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2010 Potpourri XXXVIII

By October 16, 2010Commentary

Another example of the power of hospitals in setting prices and their role in increased health spending is found in an article in the Portland, Oregon newspaper.  Reporting on a statewide price comparison database, it appears that the same service varies in price by two or three times across hospitals.  Single hospital locations consistently have the highest prices.  Persons interviewed for the article suggest that hospitals generally charge whatever they want and there is a complete absence of any meaningful competition.  (Oregonian Article)

Although drug spending compared to other health services has been relatively restrained in its growth, governments in particular continue to seek ways to keep those costs under control.  The Alabama Medicaid agency has instituted a “cost-based” reimbursement method that is designed to pay pharmacies their actual acquisition cost, plus a dispensing fee.  The dispensing fee is an increase, based on a cost study, but the product cost component is likely a decrease.   It is not clear that the “acquisition cost”, which is based on a sample of invoices, will be the true net cost, as it appears pharmacies can keep rebates and other payments from manufacturers and others in the distribution chain.  This is a trend worth watching closely.   (Alabama Medicaid Announcement)

Health care payers are constantly trying to predict their costs, both for premium setting and for cost management efforts.  A lot of effort has gone into figuring out which patients are going to incur the most costs.  The latest in this line of attack comes from Express Scripts, which claims it can tell which patients are most likely not to adhere to prescribed medications.   The algorithms focus on diabetes, high blood pressure and high cholesterol and are used to create tailored intervention programs for those at risk of failing to comply with a prescription.   (Express Scripts Release)

Researchers at Duke University have released a study giving more evidence of the cost to employers from obesity.  The researchers looked at medical costs, absenteeism and presenteeism to get a full picture.  They estimated the overall costs to be $73 billion, with presenteeism making up the greatest share of these costs.  The very obese account for most of this excess spending.  The researchers say that programs to reduce or mitigate the effects of obesity should have a substantial payback for employers.   (Duke Research)

The University of Michigan released information about a longitudinal study it performed at a private company to look at the value of a wellness program over a long period of time.  The study lasted for nine years and compared employees who participated in the program for the entire time with those with did so only part of the time or not at all.  All the costs of the intervention, including indirect costs were considered; they amounted to about $100 per employee.  The savings included not just medical costs but also lost time.  The entire program cost about $7.3 million and saved $12.1 million.  Since the program was apparently voluntary, and often relatively healthy employees volunteer to participate, savings might be even greater in a more coercive program.   (U. Mich. Research)

McKinsey & Co. has estimated that better IT systems and management could save about $40 billion a year in health spending.  The company says that a well-managed install and operation of an updated IT system should pay for itself in 2-4 years and produce savings in labor optimization, avoiding drug errors, better revenue cycle management and test reductions.  The well-managed may be the rub; a lot of research suggests that many providers don’t achieve these kinds of savings or do so only after years and a lot of expense and heartache.  It is also not clear that the savings will be passed on to payers.  Given provider market power, there is no reason to think they will be.   (McKinsey Article)

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