the incentives of hospitals to incur the fixed costs of entering the market or of adopting new practice styles. I present some evidence of these types of effects. A back of the envelope calculation based on the estimated impact of Medicare suggests that the overall spread of health insurance between 1950 and 1990 may be able to explain about half of the increase in real per capita health spending over this time period.

Eureka! This is what I always have suspected.

The health information technology (HIT) bills now pending in Congress presume that the widespread introduction of electronic medical records will reduce health care spending. At a party Saturday night, I asked an emergency medicine doctor for his opinion. He told me that while electronic prescribing is a vast improvement over paper based prescriptions, electronic medical records will simply slow down the practice of medicine, e.g., doctors will see fewer patients per hour, and thereby increase costs.

I therefore was very interested to learn that the upcoming issue of the Health Affairs journal includes an article by Jann Sidorov, MD, the medical director of Geisinger Health Plan’s Care Coordination Department and a practicing primary care internist titled “It Ain’t Necessarily So: The Electronic Health Record And The Unlikely Prospect Of Reducing Health Care Costs.”

The Health Affairs website provides the following summary of Dr. Sidorov’s article, which is in line with my friend’s opinion:

Electronic health record (EHR) advocates argue that EHRs lead to reduced errors and reduced costs. Many reports suggest otherwise. The EHR often leads to higher billings and declines in provider productivity with no change in provider-to-patient ratios. Error reduction is inconsistent and has yet to be linked to savings or malpractice premiums. As interest in patient-centeredness, shared decision making, teaming, group visits, open access,and accountability grows, the EHR is better viewed as an insufficient yet necessary ingredient. Absent other fundamental interventions that alter medical practice, it is unlikely that the U.S. health care bill will decline as a result of the EHR alone.

As recently blogged, the latest Centers for Medicare and Medicaid Services semi-annual update on Medicare costs indicates that Medicare Part A (inpatient hospital) expenses remain on the rise. Medicare Part A reimburses for inpatient care based on a prospective payment system that uses diagnositic related groups (“DRGs”). In April, 2006, CMS proposed major changes to this reimbursement system:

CMS is considering a two-step process of transformation. The first step,
set out in the proposed rule, would assign weights to DRGs based on hospital
costs, rather than hospital charges. This would eliminate biases in the
current DRG system arising from the differential markup hospitals assign for
ancillary services among the DRGs. The new DRG weights would go into
effect October 1, 2006.

A second step, currently scheduled for FY 2008, would replace the current 526 DRGs with either the proposed 861 consolidated severity-adjusted DRGs or an alternative severity adjusted DRG system developed in response to the public comments CMS is soliciting on this issue. CMS is also considering ways of improving recognition of severity in the current DRG system by FY 2007. When the two steps are fully implemented, hospitals can expect more accurate payment for their services.

In today’s New York Times, Robert Pear reports that the proposed DRG changes will whack 20 to 30% off current hospital reimbursement for frequently performed procedures, such as the drug coated artery stent, and shift costs onto private payers. The article also reports that Congress is questioning why CMS gave 3M a sole source contract to develop the DRG reforms. Senator Charles Grassley (R Iowa), Senate Finance Committee Chairman, and Sen. Max Baucus (D Mont.), the Committee’s ranking minority member, have asked CMS to delay the payment reforms for a year. However, House Ways and Means Committee Chairman Bill Thomas (R Calif) has supported the reforms — at least before today’s report.

The Senate Special Committee on Aging held a hearing yesterday on health care spending. General Motors’ Chairman Richard Wagoner recommended in his testimony

[S]everal key public and private initiatives that deserve attention:

A vigorous and robust competitive prescription drug market in which everyone has access to affordable pharmaceuticals, including generic biopharmaceuticals.

Policies that give consumers and physicians information on the relative effectiveness of different drugs and treatments so that they can compare and distinguish treatment options. Armed with this information, physicians and onsumers can ensure that only the most effective drugs and treatments are provided, and help reduce inappropriate, ineffective, and costly care.

Implementation of National Health IT legislation. S.1472, the Health Care Wired
Act [actually S. 1418], sponsored by Senators Enzi and Kennedy, should be enacted into law this year.

Release of the complete Medicare Claims Database. I have joined my colleagues
at the Business Roundtable asking that the Federal government disclose all
Medicare data on the cost and quality of physicians and hospitals across the
country. By getting price and quality information about physicians, hospitals, and
other providers available to the public, consumers can make better choices about
the health care they receive. This is increasingly important as consumers spend
more of their own money on health care. This information will enhance quality
and efficiency in the delivery of Medicare services as well as health care services
overall.

Finally, a stronger focus on high-cost cases. Just one percent of the population
with chronic and serious illnesses accounts for about 30% of total health care
expenditures. These cases pose a significant burden on both private and public
payers. We need a better public/private effort to address these high-cost cases to
improve their care and reduce overall costs, and to create a more competitive health care market/

The Congressional Budget Office provided more enlightening information on the Medicaid Program costs and its opinion on the factors driving health care spending:

In calendar year 2004, the United States spent about $1.9 trillion for health care, an amount nearly five times as great in real terms as was spent in calendar year 1975. Real spending per capita increased from about $1,700 in 1975 to about $6,300 in 2004, an average annual rate of real growth of 4.5 percent. The economy as a whole grew over that period as well but not as quickly, with the result that health care spending as a percentage of GDP doubled–rising from about 8 percent in 1975 to about 16 percent in 2004. The mid-1990s saw a brief slowdown in real spending growth per capita, but higher rates of growth have returned in more recent years: from 2000 to 2004, real health care spending per capita grew at an average annual rate of 5 percent, which is similar to its long-term historical average.

Although the diffusion of new medical technologies is generally considered the primary impetus for the long-term increase in overall spending for medical care, other factors certainly contribute to it as well. One source of cost growth has been the aging of the population. Among adults, average medical spending generally increases with age, so as the share of the population that is elderly grows, health care spending per capita will rise. Over the past half century, however, aging has played a relatively minor role in the very large increases in overall spending that have occurred–accounting for only 2 percent of that growth, by some estimates. The coming retirement of the baby boomers will further increase the elderly’s population share and thus have a larger impact than past aging trends have had. Even so, the growth of medical costs per person is likely to remain the predominant reason that health care spending for the country as a whole continues to climb.

In some cases, advances in medical technology may lead to reductions in spend-
ing. Vaccinations, for example, offer the potential for savings on subsequent treat-
ment costs, and certain types of preventive medical care may help some patients avoid costly hospitalizations. Overall, however, examples of new therapies for
which long-term savings have been clearly demonstrated are few. As with preventive care, new prescription drugs may help some patients avoid more expensive treatments–but they may also generate new spending for previously untreated cases that would not have become more serious. Improvements in medical care that decrease mortality by helping patients avoid or survive acute health problems may ultimately increase overall spending for health care as those (surviving) patients live to use additional health care services throughout their old age.

Other factors that are contributing to the growth of overall health care spending include real increases in personal income over time and the deepening of health insurance coverage over recent decades. Because medical care is a desirable service demand for it tends to rise as real incomes move upward. At the same time, from the consumer’s perspective, health insurance coverage reduces the cost of care, which leads consumers to demand increasing quantities of services. Although the estimated fraction of Americans who have health insurance has not changed dramatically during the past 20 years, private health insurance has covered an expanding share of all private health care costs; such coverage has thus deepened rather than broadened. Even so, the best estimates of the effects of income and insurance coverage on health care costs indicate that those factors, too, fail to explain much of the surge in spending in recent decades.

Not encouraging.

Forest Laboratories won the latest round in the legal fight to preserve its Lexapro anti-depressant drug patent into 2012 (and the stock market responded today with a 16% increase in the company’s stock price). Forest Labs has good reason to be pleased as the Wall Street Journal reports today that

Generic competitors to [Merck’s statin] Zocor [whose patent protection expired on June 23, 2006] are grabbing a big share of new prescriptions for cholesterol-lowering drugs and already putting pressure on Pfizer Inc.’s Lipitor, recent data show. After copycat versions of Zocor became available during the last week of June, they captured 49% of new prescriptions in the U.S. for the medicine known generically as simvastatin. Despite price cuts taken by Merck & Co. to keep Zocor competitive, the brand-name drug’s market share slipped to 51% of new prescriptions during the week that ended June 30, according to data from WoltersKluwerHealth. Patent protection for Zocor in the U.S. ended June 23.

CVS, which is the largest pharmacy chain in the Washington, D.C., area and has 5,400 pharmacies in 37 states, has bought MinuteClinic. There are 83 MinuteClinics in ten states, including 66 located inside CVS pharmacies, including one in my hometown, Bethesda, MD. According to the CVS press release, “MinuteClinic locations, which are staffed by certified nurse practitioners and physician assistants, offer treatment for common family illnesses, such as strep throat, ear infections, poison ivy and pink eye. They also provide some common vaccinations.” Clearly CVS has room for expanding this convenient service. Will other pharmacies follow CVS’s lead?

Steve Barr reports in today’s Washington Post about an Inspector General report on the massive Veterans’ Administration security breach. What a dysfunctional agency!