Here's an interesting conference in a couple of weeks, offered by the MIT Sloan Healthcare Club, for those of you in the Boston area:
The 8th Annual MIT Sloan BioInnovations Conference, taking place on March 4th at 8:30 A.M in the Boston Marriott Cambridge, brings together thought leaders from industry and academia to discuss important topics applicable across the health care industries.
Steve Rusckowski, CEO of Philips Healthcare, and Peter Hecht, CEO of Ironwood Pharmaceuticals will deliver keynote speeches in addition to our panel discussions about the challenges of regulatory uncertainty and R&D productivity as well as the opportunities of next generation technologies and emerging markets. Our panelists come from the top companies across pharma, biotech, medical devices and support services including Pfizer, Genentech, Merck and Genzyme, and innovative emerging firms like SmartCell and AMAG Pharma.
This year's BioInnovations conference promises to be an insightful discussion on the topics at the center of health care.
For full details on panel speakers and to register, click here.
Thursday, February 17, 2011
Wednesday, February 16, 2011
Mystery Photo 5
Lots of glitz at this historical site. Can you guess where this is? First guess the country. Then try to figure out which palace this is? Enter your guesses in the comments or email me at renraeretire@gmail.com. I will answer you directly and tell you if you are right or wrong. Answer will come in a few days with other photos.
Is this part of the death of trust?
A short time ago, I wrote with concern about the blurred boundaries between news and opinion in the lead stories of major newspapers. I did not think I would have to worry about blurred boundaries between front page stories and advertising, but this front page story in the New York Times has me wondering.
The story is about Bernard Madoff and statements he has made from his jail cell. It is strange enough that the Times would give upper right hand front page placement to comments made by Mr. Madoff. As the story notes after the page turn: "Mr. Madoff’s claims must be weighed against his tenuous credibility."
But beyond that judgment about newsworthiness, note this paragraph on the front page:
Both the interview and the e-mail correspondence were conducted as part of this reporter’s research for a coming book on the Madoff scandal, “The Wizard of Lies: Bernie Madoff and the Death of Trust,” for publication this spring by Times Books, a division of Henry Holt & Company.
Did we just see a commercial posing as part of a news story? First, who cares if the interview was conducted as part of research for a book? The interview rises or falls on its own. Second, why is the full name of the book given, along with the publisher's name?
If this was meant to be some kind of disclosure, it could have been written to make that clear. As it now stands, the only surprise is that the on-line version of the article did not have an embedded link to Amazon.
The story is about Bernard Madoff and statements he has made from his jail cell. It is strange enough that the Times would give upper right hand front page placement to comments made by Mr. Madoff. As the story notes after the page turn: "Mr. Madoff’s claims must be weighed against his tenuous credibility."
But beyond that judgment about newsworthiness, note this paragraph on the front page:
Both the interview and the e-mail correspondence were conducted as part of this reporter’s research for a coming book on the Madoff scandal, “The Wizard of Lies: Bernie Madoff and the Death of Trust,” for publication this spring by Times Books, a division of Henry Holt & Company.
Did we just see a commercial posing as part of a news story? First, who cares if the interview was conducted as part of research for a book? The interview rises or falls on its own. Second, why is the full name of the book given, along with the publisher's name?
If this was meant to be some kind of disclosure, it could have been written to make that clear. As it now stands, the only surprise is that the on-line version of the article did not have an embedded link to Amazon.
Are you taking those pills yet?
Over a year ago, I wrote about entrepreneur Eran Shavelsky, CEO of MedMinder, who has created an electronic, cell-phone connected pillbox that can help people remember to take their prescription drugs. As I noted at the time: "The pillbox has an embedded cellular phone that can send reminders by phone call, text message, or email. It also has lights that blink and sound alerts that beep. You can program it to send reminders in any or all of these formats -- but not just to the patient. The reminders can also go to a trusted family member and/or the provider. These can be easily programmed on the company website. You load up a month's worth of medications, and on you go. Or, if you forget to load up the medicines, you can have an alert about that."I visited Eran today, curious as to how things were going. The design of the pillbox (now called Maya) has been upgraded, and it is now for sale in some retails outlets as well as through some insurers and providers. He reports that adherence to medication regimes for patients using the device averages about 92%, well above that reported by people in the pharmacy benefit field.
Eran has also developed a portable medication holder/reminder (lower picture), which also works off of cell phone signals, for when people are away from home for a short period of time.
I have no financial interest in this product or company, but I do have a personal interest as someone who wants to improve the management of patient care. It seems to me that this kind of elegant device would especially be of interest to those physician groups that have signed global or other risk contracts. The relatively modest cost of the pillbox and its cellphone service would be recovered many fold by enhancing the likelihood of adherence with prescribed drugs, avoiding the much higher cost of hospital admissions and readmissions.
Tuesday, February 15, 2011
Catharsis is not policy-making
If you ever needed an indication of why the public remains confused about the issue of health care costs and insurance premiums, look no further than a story in today's Boston Globe entitled, "Insurers seeking smaller rate hikes." It is not that the reporter has done a poor job. Quite the contrary. The structure of the piece is good, and the story is fair and accurately reported. It is just that the current exigencies of newspaper production make it impossible to devote sufficient space in a daily story to portray the whole picture. So, in an understandable effort to give equal time to divergent viewpoints, the story ends up as a "he said-she said" exposition, leaving out underlying facts and context that might help the public understand why we are where we are.
So, let's deconstruct and expand the story to give more insights.
When the undersecretary of consumer affairs and business regulation sets forth her view of the rightness of the Governor's intervention in the rate-setting process, she neglects to mention that the intervention was arbitrary and found to be legally deficient by appellate boards in the state government. In essence, she attempts to proclaim economic and regulatory virtue in actions that fundamentally had a political origin during the last gubernatorial campaign.
She fails to mention that the underlying costs of providing health care have not changed very much. So insurance companies, bowing to political pressure, have been forced to come down hard on those providers whose contracts happen to have come up for renewal. These have often not been those with higher reimbursement rates. In essence, the administration's intervention succeeded in increasing the payment differential between the have's and have not's among the providers, contributing to the very factors disclosed by the Attorney General that lead to higher, not lower, health care costs.
When she says that the answer to the world's problems is to move to global payments, she makes no commitment to the idea that payment disparities among providers will be eliminated as part of this move.
When the Blue Cross Blue Shield spokesperson says that the proposed premiums are inadequate to cover costs, he leaves out the fact that this insurer has systematically overpaid certain providers, relative to other providers, for their services. These divergent payments are reflective of market power, as opposed to higher quality or other measurable factors, and, as noted, are a major contributor to the cost of health care in the state. He also leaves out the fact that early contracts to persuade or reward providers to sign the company's new global contract regime were particularly generous, especially in the early years of those contracts, increasing the company's costs.
When the head of the association of health plans (which does not include BCBS) continues her long-standing practice of blaming providers for all the problems, she not only neglects the contribution of the inefficient administration of her members, but she too fails to distinguish between those providers who enjoy above-market rates and those who are paid less. Why? Because her members, too, have been forced by market power concerns into paying some providers more for no net benefit to society.
In short, the entire story consists of each party passing blame to another or inappropriately taking credit for something that deserves no credit. Over the nine years I was running a hospital, I came to see the debate often set forth in this manner. It has some cathartic value for the insiders, but it offers little to the public that is helpful. It suggests to the medical profession, too, that the people who move money around to pay for health care have little or no understanding of the underlying demographic and societal factors that are determinative of health care costs, or of the manner in which process improvement and transparency could help bend the cost curve and improve clinical outcomes and the public health.
--
Aside: Some recent developments in which insurers are attempting to introduce products based on tiered networks, or charging different copay's rates based on which provider you visit, are good news. But without publicly available date on clinical outcomes, these efforts run the risk of failure because the (undeserved) reputational advantages enjoyed by certain providers will trump the price differential in people's minds. You can get a sense of that in many of the comments on this story.
It took years after the introduction of low-cost long distance service by MCI and others in competition with AT&T for the latter's market share to drop below the 60th percentile, and the service provided was identical. People's habits die hard, even in the face of accurate information. How much more so when no information is offered to demonstrate that a move to a lower cost provider will result in service of equal or better quality.
So, let's deconstruct and expand the story to give more insights.
When the undersecretary of consumer affairs and business regulation sets forth her view of the rightness of the Governor's intervention in the rate-setting process, she neglects to mention that the intervention was arbitrary and found to be legally deficient by appellate boards in the state government. In essence, she attempts to proclaim economic and regulatory virtue in actions that fundamentally had a political origin during the last gubernatorial campaign.
She fails to mention that the underlying costs of providing health care have not changed very much. So insurance companies, bowing to political pressure, have been forced to come down hard on those providers whose contracts happen to have come up for renewal. These have often not been those with higher reimbursement rates. In essence, the administration's intervention succeeded in increasing the payment differential between the have's and have not's among the providers, contributing to the very factors disclosed by the Attorney General that lead to higher, not lower, health care costs.
When she says that the answer to the world's problems is to move to global payments, she makes no commitment to the idea that payment disparities among providers will be eliminated as part of this move.
When the Blue Cross Blue Shield spokesperson says that the proposed premiums are inadequate to cover costs, he leaves out the fact that this insurer has systematically overpaid certain providers, relative to other providers, for their services. These divergent payments are reflective of market power, as opposed to higher quality or other measurable factors, and, as noted, are a major contributor to the cost of health care in the state. He also leaves out the fact that early contracts to persuade or reward providers to sign the company's new global contract regime were particularly generous, especially in the early years of those contracts, increasing the company's costs.
When the head of the association of health plans (which does not include BCBS) continues her long-standing practice of blaming providers for all the problems, she not only neglects the contribution of the inefficient administration of her members, but she too fails to distinguish between those providers who enjoy above-market rates and those who are paid less. Why? Because her members, too, have been forced by market power concerns into paying some providers more for no net benefit to society.
In short, the entire story consists of each party passing blame to another or inappropriately taking credit for something that deserves no credit. Over the nine years I was running a hospital, I came to see the debate often set forth in this manner. It has some cathartic value for the insiders, but it offers little to the public that is helpful. It suggests to the medical profession, too, that the people who move money around to pay for health care have little or no understanding of the underlying demographic and societal factors that are determinative of health care costs, or of the manner in which process improvement and transparency could help bend the cost curve and improve clinical outcomes and the public health.
--
Aside: Some recent developments in which insurers are attempting to introduce products based on tiered networks, or charging different copay's rates based on which provider you visit, are good news. But without publicly available date on clinical outcomes, these efforts run the risk of failure because the (undeserved) reputational advantages enjoyed by certain providers will trump the price differential in people's minds. You can get a sense of that in many of the comments on this story.
It took years after the introduction of low-cost long distance service by MCI and others in competition with AT&T for the latter's market share to drop below the 60th percentile, and the service provided was identical. People's habits die hard, even in the face of accurate information. How much more so when no information is offered to demonstrate that a move to a lower cost provider will result in service of equal or better quality.
Monday, February 14, 2011
Breathing more easily
Do you remember this post from 2009, where I praised Children's Hospital Boston for an asthma intervention program that provided advice and assistance to families? The summary:
Using a combination of interventions (e.g., counseling about drug dosages, HEPA filters for vacuum cleaners, rodent control measures), they dramatically reduced the number of asthmatic incidents for the children in several of Boston's neighborhoods. A subsidiary benefit was a huge reduction in the number of emergency room visits.
Well, now comes the business issue, summarized in an excellent article by Cheryl Clark at HealthLeaders Media.
It costs about $2,600 per child, but avoids $3,900 in hospitalization costs over a two-year period, hospital officials say. Elizabeth Woods, MD, who directs the hospital's initiative, says cost analyses point to a 1.46 return on investment. The hospital has papers in press that illuminate its progress.
So, where's the problem?
"That's a saving to society, not to the hospital," Woods says.
So here's a great program, but one whose success could hurt the hospital's bottom line, one that costs money and reduces business.
This, of course, is the argument for bundled payments for chronic illnesses and/or capitated payments for all medical service. In this article, Atul Gawande leaps to that conclusion. And there is something to be said for that.
But the short term business analysis sometimes fails to account for all of the items that inure to the benefit of a hospital for doing "the right thing."
Here's a sample of that broader view, the reduction in ventilator associated pneumonia and other hospital acquired infections in a hospital's intensive care units. As above, the direct result was a reduction in costs to insurance companies, Medicare, and Medicaid, and a commensurate reduction in revenues to the hospital. But, and this is a big but:
On the business front, it has contributed to a reduction in length of stay in our ICUs. We were able to avoid the multi-million dollar capital cost of expanding our ICU capacity. Indeed, we were able to create capacity out of the existing facilities and improve throughput.
Hospitals today often face limitations on their ability to raise capital. Avoiding a new fixed expense like that, while effectively creating capacity, can make business sense even if some short-term revenues are lost.
Also, some hospital costs are variable, not fixed. Some of that $3900 saved at Children's Hospital, for example, is certain to be related to supplies that will no longer need to be purchased. Likewise, some portion of nursing and respiratory therapy resources can either be reassigned to other cases, or if the trend is long-lasting, simply avoided by having fewer staff people over time.
And, of course, as noted by the CHB official, "Some of the losses might be made up by not providing worthless or futile care."
So, before we make the leap to a new payment regime, let's be a bit more complete in our analysis.
Using a combination of interventions (e.g., counseling about drug dosages, HEPA filters for vacuum cleaners, rodent control measures), they dramatically reduced the number of asthmatic incidents for the children in several of Boston's neighborhoods. A subsidiary benefit was a huge reduction in the number of emergency room visits.
Well, now comes the business issue, summarized in an excellent article by Cheryl Clark at HealthLeaders Media.
It costs about $2,600 per child, but avoids $3,900 in hospitalization costs over a two-year period, hospital officials say. Elizabeth Woods, MD, who directs the hospital's initiative, says cost analyses point to a 1.46 return on investment. The hospital has papers in press that illuminate its progress.
So, where's the problem?
"That's a saving to society, not to the hospital," Woods says.
So here's a great program, but one whose success could hurt the hospital's bottom line, one that costs money and reduces business.
This, of course, is the argument for bundled payments for chronic illnesses and/or capitated payments for all medical service. In this article, Atul Gawande leaps to that conclusion. And there is something to be said for that.
But the short term business analysis sometimes fails to account for all of the items that inure to the benefit of a hospital for doing "the right thing."
Here's a sample of that broader view, the reduction in ventilator associated pneumonia and other hospital acquired infections in a hospital's intensive care units. As above, the direct result was a reduction in costs to insurance companies, Medicare, and Medicaid, and a commensurate reduction in revenues to the hospital. But, and this is a big but:
On the business front, it has contributed to a reduction in length of stay in our ICUs. We were able to avoid the multi-million dollar capital cost of expanding our ICU capacity. Indeed, we were able to create capacity out of the existing facilities and improve throughput.
Hospitals today often face limitations on their ability to raise capital. Avoiding a new fixed expense like that, while effectively creating capacity, can make business sense even if some short-term revenues are lost.
Also, some hospital costs are variable, not fixed. Some of that $3900 saved at Children's Hospital, for example, is certain to be related to supplies that will no longer need to be purchased. Likewise, some portion of nursing and respiratory therapy resources can either be reassigned to other cases, or if the trend is long-lasting, simply avoided by having fewer staff people over time.
And, of course, as noted by the CHB official, "Some of the losses might be made up by not providing worthless or futile care."
So, before we make the leap to a new payment regime, let's be a bit more complete in our analysis.
Sunday, February 13, 2011
I was not skeptical enough
A recent webinar held by Day Pitney LLP made me wonder if my previous post may have understated the skepticism that should be applied to private equity purchases of hospitals.
The session was held on February 9 and was entitled, "Recapitalizing Not-for-Profit Hospitals with For-Profit Equity Capital." It had excellent and lucid presentations by Sandford Steever, Editor of The Health Care M&A Monthly; Wayne Ziemann, Managing Director of Alvarez and Marsal Healthcare Practice Group; and Lori Braender and Bruce Boisture of Day Pitney. The slides are here.
The theme of the day was that health care reform activities over the coming years will require massive capital investments to comply with the new federal law and associated regulations and to create accountable care organizations. This is a problem for not-for-profits, which are are often locked out of capital markets or have difficult access to such markets. In contrast, for-profits have an easier time raising capital.
One panelist then reported, though, that for-profits and not-for-profits have generally earned virtually identical after-tax profit margins. He also noted that equity holders demand a high return, in the range of 25 to 30 percent.
These remarks led to a series of questions from the audience: If for-profits are identical to not-for-profits with regard to after-tax profit margins, how can those puny margins be sufficient to justify investment by equity markets? Or putting it another way, if equity holders are demanding a 25-30% return, how do they earn that return if after-tax margins are the same as not-for-profits. Does this depend on flipping the properties in an IPO or to another private equity firm?
The initial reply was startling, "It is an apparent contradiction occurring in the market today."
Expanding on that, it was noted that private equity entry in this field is different from the for-profit hospital companies that have purchased properties in the past. "Private equity firms envision exiting, and not in the far future. Betting that there will be a buyer at some time in the future is the exit strategy. It is quite a gamble. They are banking a lot of health care reform and consolidation in the industry. Beyond that there is not much that is well defined."
Beyond that, there was a suggestion that the play in the marketplace right now is a "bet on a business plan" -- hoping that access to strategic capital will give these companies a competitive edge in the marketplace and grow market share. It is a bet on a transformation in the health care industry -- different payment models, being a low-cost, efficient provider, and wringing out inefficiency and overtreatment. "It is a heck of a bet to make," noted one panelist.
We were reminded that for-profit investors believe that community-based governing bodies lead to poor business decisions by not-for-profits. (This thought parallels the "stale bologna sandwiches" comment noted in my earlier post.) This belief, though, is interesting in light of a comment by one panelist who noted that not-for-profits have done better than for-profits with regard to building integrated networks of care and coordination of electronic health records.
Finally, though, there were two sobering comments from the panelists. The one: "It is kind of like the gold rush in years past."
The other was worse: "A third possibility beyond an IPO or sale to another investor is that the firm will simply shut down."
It was on this point that I concluded last week: Investors may come and go, but the community depends on its local hospital to provide high quality service. It is the residents of the community who are left holding the bag if the hospital corporation reaches the conclusion that ownership is not financially viable.
The session was held on February 9 and was entitled, "Recapitalizing Not-for-Profit Hospitals with For-Profit Equity Capital." It had excellent and lucid presentations by Sandford Steever, Editor of The Health Care M&A Monthly; Wayne Ziemann, Managing Director of Alvarez and Marsal Healthcare Practice Group; and Lori Braender and Bruce Boisture of Day Pitney. The slides are here.
The theme of the day was that health care reform activities over the coming years will require massive capital investments to comply with the new federal law and associated regulations and to create accountable care organizations. This is a problem for not-for-profits, which are are often locked out of capital markets or have difficult access to such markets. In contrast, for-profits have an easier time raising capital.
One panelist then reported, though, that for-profits and not-for-profits have generally earned virtually identical after-tax profit margins. He also noted that equity holders demand a high return, in the range of 25 to 30 percent.
These remarks led to a series of questions from the audience: If for-profits are identical to not-for-profits with regard to after-tax profit margins, how can those puny margins be sufficient to justify investment by equity markets? Or putting it another way, if equity holders are demanding a 25-30% return, how do they earn that return if after-tax margins are the same as not-for-profits. Does this depend on flipping the properties in an IPO or to another private equity firm?
The initial reply was startling, "It is an apparent contradiction occurring in the market today."
Expanding on that, it was noted that private equity entry in this field is different from the for-profit hospital companies that have purchased properties in the past. "Private equity firms envision exiting, and not in the far future. Betting that there will be a buyer at some time in the future is the exit strategy. It is quite a gamble. They are banking a lot of health care reform and consolidation in the industry. Beyond that there is not much that is well defined."
Beyond that, there was a suggestion that the play in the marketplace right now is a "bet on a business plan" -- hoping that access to strategic capital will give these companies a competitive edge in the marketplace and grow market share. It is a bet on a transformation in the health care industry -- different payment models, being a low-cost, efficient provider, and wringing out inefficiency and overtreatment. "It is a heck of a bet to make," noted one panelist.
We were reminded that for-profit investors believe that community-based governing bodies lead to poor business decisions by not-for-profits. (This thought parallels the "stale bologna sandwiches" comment noted in my earlier post.) This belief, though, is interesting in light of a comment by one panelist who noted that not-for-profits have done better than for-profits with regard to building integrated networks of care and coordination of electronic health records.
Finally, though, there were two sobering comments from the panelists. The one: "It is kind of like the gold rush in years past."
The other was worse: "A third possibility beyond an IPO or sale to another investor is that the firm will simply shut down."
It was on this point that I concluded last week: Investors may come and go, but the community depends on its local hospital to provide high quality service. It is the residents of the community who are left holding the bag if the hospital corporation reaches the conclusion that ownership is not financially viable.
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