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A major expansion is underway at the nation’s medical schools that will sharply increase the number of new physicians entering the workforce over the next decade to care for an aging Baby Boom generation. But critics say the move could backfire since medical schools are still channeling too many young doctors into highly paid specialties instead of primary care, which will exacerbate the problem of rising health care costs.

The Association of American Medical Colleges (AAMC) unveiled a new survey Thursday showing the number of students entering the nation’s 137 accredited medical schools will surge nearly 30 percent from 2002 levels to 21,376 in 2016, meeting a goal set in 2006 when it was widely believed an aging population would require far more physicians. About 19,638 first-year students will enter medical school this fall, up from 16,488 in 2002.

But the campaign to increase the number of practicing physicians, which has been spearheaded AAMC, has come under fire in recent years on two fronts. Health care reformers say the increased enrollment has not addressed the ongoing shortage of primary care physicians, especially in poor and rural areas, which will only grow worse when 30 million previously uninsured patients seek compensated care after 2014 because of the Affordable Care Act.

Meanwhile, cost-control advocates fret that the continuing migration of too many young physicians into highly paid specialties is contributing to the crisis in Medicare financing, which has been driven in part by overuse of . The AAMC projection assumes aging baby boomers, like their parents, will become more dependent on the specialists who treat heart disease, diabetes, cancer and other chronic conditions that become more prevalent as people age.

Officials at AAMC say they have taken both factors into account in making the projections that led to the major increase in medical school slots. A dozen new medical schools have opened in the U.S. since 2002, including four in Florida, and seven more have either applied or plan to apply for accreditation.

“If you’re less than 50 years old, the majority of your visits are to primary care physicians, but after you turn 65, the majority of visits are to specialists,” said Atul Grover, a physician and chief of public policy at AAMC. “With the over-65 population growing rapidly, we’re also going to have a shortage of specialists.”

AAMC, which tracks medical professionals for the first seven years after they finish school, estimates about a third of newly-minted doctors go into some form of primary care, either internal medicine, pediatrics or family practice. But researchers at the Center for Studying Health System Change (CSHSC) peg the total at closer to 20 percent since many internal medicine trainees eventually take up a specialty instead of remaining in general practice.

That career shift is often due to the skewed compensation schedules for , which are recommended by an (dubbed the Resource-Based Relative Value Scale Update Committee or RUC). It sets the relative worth of medical services, and values procedural tasks like inserting a vascular stent more highly than cognitive tasks like diagnosing a small child’s illness. As a result, family physicians, pediatricians and geriatricians are among the lowest paid, earning on average $200,000 per year or less.

Newly-minted specialists like surgeons, intervention cardiologists or radiologists who’ve completed their advance training, on the other hand, earn $300,000 or more to start and often earn two or three times that by the time they are in their mid-40s. American doctors are, by far, the most highly paid physicians in the world.

“Cardiology pays twice as much as primary care,” said Grover. “That’s a really hard incentive structure to fight against.”

As a result, “the U.S. has relied on foreigners to fill primary care jobs,” said Tracy Yee, a researcher at CSHSC. The U.S. attracts anywhere from 5,000 to 6,000 foreign-trained physicians a year, many coming from less-developed countries that have large unmet medical needs and face their own physician shortages.

“We’re doing to medicine what we’ve done to low-paid service jobs,” said Shannon Brownlee, acting director of health policy at the New America Foundation. “We’re filling the lowest paid physician jobs – primary care docs – with foreign doctors who should probably be treating people in their home countries.”

Architects of health care reform hope greater emphasis on coordinated care for people with chronic conditions through accountable care organizations and medical homes will create more and better-compensated jobs for primary care physicians. Larger organizations can also turn over routine tasks to physician assistants and nurse practitioners.

Some are also looking to growing ranks of women physicians to transform in the profession. They now take up half the slots in medical school and could produce over time a workforce more willing to sacrifice higher pay for the more regular hours of primary care.

A major shift into primary care from specialization would make sense, according to researchers associated with the Center for Health Policy Research at Dartmouth. Their research has shown that areas with greater numbers of specialists per Medicare beneficiary tend to have significantly higher costs per patient without any better outcomes.

of Medicare beneficiaries conducted by Dartmouth and the Centers for Medicare and Medicaid Services and published last year in Health Affairs found patients living in areas with more physicians per capita perceived no differences in their access to health care than beneficiaries with fewer available physicians. Moreover, there were no differences between the two groups in terms of visits or time spent with their personal physician, the number of tests they received or the number of specialists they saw.

“Simply training more physicians is unlikely to lead to improved access to care,” the researchers concluded. “Instead, focusing health policy on improving the quality and organization of care may be more beneficial.”

Source: Association of American Medical Colleges

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Julie Grabow, an oncologist at the Fred Hutchinson Cancer Center in Seattle, recently prescribed an exciting new therapy for a 60-year-old woman with metastatic breast cancer. Three-and-a-half years into her battle against the disease, the patient had already exhausted three different anti-estrogen therapies, each of which only put a temporary check on the spreading tumors.

The newly prescribed drug, Novartis’ Afinitor, is one of the recently approved targeted therapies that have generated a lot of excitement among cancer patients and oncologists in recent years. Drugs that target just the cancer cells promise the same or better results as toxic chemotherapy, but with far fewer side effects.

There was a catch, though. Like many of the latest cancer drugs, Novartis is charging exorbitant amounts for the treatment – in this case, $10,000 per month. That quickly put an end to that possibility for Grabow’s patient. Her monthly co-payment, even after her insurance company agreed to pay its share of the off-label use the drug (the Food and Drug Administration has only approved Afinitor for kidney and pancreatic cancer, not breast cancer), was $2,900.

“She can’t afford this, even though it’s potentially a less toxic and potentially equally effective regimen,” Grabow said. “Chemo will help her, and it’s a reasonable choice. But that choice is 100 percent driven by economics.”

Over the past year, official Washington and candidates on the campaign trail have locked horns over the best way to curb rising health insurance costs. The public has been bombarded with dueling slogans – Republicans vowing to fight the “death panels” and “rationing” of Obamacare while Democrats promise “guaranteed access” and “affordability” with the Affordable Care Act.

But an economic drama that neither side wants to confront is playing itself out in cancer wards and oncologists’ offices across the country. Unaffordable new drugs, even when they’re covered by insurance, are being rationed by price as patients, doctors and hospital officials struggle with what is likely to be the most pressing problem for the nation’s health care system over the next decade: how to pay for the spectacular rise in the cost of cancer care, especially drugs and diagnostic tests.

“In the real world of private practice where most care is delivered, it would be a mistake to say rising costs haven’t affected care,” said Eric Nadler, a head, neck and lung cancer specialist at Baylor University Medical Center. A recent survey published in Health Affairs found a stunning 84 percent of oncologists say their patients’ out-of-pocket spending influences treatment recommendations.

The growing cost of cancer care will impose its greatest burden on the nation’s Medicare system, since 55 percent of all cancers are diagnosed in individuals 65 or older. A recent study by the National Cancer Institute projected the cost of treating the 29 most common cancers in men and women will rise 27 percent by 2020, even though incidence of the disease is going down due to successful public health campaigns like the war on smoking.

That estimate is based on a relatively static cost of care per case. If costs increase just 2 percent more a year than previous trends in the first and last years of care, the study said, then costs would soar to $173 billion, a 39 percent increase. The study pointed out that its projections were based on 2006 Medicare claims data, which predated the development of most of the latest targeted therapies.

There’s no doubt that there will be many new therapies for cancer coming to market in the years ahead. The nation’s $150 billion public investment in understanding the biology of cancer – the science side of the War on Cancer launched by President Richard Nixon in 1971 – is beginning to bear fruit.

The pharmaceutical industry, which draws on that publicly funded science to develop drug candidates, now has 887 new cancer drugs in development, over 30 percent of its total portfolio of new drug candidates, according to the Pharmaceutical Research and Manufacturers of America, the industry trade group. That’s up from 646 or 26 percent of the total devoted to cancer in 2006.

The industry is pouring increased research and development resources in cancer therapeutics in hopes that it will replace the revenue being lost from the expiration of patents on blockbusters like Lipitor. However, since there are fewer cancer patients than there are people with chronic conditions like elevated cholesterol, and many don’t live very long, the prices needed to support the industry’s current size and structure, and profits must be substantially higher.

“They’re trying to maximize profits given their incentives,” said Peter Neumann, director of the Center for the Evaluation of Value and Risk in Health at Tufts Medical Center, which receives funding from the drug industry. Possible solutions, he said, include letting Medicare set prices based on the medical value of adding extra months to life. That’s a variation on Great Britain’s cost-effectiveness model, which has been roundly condemned by most U.S. politicians and the press.

The other path is to turn to a bundled payment for every for every episode of cancer care and let the health care delivery organizations and private insurers sort it out. (Bundled payments account for all medical services associated with a given episode of care—doctors, nurses, technicians, etc.) That approach, in essence, would force the marketplace to execute the rationing.

“Bundled payment isn’t a panacea, but it does create incentives,” Neumann said. Some private insurers are experimenting with bundled payments for cancer care.

A quick review of the new cancer drugs approved by the Food and Drug Administration last year reveals how fast drug prices are rising. Most of the older chemotherapy regimens for cancer, some of which have been around since the 1950s, are generic and relatively inexpensive. But among the six new drugs approved in 2011, the cheapest – Johnson & Johnson’s Zytiga for advanced prostate cancer – cost $44,000 a year. The drug extended life by an average of less than 5 months to 16 months, according to a company spokesperson.

At the high end of the spectrum was Adcetris, a biotech product from Seattle Genetics that treats recurrences of Hodgkin’s lymphoma. A highly curable disease when initially treated in the 8,830 mostly middle-aged patients who get the disease every year, it is usually fatal if a drug-resistant strain emerges later in life. Adcetris, the first new treatment to come along since 1977, kept the cancer in check for nearly 7 months in the single small trial that led to its quick FDA approval. It’s price tag: $216,000 for a full course of treatment.

Skin cancer specialists had a lot to cheer about in 2011 with two new therapies coming on the market for metastatic melanoma, which is fatal within one year for about 75 percent of the 10,000 people stricken each year. But Roche/Genentech’s Zelboraf cost $61,400 a year and Bristol-Myers Squibb’s Yervoy, which nearly doubled the one-year survival rate from 25 percent to 46 percent, cost $120,000 for a four-month course of treatment.

“We price our medicines based on a number of factors including the value they deliver to patients and the scientific innovation they represent,” said Sarah Koenig, a spokeswoman for Bristol-Myers. “We have one of the most robust patient assistance programs for cancer patients in the industry.”

Most drug companies have patient assistance programs for poor or struggling patients, but many only come into play if patients are poor or families have exhausted their savings. And since many of the latest therapies, like the older chemotherapies they are replacing or supplementing, extend life for brief periods of time, patients wind up weighing whether they want to deplete their children’s inheritances for a couple extra months of being very, very sick.

A study released at last June’s annual conference of the American Society of Clinical Oncology, which represents the nation’s 25,000 oncologists, revealed that patients with co-payments over $500 a month were four times more likely to refuse treatment than those whose co-payments were under $100 a month. “The price of drugs can’t be set so outrageously high,” study author Lee Schwartzberg told Reuters. Schwartzberg is the chief medical officer at Acorn Research, which conducted the study.

“All stake holders have to get together and compromise to translate this great science into great patient care without breaking the bank.”

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A forthcoming report from the Congressional Budget Office shows that more than two dozen demonstrations projects launched by Medicare and Medicaid over the past decade have failed to stop the upward march of health care costs, CBO director Doug Elmendorf said Tuesday. But health care policy experts say the findings paint too gloomy a picture.

The CBO pronouncement will heighten pressure on politicians from both political parties to come up with new health care cost savings beyond those contained in the , whether as part of the current debt ceiling talks or in separate legislation. Federal spending on Medicare and Medicaid totaled $739 billion in 2010, making health care the in the federal budget. Those costs are expected to nearly double in the next decade.

Health care issues on the table in the ongoing include raising the Medicare eligibility age to 67, raising senior co-pays and deductibles by limiting Medigap policies, and charging wealthier seniors more for their coverage, which together could save about $250 billion over the next decade. Senior citizen groups are certain to oppose those measures, while public opinion polls show most of the public prefers taxing wealthy people to cutting benefits for seniors. 

President Obama and Democrats in Congress have been counting on recommendations from an independent advisory board to hold down costs should the voluntary demonstration programs in the Affordable Care Act (ACA) come up short. They include better coordinated care through accountable care organizations, bundled payments and other delivery system reforms.

In at George Washington University where he called for cutting $4 trillion from projected deficits over the next dozen years, the president recognized the health care savings from reform would be far less than what is needed to repair the nation’s fiscal health. He suggested the Independent Payment Advisory Board (IPAB) created by the legislation should make recommendations that would hold the growth in health care spending to a half percent above the growth in the domestic economy – a level far below the pattern of the past three decades.

But Republicans on Capitol Hill, who will likely renew their attacks at a hearing of the House Energy and Commerce Committee on Wednesday, have blasted the IPAB. They claim the still-to-be-appointed panel is a “secretive” board that will impose rationing on the nation’s seniors.

“The only possibility of containing health care costs in Obamacare is the IPAB,” House Majority Leader Eric Cantor, R-Va., told a U.S. Chamber of Commerce health care forum shortly after Elmendorf spoke. “That is a situation where we will see costs skyrocketing and rationing will occur.”

Elmendorf defended CBO’s projections that like the accountable care organizations allowed under reform would only save a few billion dollars in the coming decade. “The demonstration projects that Medicare has done in this and other areas are often disappointing,” he said. “It turns out to be pretty hard to take ideas that seem to work in certain contexts and proliferate that throughout the health care system. The results are discouraging.”

Robert Berenson, a health analyst at the Urban Institute, admits many of the demonstrations on delivery system reforms have had mixed results. But a careful analysis of the successful elements of those demonstrations could be replicated across the country and lead to significant savings. “There are positive elements in a lot of those demos,” he said. “You could pick and choose the ones that worked.”

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While squabbles over the rules for approving rarely attract much attention outside the insular world of manufacturers, regulators and medical professions, a fight is brewing that could have a major impact on efforts to  health-care spending.

The device industry has launched an aggressive campaign to avoid tighter Food and Drug Administration rules that would help generate the information needed to show whether newer devices are actually superior to the ones they replace. The latest devices – from heart valves and defibrillators to artificial knees and hips – are usually significantly more expensive than older devices, and the intense marketing surrounding the introduction of new devices has become a major driver of rising health care costs.

Many medical specialists say tighter rules are needed to ensure newer devices are safe and effective, which could help hold down costs. “Better regulation of medical devices has the potential to reduce health care costs,” said Steve Nissen, chairman of cardiovascular medicine at the Cleveland Clinic. “New devices are often more complex and expensive than existing products, but may not offer any improvements in health outcomes. The current regulatory approach allows these devices to reach the market with little or no clinical data.”

“Requiring evidence of benefit of effectiveness for patients before device approval would prevent billions of dollars from being spent on technologies that are not helpful for patients and are even harmful,” said Rita Redberg, editor of the Archives of Internal Medicine and a cardiologist at the University of California, San Francisco. “There are many examples, such as vertebroplasty and kyphoplasty for back pain [compression fractures], on which Medicare spends approximately $1 billion annually. After they were FDA-approved, randomized clinical trials showed they were no more effective than a sham procedure in relieving symptoms.”

Despite the cry for tighter rules, think tanks funded by industry in recent weeks have released several studies claiming that the FDA is standing in the way of improved devices getting to market. Congress is holding hearings to investigate the issue. And a third of the members of the House has signed a letter calling for legislation that would roll back a small excise tax that proponents claim is choking off “innovation.”

The 2.3 percent tax projected to generate $20 billion over the coming decade was part of the health-care-reform law and was similar to excise taxes slapped on the drug and insurance industries, which have not launched similar campaigns. All three industries are among the most profitable in America.

The controversy has important regional political significance because many of the device manufacturers are major employers in the Midwest – especially in Minnesota, Ohio, and Indiana. With the backing of Midwestern lawmakers, the industry is fighting back.

Rep. Erik Paulsen, R-Minn., whose district abuts the headquarters of industry giant Medtronic, last week released a letter with 154 co-signers, including four Democrats, that called for repealing the $2 billion-a-year tax. “Device manufacturers will have to cut R&D or may be forced to lay off employees due to this disastrous tax,” the letter said.

Proponents of the industry warn that what they as hostile government action could lead to a loss of jobs. Moreover, some manufacturers claim that they are looking overseas for a more permissive regulatory environment.

There are over 8,000 medical device companies in the U.S.; they generated about $136 billion in sales and employed over 422,000 last year, according to industry officials. While the industry did better than the economy as a whole through the recession, losing only 1.1 percent of its jobs compared with nearly 5 percent of all manufacturing workers, its job performance lagged behind the rest of the health-care economy, which added employment throughout the downturn.

Two years ago, the medical device industry, which manufactures everything from heart valves to ace bandages, came under tougher scrutiny. The FDA had become more aggressive overseeing the industry in response to criticism that it had repeatedly caved to corporate and political pressure when approving new products.

After health-care reformers targeted the industry for  to help pay for covering the uninsured, Democratic leaders in Congress asked the prestigious Institute of Medicine (IOM) to convene a blue-ribbon panel to determine if the industry needed tougher regulations to ensure the safety and effectiveness of its products. With the IOM’s final report due later this month, the industry is mounting a major public relations offensive to blunt calls for stronger oversight.

The Institute for Health Technology Studies, which is primarily funded by the industry, late last month released an industry survey showing American companies are increasingly to get new devices approved. Industry executives also claimed that the FDA in the last few years has arbitrarily toughened its standards for new devices that are similar to products already on the market. In the past, those look-alike products usually received a less rigorous review than brand new medical innovations.

“As the FDA considers regulatory revisions, what’s at stake is the ability of companies to attract investors in order to continue developing innovative, life-saving products and sustaining American competitiveness in the global marketplace,” said John Linehan, a professor of biomedical engineering at Northwestern University and lead author of the survey.

Paulsen, the Minnesota lawmaker, cited the example of Xtent, a Menlo Park, Calif., device maker that tried to gain approval to start a U.S. clinical trial for its coronary stent. Surgeons had already inserted the company’s stent in hundreds of European patients. When the FDA refused to consider data from the European experiences and insisted on a prospective clinical trial, the company closed its doors and sold the technology to foreign investors.

Last week, the House Oversight and Government Reform Committee called in the FDA’s top device regulator to explain the changes underway at the agency, which Republican members claimed had gone too far. “In some cases, the conveyor belt for medical devices has come to a grinding halt,” charged Rep. Trey Gowdy, R-S.C., who chairs the health subcommittee.

Jeffrey Shuren, a lawyer and physician who 18 months ago replaced the previous head of the troubled Center for Devices and Radiological Health at FDA, promised to “do a far better job to make the process more efficient without compromising our standards for safety and efficacy.” Earlier this year, the FDA proposed new rules that would give companies more certainty about what would be expected from them when bringing new products to the agency. But it postponed consideration of any major changes in the oversight process pending the IOM report, which could propose companies do more clinical trials proving efficacy for follow-on devices.

The current rules are a product of the 1976 law that ushered in the modern era of medical device regulation. They require any new device whose failure would pose a serious risk to public health to go through rigorous clinical trial testing in humans for both safety and effectiveness before going on the market.

But the law also set up a regulatory scheme, known as the 510(k) process, which allows follow-on devices deemed substantially similar to something already on the market to get approved without the same level of testing. Regulators have discretionary power to order more tests.

The vast majority of new devices use the follow-on process, even though their manufacturers often claim superior performance to the older models and charge accordingly. The result is a lack of scientific data for making those comparisons, which leaves Medicare, private insurers and physicians in the dark as to their relative worth.

The regulatory framework for potentially life-saving devices differs from drugs, where follow-on products – say, the four or fifth statin to come to market for lowering cholesterol – must still go through rigorous clinical trial testing. While that doesn’t meet the gold standard of head-to-head comparisons between competing products, at least that gives medical analysts sufficient information to know if one drug is significantly better or worse than another product in the same class.

Safety issues can arise when there are no clinical trials for follow-on devices. And that also contributes to rising health care spending, since it can result in costly recalls or even follow-on operations to replace faulty devices.

The updated devices often change materials or tweak the engineering, which can alter their performance once put in the body or deployed in health care settings. A published earlier this year in Archives of Internal Medicine found that of 113 major product recalls between 2005 and 2009, only 19 percent had gone through the more rigorous clinical trial testing required for new products, while 71 percent had used the follow-on process. There had been only 49 major recalls in the prior five years.

“Yes, the FDA’s getting tougher and it’s long overdue,” said the study’s lead author, Diana Zuckerman, executive director of the National Research Center for Women and Families. “Too many things were sailing through without clear evidence they were safe and effective.” She cited last December’s recall of 359 million glucose test strips manufactured by Abbott Laboratories, whose malfunction could give diabetics false readings and lead to under or over-medication.

Last week Redberg of UCSF told the Oversight subcommittee to reject calls for speeding up the regulatory review process in the name of fostering greater innovation. She cited a 2009 Government Accountability Office report that found that a majority of high-risk devices do not go through clinical trial testing prior to marketing. “Only high-quality clinical trials can assure safety and effectiveness, especially when it comes to high risk devices that are used with invasive procedures,” she said.

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Employees will be experiencing higher co-pays and deductibles in their health insurance next year as employers continue to reduce their overall coverage to deal with rapidly rising costs. A of 1,700 firms in 30 industries from PwC (PriceWaterhouseCoopers) released Wednesday showed that this year’s health care claims are running slightly ahead of a year ago. As the recession-driven slowdown in discretionary health care spending began to abate, claims rose 8.0 percent compared to 7.5 percent in 2010. –The projected increase for next year is 8.5 percent, the survey showed.

The health insurance premiums employers paid for their workers in 2010 stood at $13,770 for family coverage and $5049 for individuals, according to the latest annual survey, which covers over 3,000 employers. The reported increase of 5 percent over 2009, while the smallest in a decade largely due to the recession, left employers paying premiums that were more than double what they paid in 2000.

Employer costs, however, will only go up 7 percent on average. “The medical trend does not take into account changes in benefit design, such as changes in cost-sharing,” the report said. “Typically these changes reduce the trend by 1.5 to 2 percentage points” by shifting more costs onto workers and their families.

A growing number of employers are turning to in order to lower costs, said Michael Thompson, a principal in PwC’s health care practice said. In 2011, 17 percent of the employers surveyed by PriceWaterhouse offered high-deductible plans as their most common benefit plan compared to just 13 percent in 2010.

If the trend continues, high-deductible plans, often coupled with health savings accounts, could become the most prevalent form of private sector health insurance by 2014. “There are employers who offer high-deductible plans as their only option; some offer it as an option, but an increasing number of employees are choosing that option to lower their own costs; and some employers are offering high-deductible plans with a health savings account, where employees can manage their own spending,” he said. “It’s to facilitate making employees more engaged and aware of the costs of health care.”

Another tactic that shifts costs onto employees is increasing the penalties for going out of network when selecting physicians or hospitals. “In some markets, payers are becoming more selective about who’s in the network,” the report noted.

The survey respondents, which also included executives as insurance firms that cover an estimated 70 million lives, identified three major trends that are driving costs higher in 2012. First, more physicians and hospitals, encouraged by the health care reform law, are merging to promote efficiency and reduce costs over the long-term. The result in the short-run, however, will be an uptick in rates, the report suggested.

“Health plans and providers are always working at the bargaining table over what’s fair year to year,” PwC’s Thompson said. “As providers have consolidated, they certainly have a stronger hand at that table.”

Insurers that cover private-sector workers and their families will also face increased costs to cover shortfalls in hospital payments by Medicare and Medicaid. “The increase in Medicare in-patient hospital rates is expected to be 3.3 percentage points below the expected growth in their costs,” the PwC analysis said.

And employers and health plans reported that post-recession stress was taking its toll on workers’ health, which is increasing the frequency of claims. Medical utilization is also rising because workers who deferred health care during the recession are returning to more normal patterns of visiting their doctors or dealing with non-emergency situations.

On a positive note, drug cost increases for health insurers and individuals should ease somewhat in 2012, the report suggested. The number of blockbuster brand-name drugs coming off patent will be the largest in history, leading to greater use of

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Rep. Jack Kingston, a Georgia Republican, leaned forward in his seat at a Wednesday armed services appropriations hearing and practically begged the Pentagon’s top health care official for tips on how to explain a proposed hike in military retiree health care fees to constituents and the news media back home.

“There is this pressure for free health care for life for veterans,” , who represents many veterans in his Savannah area district. Jonathan Woodson, the assistant secretary of defense for health affairs, replied that “Congress never meant for the health care benefit” for 5.3 million military retirees and their family members “to be entirely free.”

The exchange illustrates  how difficult it is for legislators on Capitol Hill to make even minor changes to that have come to be seen as largely untouchable – even a small adjustment to a copayment requirement in a health insurance program that has turned out to be a for military pensioners.

Members of the military can retire after 20 years with a full pension and heavily subsidized health care for life. It is one of the chief drivers of rapidly rising military health care spending, which has tripled in the past decade to more than $52 billion a year.

It’s not the only factor driving higher military health spending, to be sure. The system also provides care for the health needs of the military’s 3.8 million active duty personnel and family members. After ten years of war, that health care system is beset with a host of problems ranging from the special needs of tens of thousands of severely wounded veterans of Iraq and Afghanistan; to the 20,000 traumatic brain injuries incurred every year; to the uncounted tens of thousands more suffering from post traumatic stress disorder.

In addition, the military, like the rest of society, is trying to figure out ways to slow down the rapidly rising cost of care for those it covers both in and out of the military. In one effort to combat that problem, the Obama administration in its calls for increasing retirees’ co-insurance, currently $230 a year for individuals and $460 for families, by 13 percent; indexing it for medical inflation; and lifting co-pays on doctor and hospital visits and drugs. This would mark the first increase in these charges since 1996, according to Woodson.

It’s an approach to holding down costs that has long been used by the private sector with little success. The amount of money raised through the higher co-pays is small, and it rarely leads people to stop using marginally effective or unnecessary care.

The proposal drew immediate fire from veterans groups, which in turn received support from members of both political parties. A House Armed Services subcommittee on military personnel two weeks ago postponed the fee increases for at least one year on , the health maintenance organization-like plan that is the largest military health care program. However, with the Pentagon under pressure to cut costs, moves are underway in Congress to restore the fee increase for next year, but index its annual increase to the cost-of-living, rather than medical inflation, which is far higher.

Still, even that is causing queasiness among legislators leery of crossing veterans, whose entitlements remain sacrosanct. They’re getting an earful from groups like the Veterans of Foreign Wars, whose chief spokesman, Joe Davis, told The Fiscal Times on Wednesday that “we don’t want any increases and we don’t want it tied to any outside factor, not COLA, not anything.

When asked how he could justify his position when  everyone else, including other government employees, had seen their health care co-pays and co-insurance rise in recent years, he replied: “How can you put military people and the rest of society on parity, especially after ten years of war. This is a health care benefit that people were promised by their recruiters. We paid for that benefit up front by 20 or more years in the military.”

The military is trying several other tactics to reduce its . In recent years, it has funneled more of its retirees into coordinated care programs, which hopefully will better manage the costs of ex-soldiers and their family members with . They’ve also given special prices for people who use a mail order house for pharmaceuticals, which can substantially lower cost. The military already uses a preferred drug list, known as a formulary, which imposes significantly higher co-pays for drugs not on the list.

“We are proposing minor changes to out-of-pocket costs that are exceptionally modest, manageable and remain well below the inflation-adjusted out-of-pockets costs enjoyed in 1995, when TRICARE Prime was first introduced,” Woodson testified before the House Armed Services Appropriations subcommittee on health. The proposed increase amounts to $2.50 per month for single retirees and $5 a month for retiree families.

Caring for the rising number of seriously wounded soldiers from the wars in Afghanistan and Iraq is also driving military health care costs skyward, and will for years. The military now employs 4,280 staff in 29 “Warrior Transition Units” to care for the 10,011 wounded, ill or injured soldiers still in the military. More than 40,000 wounded soldiers have passed through the program since June 2007, with just 16,000 returning to their former units.

The military is also grappling with a rising tide of substance abuse cases, often related to chronic use of prescription pain medications initially given after being wounded. Lt. General Eric Schoomaker, the surgeon general of the army, told the subcommittee that immediate treatment of battlefield injuries with opium-derived drugs and other painkillers can reduce incidences of post-traumatic stress disorder by 50 percent.

But the army is now looking at alternatives for reducing use of the drugs for chronic pain, such as acupuncture, yoga, and biofeedback, Schoomaker said. However, it could wind up increasing the military health care bill. “There is a good evidence-based case” for these approaches,” he said. “But to be perfectly blunt, the reimbursement system is not adequate.”

Meanwhile, the army is also in the midst of a major five-year, $5 billion program to rebuild its far-flung hospital network, both on domestic bases and abroad. It has   asked for a 30 percent increase in its construction budget to $1.3 billion for next year.

Heading the list is the total reconstruction of the Landstuhl Medical Center in Germany, which has served as the way station for wounded soldiers from the Middle East but also serves the 170,000 U.S. military personnel and their families stationed in that country. The 122-bed project heads the wish-list for this year’s appropriation.
While some critics seeking to pare military budgets have called for shutting down the German bases, which have housed 50,000 U.S. troops and their families since the end of World War II, the army is digging in for the long haul. “This is a very important time for rebuilding and replacing our facilities,” Schoomaker said about the hospital projects.

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The annual scramble to prevent next year’s scheduled pay cut for doctors who treat Medicare patients kicked off Thursday with physician leaders calling for a five-year program of guaranteed annual raises and a high-ranking House Republican calling for another short-term fix.

The issue – known inside the Beltway as “the doc fix” – is the residue of a law enacted by Congress in the late 1990s that sought to limit the growth of Medicare spending on seniors’ health care. The law limited physician pay increases to same growth levels as the overall economy, which became known as the sustainable growth rate or SGR. Since health care spending over the last decade grew twice as fast as gross domestic product, implementing the SGR would dramatically shrink physician pay as a share of overall Medicare spending.

It never happened. Every year members of the American Medical Association and specialty societies bombard Capitol Hill with demands to restore the old system. And every year, Congress voids the SGR-mandated cuts.

But that means that every year the size of the scheduled pay cut under the original law grows larger. Unless Congress acts before January 1, physician pay next year will be reduced by 29.4 percent. The estimated 10-year cost for the “doc fix,” according to the Congressional Budget Office, is approaching $300 billion.

Rep. David Camp, R-Mich., chair of the House Ways and Means Committee, told a Health Affairs briefing on Thursday that finding $300 billion for a ten-year fix “was untenable in the current situation” when Congress and the White House are struggling to find ways to reduce the $1.5 trillion budget deficit. Rather, he said, the Republican-led House will consider a “several-year fix . . . to get out from under this, and then look to the long-term fix.”

However, even a short-term fix would cost tens of billions of dollars next year, which could wipe out a significant portion of the budget reductions that Republicans are seeking as part of the debt-ceiling negotiations that kicked off yesterday.

Legislators looking for a magic bullet to the physician pay issue received no help from physician lobbying groups who testified on Capitol Hill. At a hearing of the House Energy and Commerce subcommittee on health, the American Medical Association called for scrapping the SGR and instituting a five-year program of regularly scheduled pay increases, during which time the Centers for Medicaid and Medicare Services (CMS) could experiment with alternative payment models like bundled payments — a single payment for all services related to a treatment or condition, rather than a series of separate payments — or special reimbursements for coordinating care.

“The SGR is a failed formula,” said Cecil Wilson, an internist from Winter Park, Florida, who is the current president of AMA. “The longer we wait to cast it aside, the deeper the hole we dig.”

The American Academy of Family Physicians, which represents relatively low-paid primary care physicians, called for higher reimbursement rates for their specialty. The American College of Surgeons, which represents some of the highest paid specialists and would be hurt by a shift in pay toward primary care, also called for SGR’s repeal and setting a “realistic” budget baseline for future payment increases for all specialties, which should reflect the actual cost of providing care.

Mark McClellan, who headed CMS during the George W. Bush administration and now heads the Brookings Institution’s health care policy shop, told the subcommittee “the payment reforms in the Affordable Care Act are a foundation for this.” That was an ironic statement coming from a former high-ranking Republican official, since the House majority, in a vote taken earlier this year, repealed the new health reform act in a largely symbolic gesture.

The special interest scramble to get Congress to ditch the SGR every year is a cautionary tale about strategies from both sides of the aisle for Medicare cost control. The health care reform legislation pushed through by President Obama and the Democrats achieves a half trillion dollars in Medicare savings over the next decade largely by putting a ceiling on the program’s annual growth rate that is one percentage point faster than GDP.

Obama, in his deficit reduction plan announced last month, upped the ante by calling for a ceiling growth rate of GDP plus 0.5 percentage point. The vehicle for achieving these savings in either case will be the reform law’s new Independent Payments Advisory Board, which starting in 2015 is scheduled to send mandatory cuts to Capitol Hill whenever health care grows faster than the target rate. Congress could either approve those cuts, or substitute a package of its own that achieved similar savings.

Camp attacked that approach yesterday, saying it was unacceptable for “a bunch of unelected bureaucrats” to dictate cuts that “will only cut payments to providers.” But the Republican plan for lowering Medicare’s unsustainable growth, which is called premium support because it would give future seniors a voucher to buy private insurance, has a cap of its own. It pegs the growth in the government’s annual contribution of premium support payments to a formula that is one percentage point higher than the consumer price index, which in most years is well below the growth in the economy.

In reality, any such formula could be thrown out the window by future Congresses – just as the SGR will be when Congress passes its next “doc fix” sometime before next January.

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On a near party-line vote delayed a half dozen times by protesters in the packed galleries, the Republican-controlled House passed a budget plan for the next decade that would dramatically shrink the role of the federal government. The controversial spending and tax blue print, designed by House Budget Committee Chairman Paul Ryan, was approved 235 to 193, with no Democratic support and four Republicans voting against it.

U.S. House Majority Leader Rep. Eric Cantor (R-VA) (C) speaks as (L-R) Rep. Dave Camp (R-MI), Rep. Diane Black (R-TN), Rep. Paul Ryan (R-WI), and Rep. Jeb Hensarling (R-TX) listen during a news conference Wednesday on Capitol Hill. (Photo by Alex Wong/Getty Images)

As the contentious day-long debate neared its conclusion, House Speaker John Boehner, R-Ohio, threw down the gauntlet to President Obama for the upcoming negotiations over raising the $14.3 trillion debt ceiling, which will become necessary sometime in the next several months. “The president wants a clean bill,” Boehner said, but “there will be no debt limit increase unless it is accompanied by spending cuts and real budget reforms.”

Though the House-backed plan stands no chance of passage in the Senate, much less being signed by the president, as a starting point for negotiations it sets a stake in the ground as far to the right as any political party has attempted since Barry Goldwater ran for president in 1964. It calls for far-reaching changes to government programs – more extensive than what was proposed in the 1994 GOP “Contract with America” — that affect about a fifth of the U.S. economy.

The fiscal 2012 budget resolution:

• Cuts spending on domestic programs by over $100 billion next year and continues to add cuts to the environment, housing and education for the next decade, lowering domestic spending as a share of the economy to levels not seen since the first half of the 20th century.
• Shrinks Medicare by giving seniors who turn 65 after 2023 a voucher that would cover about one-third of the cost of insurance-industry provided plans.
• Turns Medicaid back to the states and cuts the federal contribution by $700 billion over the next decade.
• Holds defense spending at levels that remain 20 percent above the last peak during the 1980s.
• Overhauls the tax code to lower taxes on wealthier Americans and some corporations.

The House-passed budget would cut all programs by $6.2 trillion over the next decade. By contrast, President Obama’s budget plan released this week would cut approximately $3 trillion over the next decade and nearly $4 trillion over 12 years. The Republican blueprint uses most of its budget savings to reduce tax collections by $4.2 trillion. The GOP plan would lower top tax rates on individuals and corporations and not allow the Bush-era tax cuts to expire.

Ryan, R-Wis., the plan’s architect, said of the House action today: “This is our defining moment.”

Four Republicans, who joined the 189 Democrats in the chamber, voted against the budget plan. The four were David McKinley, a freshmen from Wheeling, West Virginia who won election last November with 50 percent of the vote; Walter Jones, a nine-term member from Greenville, N.C.; Denny Rehberg, the sole representative from Montana whose two Senators and governor are Democrats; and Ron Paul, a libertarian gadfly from Texas who favors cuts in defense and reduced American commitments abroad.

Rep. Chris Van Hollen of Maryland, the ranking Democrat on the Budget Committee, led the Democratic opposition to the bill. In a preview of what is certain to be a top issue in campaigns across the country in the next election, he and House Minority Leader Nancy Pelosi, D-Calif., repeatedly homed in on the dramatic changes to Medicare contained in the Republican approach to reducing deficits.

“The Republican plan disconnects the amount we give seniors from rising health care costs,” Van Hollen said. “That’s why seniors wind up paying more and more and more.” Democrats repeatedly referred to a Congressional Budget Office analysis released last week that showed seniors who turn 65 after 2023 will pick up 68 percent of their health care costs compared to 20 to 25 percent today.

“Do you realize your Republican leadership is asking you to cast a vote today that abolishes Medicare as we know it?” Pelosi asked in her final comments on the bill. Responded Ryan: “The biggest threat to Medicare is the status quo. … What we say is that in the future people who are wealthy do not need as much subsidy. People who are sick and who are poor get more.

The House-backed plan now goes to the Senate, where it stands no chance of passage since it is controlled by Democrats. A bipartisan group of six Senators, including several who served on the president’s fiscal commission, have been meeting for weeks to craft an alternative.

Their efforts were largely overshadowed this week when President Obama shifted sharply to the right by endorsing much of what was contained in his deficit commission’s plan released last November. The president proposed cutting deficits by $4 trillion over the next dozen years by cutting both domestic and defense spending, and raising taxes on well-off Americans through tax reform and ending the Bush-era tax cuts for those earning over $250,000 a year.

The Republicans who rose in support of the bill repeatedly castigated the president for proposing higher taxes in what is likely to be one of their major election-year themes. “The debt and deficit problem we have today is not because we have taxed too little, but because we have spent too much,” said second-term Rep. Tom Graves, R-Ga.

But Democrats continually linked their tax increases to the cuts in Medicare. “The question is not whether to reduce the deficit, but how,” said Rep. Xavier Becerra, D-Cal., who served on the deficit commission. “This plan gives $130,000 in tax cuts for millionaires while eliminating the guarantee for Medicare beneficiaries to choose doctors [and] adds $6,000 in health care costs. We don’t think Americans should get a coupon instead of a guarantee.”

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Everyone agrees that controlling health care costs is the key to bringing long-term federal budget deficits under control. Government spending on Medicare for seniors and Medicaid for the poor has grown nearly twice as fast as the rest of the economy for decades and is by far the largest component of future projected deficits.

But government funded health care programs aren’t unique in that regard. Employer-based coverage for the working population, which is provided through private insurance companies, has grown just as fast. The problem in a nutshell is the cost of health care, not its funding source.

That’s why it’s important to consider how the two separate sides of our health care system – public plans and private plans – will interact should the Medicare privatization plan that Rep. Paul Ryan, R-Wis., touted on Fox News Sunday become law. The House Budget Committee chairman’s alternative budget would turn Medicare over to private insurers for anyone who retired after 2021. Future retirees would receive a capped payment to buy insurance (he called it “premium support,” not a voucher). Medicaid would be turned into a capped block grant – which translates as a fixed sum awarded to states.

Capping expenditures is central to cost-control in the Ryan plan, which is essentially the same plan that he co-authored with former Congressional Budget Office director Alice Rivlin during the fiscal commission deliberations. The plan limits the annual growth in the amount earmarked for either premium support or block grants to one percentage point more than gross domestic product (call it GDP+1).

That’s about half of the actual health care cost outlays in most years. According to projections released in January, federal spending on Medicare and Medicaid is expected to nearly double to $1.6 trillion by 2021, about a 7 percent annual increase. If the primary goal is holding down taxes and spending, capping that rise at GDP+1 provides the upside. With a wave of the legislative wand, government spending on health care for the old and poor would be reduced to more manageable proportions – between 3.5 and 4.5 percent a year depending on how fast the economy grows. Taxpayers could rejoice.

But just because the government slowed its spending doesn’t mean that old people and the poor wouldn’t have the same health care bills they had before. Health care for these vulnerable populations absent some other force in the marketplace would continue growing at rates significantly faster than the Ryan plan’s GDP+1 formula, just as it has for decades.

Who would pick up the costs that once were picked up by the government? Under the existing system, doctors and hospitals already complain bitterly about the insufficient fees that Medicare pays for the services they provide seniors. Whenever Congress gets close to actually cutting physician pay, which is mandated by prior cost control laws, they immediately restore the cuts out of fear thousands of doctors will carry out their threats to stop seeing Medicare patients.

One option for physicians and hospitals under a capped Medicare premium support system would be to step up what they have always done when faced with inadequate Medicare reimbursement. They could shift even more costs to private, non-Medicare payers, that is, employers and their covered employees. For working stiffs and their bosses, higher taxes would be replaced by higher insurance premiums.

Another option would be for insurers to begin making skimpier plans available to seniors, who would have to make up the additional costs out of their own pockets. Co-pays would rise. Deductibles would rise. Fewer services would be covered.

Isn’t it possible that making seniors have “more skin in the game” through higher out-of-pocket expenses will succeed in cutting out wasteful spending and keep premiums within the capped limits? That’s what a group of conservative think tank experts argued in a letter to on Friday. Premium support “is a new way of structuring the financing of Medicare benefits that gives beneficiaries more control over their health choices and spending,” they wrote. “This premium support arrangement would reverse the incentives now in Medicare that promote wasteful spending.

What this ignores is an extensive body of research that shows raising has consistently failed to hold down costs. Moreover, when people do self-ration care based on price, they are just as likely to eliminate vital and cost-effective health and preventive services as they are to jettison waste. Most citizens, especially the frail elderly and the under-educated poor, are ill-prepared to sort out the wheat from chaff in modern high-technology medicine.

There is one way to avoid these negative outcomes. The government could set minimum standards for the insurance plans sold to seniors and the poor and set up exchanges, perhaps in the states, to enforce those standards. It could also guarantee that the premium support was adequate for poorer seniors (about half live solely on Social Security) to purchase those plans.

There’s a precedent for this approach. Republicans call it “Obamacare.” Democrats call it health care reform, which also included an Independent Payment Advisory Board that every year after 2015 is going to recommend to Congress cuts in Medicare anytime expenditures go over GDP+1. Republicans want to repeal this measure, along with the rest of the bill.

Turning Medicare and Medicaid over to the insurance industry selling exchange-regulated policies would require one more law change in order to achieve the savings promised by Ryan-Rivlin. It would require the government directly regulate the prices charged by insurers so they never grew faster than GDP+1. While Democrats were willing to put that on the table for Medicare (subject to a Congressional vote, of course), no one has been willing to suggest price controls on the private sector.

Princeton University health economist Uwe Reinhardt, who sits on the boards of device-maker Boston Scientific and Amerigroup, a managed care provider, argued in his February critique of the Ryan-Rivlin plan that the most likely outcome of turning Medicare into a defined contribution plan from its current defined benefits would be an ever-widening gap between the level of government support and what constitutes good health care in our society. That would lead to “a multi-tiered health system with a highly financially constrained, bare-bones system for tax-financed health insurance, a broad but varied set of tiers for privately insured patients and a boutique tier for Americans able to afford that style of care.”

Ryan suggested his plan would avoid this fate by means testing the . “Wealthy seniors” would get less, while poorer and sicker seniors would get more. Yet he acknowledged that a premium support system would shift more costs onto seniors as a group.

And it was that element that drew immediate fire from his counterpart on the Budget Committee, ranking member Rep. Chris Van Hollen, D-Md., who was more than willing to send a surge of current down the third rail of American politics. The Ryan plan, he said, would “end the current health care guarantees for seniors on Medicare, and deny health care coverage to tens of millions of Americans. That’s not courageous, it’s wrong.”

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For most of the past decade, Democrats and Republicans in Congress have competed over who could pour more money into the National Institutes of Health, the largest funder of biomedical research in the world.

But the party is over. The  by a leading House Republican this week included cancellation of the $1 billion that the Obama administration wanted to add to the $31 billion NIH budget.

It was part of a broad assault on science funding that was announced by appropriations , R-Ky., who also called for large cuts at the National Science Foundation, the White House Office of Science, the National Oceanic and Atmospheric Administration and the National Aeronautics and Space Administration.

The purpose, , is “to rein in spending to help our economy grow and our businesses create jobs.”

If creating jobs is his goal, Rogers might want to take a look at  that appeared Thursday in the New England Journal of Medicine, which found that publicly-funded research is a far more important contributor to the creation of new drugs and vaccines than previously thought. The classical view of innovation is that government funds basic science, while industry comes up with the new and innovative products based on that science.

But innovation never was solely the province of private actors pursuing their self interest. And it turns out that now it is even less so. Nearly one out of every five important medical advances approved by the Food and Drug Administration between 1990 and 2007 was invented in a federally-funded lab, according to the study, which previous estimates had put at closer to one in 15.

Moreover, those inventions, which included 40 new drugs for cancer, are currently generating in excess of $100 billion a year in sales for drug and biotechnology firms. That’s about one-sixth the total revenue for the entire global .

“These federal grants are not for product development, they’re for advancing basic science,” said study author Ashley J. Stevens, a senior researcher at Boston University’s School of Management. “But they happen to have both significant public health benefits as well as economic development benefits.” The transmission belt that allows transfer of government-funded inventions from grant recipients to the private sector was built in 1980 with passage of the Bayh-Dole Act, named after its two Senate sponsors, Democrat Birch Bayh of Indiana and Republican Bob Dole of Kansas. The law became a core element of the U.S. innovation system, and a major source of the U.S.’s competitive advantage in global commerce.

It allows scientists and their institutions to patent government-funded inventions and license them to the private sector. Prior to Bayh-Dole, those breakthroughs were put in the public domain, which eliminated the incentive for commercialization since no firm would invest in developing the product when another company could simply copy the invention.

In the wake of that law, the role of the public sector in spurring biomedical innovation surged, the study found. Over the past 40 years, 153 new FDA-approved drugs, vaccines or new indications for existing drugs were discovered through research carried out at public institutions with federal funding. More than half were used to treat or prevent cancer and infectious diseases, which isn’t surprising since the National Cancer Institute ($5 billion) and the National Institute for Allergy and Infectious Diseases ($4.7 billion) are the .

Last month, NIH  plans to take its efforts to spur biomedical innovation to a higher level by creating a new institute specifically aimed at generating new products for industry. NIH director Francis Collins stripped $700 million from existing NIH science budgets to get the project up and running, and asked Secretary of Health and Human Services Kathryn Sebelius to seek an additional $1 billion from Congress for the program.

That’s wishful thinking now. The once-powerful lobbying groups that push for increased NIH funding – ranging from patient advocacy groups to university medical centers to drug and biotech firms – fear the cancellation of the president’s proposed increase is just the first wave of what will shortly become a major assault on federally-funded biomedical science. “We seem to be treating defense like an entitlement while carving deeper and deeper into discretionary budgets,” said Mary Woolley, president of Research America.

“Congress should definitely cut NIH spending,” said Michael Cannon, a health care analyst at the libertarian Cato Institute, which backs large cuts in federal spending. “Cutting NIH spending probably would result in less innovation, but it is less clear that the benefits of those forgone innovations exceed the costs.”

The chairman of Research America is former Republican Rep. John Porter of Illinois, who spent his years on Capitol Hill as the chief champion of increased NIH funding. Unfortunately for Porter and Research America, moderate Republicans like himself have gone the way of the dodo bird.

“This will undercut U.S. competitiveness in biomedical research in a very big way,” Woolley said. “Other countries have learned from the U.S. that putting resources behind biomedical research will lead not only to better health outcomes but economic growth.” That isn’t a message with much appeal to the new House majority.

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A major expansion is underway at the nation’s medical schools that will sharply increase the number of new physicians entering the workforce over the next decade to care for an aging Baby Boom generation. But critics say the move could backfire since medical schools are still channeling too many young doctors into highly paid specialties instead of primary care, which will exacerbate the problem of rising health care costs.

The Association of American Medical Colleges (AAMC) unveiled a new survey Thursday showing the number of students entering the nation’s 137 accredited medical schools will surge nearly 30 percent from 2002 levels to 21,376 in 2016, meeting a goal set in 2006 when it was widely believed an aging population would require far more physicians. About 19,638 first-year students will enter medical school this fall, up from 16,488 in 2002.

But the campaign to increase the number of practicing physicians, which has been spearheaded AAMC, has come under fire in recent years on two fronts. Health care reformers say the increased enrollment has not addressed the ongoing shortage of primary care physicians, especially in poor and rural areas, which will only grow worse when 30 million previously uninsured patients seek compensated care after 2014 because of the Affordable Care Act.

Meanwhile, cost-control advocates fret that the continuing migration of too many young physicians into highly paid specialties is contributing to the crisis in Medicare financing, which has been driven in part by overuse of . The AAMC projection assumes aging baby boomers, like their parents, will become more dependent on the specialists who treat heart disease, diabetes, cancer and other chronic conditions that become more prevalent as people age.

Officials at AAMC say they have taken both factors into account in making the projections that led to the major increase in medical school slots. A dozen new medical schools have opened in the U.S. since 2002, including four in Florida, and seven more have either applied or plan to apply for accreditation.

“If you’re less than 50 years old, the majority of your visits are to primary care physicians, but after you turn 65, the majority of visits are to specialists,” said Atul Grover, a physician and chief of public policy at AAMC. “With the over-65 population growing rapidly, we’re also going to have a shortage of specialists.”

AAMC, which tracks medical professionals for the first seven years after they finish school, estimates about a third of newly-minted doctors go into some form of primary care, either internal medicine, pediatrics or family practice. But researchers at the Center for Studying Health System Change (CSHSC) peg the total at closer to 20 percent since many internal medicine trainees eventually take up a specialty instead of remaining in general practice.

That career shift is often due to the skewed compensation schedules for , which are recommended by an (dubbed the Resource-Based Relative Value Scale Update Committee or RUC). It sets the relative worth of medical services, and values procedural tasks like inserting a vascular stent more highly than cognitive tasks like diagnosing a small child’s illness. As a result, family physicians, pediatricians and geriatricians are among the lowest paid, earning on average $200,000 per year or less.

Newly-minted specialists like surgeons, intervention cardiologists or radiologists who’ve completed their advance training, on the other hand, earn $300,000 or more to start and often earn two or three times that by the time they are in their mid-40s. American doctors are, by far, the most highly paid physicians in the world.

“Cardiology pays twice as much as primary care,” said Grover. “That’s a really hard incentive structure to fight against.”

As a result, “the U.S. has relied on foreigners to fill primary care jobs,” said Tracy Yee, a researcher at CSHSC. The U.S. attracts anywhere from 5,000 to 6,000 foreign-trained physicians a year, many coming from less-developed countries that have large unmet medical needs and face their own physician shortages.

“We’re doing to medicine what we’ve done to low-paid service jobs,” said Shannon Brownlee, acting director of health policy at the New America Foundation. “We’re filling the lowest paid physician jobs – primary care docs – with foreign doctors who should probably be treating people in their home countries.”

Architects of health care reform hope greater emphasis on coordinated care for people with chronic conditions through accountable care organizations and medical homes will create more and better-compensated jobs for primary care physicians. Larger organizations can also turn over routine tasks to physician assistants and nurse practitioners.

Some are also looking to growing ranks of women physicians to transform in the profession. They now take up half the slots in medical school and could produce over time a workforce more willing to sacrifice higher pay for the more regular hours of primary care.

A major shift into primary care from specialization would make sense, according to researchers associated with the Center for Health Policy Research at Dartmouth. Their research has shown that areas with greater numbers of specialists per Medicare beneficiary tend to have significantly higher costs per patient without any better outcomes.

of Medicare beneficiaries conducted by Dartmouth and the Centers for Medicare and Medicaid Services and published last year in Health Affairs found patients living in areas with more physicians per capita perceived no differences in their access to health care than beneficiaries with fewer available physicians. Moreover, there were no differences between the two groups in terms of visits or time spent with their personal physician, the number of tests they received or the number of specialists they saw.

“Simply training more physicians is unlikely to lead to improved access to care,” the researchers concluded. “Instead, focusing health policy on improving the quality and organization of care may be more beneficial.”

Source: Association of American Medical Colleges

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Julie Grabow, an oncologist at the Fred Hutchinson Cancer Center in Seattle, recently prescribed an exciting new therapy for a 60-year-old woman with metastatic breast cancer. Three-and-a-half years into her battle against the disease, the patient had already exhausted three different anti-estrogen therapies, each of which only put a temporary check on the spreading tumors.

The newly prescribed drug, Novartis’ Afinitor, is one of the recently approved targeted therapies that have generated a lot of excitement among cancer patients and oncologists in recent years. Drugs that target just the cancer cells promise the same or better results as toxic chemotherapy, but with far fewer side effects.

There was a catch, though. Like many of the latest cancer drugs, Novartis is charging exorbitant amounts for the treatment – in this case, $10,000 per month. That quickly put an end to that possibility for Grabow’s patient. Her monthly co-payment, even after her insurance company agreed to pay its share of the off-label use the drug (the Food and Drug Administration has only approved Afinitor for kidney and pancreatic cancer, not breast cancer), was $2,900.

“She can’t afford this, even though it’s potentially a less toxic and potentially equally effective regimen,” Grabow said. “Chemo will help her, and it’s a reasonable choice. But that choice is 100 percent driven by economics.”

Over the past year, official Washington and candidates on the campaign trail have locked horns over the best way to curb rising health insurance costs. The public has been bombarded with dueling slogans – Republicans vowing to fight the “death panels” and “rationing” of Obamacare while Democrats promise “guaranteed access” and “affordability” with the Affordable Care Act.

But an economic drama that neither side wants to confront is playing itself out in cancer wards and oncologists’ offices across the country. Unaffordable new drugs, even when they’re covered by insurance, are being rationed by price as patients, doctors and hospital officials struggle with what is likely to be the most pressing problem for the nation’s health care system over the next decade: how to pay for the spectacular rise in the cost of cancer care, especially drugs and diagnostic tests.

“In the real world of private practice where most care is delivered, it would be a mistake to say rising costs haven’t affected care,” said Eric Nadler, a head, neck and lung cancer specialist at Baylor University Medical Center. A recent survey published in Health Affairs found a stunning 84 percent of oncologists say their patients’ out-of-pocket spending influences treatment recommendations.

The growing cost of cancer care will impose its greatest burden on the nation’s Medicare system, since 55 percent of all cancers are diagnosed in individuals 65 or older. A recent study by the National Cancer Institute projected the cost of treating the 29 most common cancers in men and women will rise 27 percent by 2020, even though incidence of the disease is going down due to successful public health campaigns like the war on smoking.

That estimate is based on a relatively static cost of care per case. If costs increase just 2 percent more a year than previous trends in the first and last years of care, the study said, then costs would soar to $173 billion, a 39 percent increase. The study pointed out that its projections were based on 2006 Medicare claims data, which predated the development of most of the latest targeted therapies.

There’s no doubt that there will be many new therapies for cancer coming to market in the years ahead. The nation’s $150 billion public investment in understanding the biology of cancer – the science side of the War on Cancer launched by President Richard Nixon in 1971 – is beginning to bear fruit.

The pharmaceutical industry, which draws on that publicly funded science to develop drug candidates, now has 887 new cancer drugs in development, over 30 percent of its total portfolio of new drug candidates, according to the Pharmaceutical Research and Manufacturers of America, the industry trade group. That’s up from 646 or 26 percent of the total devoted to cancer in 2006.

The industry is pouring increased research and development resources in cancer therapeutics in hopes that it will replace the revenue being lost from the expiration of patents on blockbusters like Lipitor. However, since there are fewer cancer patients than there are people with chronic conditions like elevated cholesterol, and many don’t live very long, the prices needed to support the industry’s current size and structure, and profits must be substantially higher.

“They’re trying to maximize profits given their incentives,” said Peter Neumann, director of the Center for the Evaluation of Value and Risk in Health at Tufts Medical Center, which receives funding from the drug industry. Possible solutions, he said, include letting Medicare set prices based on the medical value of adding extra months to life. That’s a variation on Great Britain’s cost-effectiveness model, which has been roundly condemned by most U.S. politicians and the press.

The other path is to turn to a bundled payment for every for every episode of cancer care and let the health care delivery organizations and private insurers sort it out. (Bundled payments account for all medical services associated with a given episode of care—doctors, nurses, technicians, etc.) That approach, in essence, would force the marketplace to execute the rationing.

“Bundled payment isn’t a panacea, but it does create incentives,” Neumann said. Some private insurers are experimenting with bundled payments for cancer care.

A quick review of the new cancer drugs approved by the Food and Drug Administration last year reveals how fast drug prices are rising. Most of the older chemotherapy regimens for cancer, some of which have been around since the 1950s, are generic and relatively inexpensive. But among the six new drugs approved in 2011, the cheapest – Johnson & Johnson’s Zytiga for advanced prostate cancer – cost $44,000 a year. The drug extended life by an average of less than 5 months to 16 months, according to a company spokesperson.

At the high end of the spectrum was Adcetris, a biotech product from Seattle Genetics that treats recurrences of Hodgkin’s lymphoma. A highly curable disease when initially treated in the 8,830 mostly middle-aged patients who get the disease every year, it is usually fatal if a drug-resistant strain emerges later in life. Adcetris, the first new treatment to come along since 1977, kept the cancer in check for nearly 7 months in the single small trial that led to its quick FDA approval. It’s price tag: $216,000 for a full course of treatment.

Skin cancer specialists had a lot to cheer about in 2011 with two new therapies coming on the market for metastatic melanoma, which is fatal within one year for about 75 percent of the 10,000 people stricken each year. But Roche/Genentech’s Zelboraf cost $61,400 a year and Bristol-Myers Squibb’s Yervoy, which nearly doubled the one-year survival rate from 25 percent to 46 percent, cost $120,000 for a four-month course of treatment.

“We price our medicines based on a number of factors including the value they deliver to patients and the scientific innovation they represent,” said Sarah Koenig, a spokeswoman for Bristol-Myers. “We have one of the most robust patient assistance programs for cancer patients in the industry.”

Most drug companies have patient assistance programs for poor or struggling patients, but many only come into play if patients are poor or families have exhausted their savings. And since many of the latest therapies, like the older chemotherapies they are replacing or supplementing, extend life for brief periods of time, patients wind up weighing whether they want to deplete their children’s inheritances for a couple extra months of being very, very sick.

A study released at last June’s annual conference of the American Society of Clinical Oncology, which represents the nation’s 25,000 oncologists, revealed that patients with co-payments over $500 a month were four times more likely to refuse treatment than those whose co-payments were under $100 a month. “The price of drugs can’t be set so outrageously high,” study author Lee Schwartzberg told Reuters. Schwartzberg is the chief medical officer at Acorn Research, which conducted the study.

“All stake holders have to get together and compromise to translate this great science into great patient care without breaking the bank.”

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A forthcoming report from the Congressional Budget Office shows that more than two dozen demonstrations projects launched by Medicare and Medicaid over the past decade have failed to stop the upward march of health care costs, CBO director Doug Elmendorf said Tuesday. But health care policy experts say the findings paint too gloomy a picture.

The CBO pronouncement will heighten pressure on politicians from both political parties to come up with new health care cost savings beyond those contained in the , whether as part of the current debt ceiling talks or in separate legislation. Federal spending on Medicare and Medicaid totaled $739 billion in 2010, making health care the in the federal budget. Those costs are expected to nearly double in the next decade.

Health care issues on the table in the ongoing include raising the Medicare eligibility age to 67, raising senior co-pays and deductibles by limiting Medigap policies, and charging wealthier seniors more for their coverage, which together could save about $250 billion over the next decade. Senior citizen groups are certain to oppose those measures, while public opinion polls show most of the public prefers taxing wealthy people to cutting benefits for seniors. 

President Obama and Democrats in Congress have been counting on recommendations from an independent advisory board to hold down costs should the voluntary demonstration programs in the Affordable Care Act (ACA) come up short. They include better coordinated care through accountable care organizations, bundled payments and other delivery system reforms.

In at George Washington University where he called for cutting $4 trillion from projected deficits over the next dozen years, the president recognized the health care savings from reform would be far less than what is needed to repair the nation’s fiscal health. He suggested the Independent Payment Advisory Board (IPAB) created by the legislation should make recommendations that would hold the growth in health care spending to a half percent above the growth in the domestic economy – a level far below the pattern of the past three decades.

But Republicans on Capitol Hill, who will likely renew their attacks at a hearing of the House Energy and Commerce Committee on Wednesday, have blasted the IPAB. They claim the still-to-be-appointed panel is a “secretive” board that will impose rationing on the nation’s seniors.

“The only possibility of containing health care costs in Obamacare is the IPAB,” House Majority Leader Eric Cantor, R-Va., told a U.S. Chamber of Commerce health care forum shortly after Elmendorf spoke. “That is a situation where we will see costs skyrocketing and rationing will occur.”

Elmendorf defended CBO’s projections that like the accountable care organizations allowed under reform would only save a few billion dollars in the coming decade. “The demonstration projects that Medicare has done in this and other areas are often disappointing,” he said. “It turns out to be pretty hard to take ideas that seem to work in certain contexts and proliferate that throughout the health care system. The results are discouraging.”

Robert Berenson, a health analyst at the Urban Institute, admits many of the demonstrations on delivery system reforms have had mixed results. But a careful analysis of the successful elements of those demonstrations could be replicated across the country and lead to significant savings. “There are positive elements in a lot of those demos,” he said. “You could pick and choose the ones that worked.”

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While squabbles over the rules for approving rarely attract much attention outside the insular world of manufacturers, regulators and medical professions, a fight is brewing that could have a major impact on efforts to  health-care spending.

The device industry has launched an aggressive campaign to avoid tighter Food and Drug Administration rules that would help generate the information needed to show whether newer devices are actually superior to the ones they replace. The latest devices – from heart valves and defibrillators to artificial knees and hips – are usually significantly more expensive than older devices, and the intense marketing surrounding the introduction of new devices has become a major driver of rising health care costs.

Many medical specialists say tighter rules are needed to ensure newer devices are safe and effective, which could help hold down costs. “Better regulation of medical devices has the potential to reduce health care costs,” said Steve Nissen, chairman of cardiovascular medicine at the Cleveland Clinic. “New devices are often more complex and expensive than existing products, but may not offer any improvements in health outcomes. The current regulatory approach allows these devices to reach the market with little or no clinical data.”

“Requiring evidence of benefit of effectiveness for patients before device approval would prevent billions of dollars from being spent on technologies that are not helpful for patients and are even harmful,” said Rita Redberg, editor of the Archives of Internal Medicine and a cardiologist at the University of California, San Francisco. “There are many examples, such as vertebroplasty and kyphoplasty for back pain [compression fractures], on which Medicare spends approximately $1 billion annually. After they were FDA-approved, randomized clinical trials showed they were no more effective than a sham procedure in relieving symptoms.”

Despite the cry for tighter rules, think tanks funded by industry in recent weeks have released several studies claiming that the FDA is standing in the way of improved devices getting to market. Congress is holding hearings to investigate the issue. And a third of the members of the House has signed a letter calling for legislation that would roll back a small excise tax that proponents claim is choking off “innovation.”

The 2.3 percent tax projected to generate $20 billion over the coming decade was part of the health-care-reform law and was similar to excise taxes slapped on the drug and insurance industries, which have not launched similar campaigns. All three industries are among the most profitable in America.

The controversy has important regional political significance because many of the device manufacturers are major employers in the Midwest – especially in Minnesota, Ohio, and Indiana. With the backing of Midwestern lawmakers, the industry is fighting back.

Rep. Erik Paulsen, R-Minn., whose district abuts the headquarters of industry giant Medtronic, last week released a letter with 154 co-signers, including four Democrats, that called for repealing the $2 billion-a-year tax. “Device manufacturers will have to cut R&D or may be forced to lay off employees due to this disastrous tax,” the letter said.

Proponents of the industry warn that what they as hostile government action could lead to a loss of jobs. Moreover, some manufacturers claim that they are looking overseas for a more permissive regulatory environment.

There are over 8,000 medical device companies in the U.S.; they generated about $136 billion in sales and employed over 422,000 last year, according to industry officials. While the industry did better than the economy as a whole through the recession, losing only 1.1 percent of its jobs compared with nearly 5 percent of all manufacturing workers, its job performance lagged behind the rest of the health-care economy, which added employment throughout the downturn.

Two years ago, the medical device industry, which manufactures everything from heart valves to ace bandages, came under tougher scrutiny. The FDA had become more aggressive overseeing the industry in response to criticism that it had repeatedly caved to corporate and political pressure when approving new products.

After health-care reformers targeted the industry for  to help pay for covering the uninsured, Democratic leaders in Congress asked the prestigious Institute of Medicine (IOM) to convene a blue-ribbon panel to determine if the industry needed tougher regulations to ensure the safety and effectiveness of its products. With the IOM’s final report due later this month, the industry is mounting a major public relations offensive to blunt calls for stronger oversight.

The Institute for Health Technology Studies, which is primarily funded by the industry, late last month released an industry survey showing American companies are increasingly to get new devices approved. Industry executives also claimed that the FDA in the last few years has arbitrarily toughened its standards for new devices that are similar to products already on the market. In the past, those look-alike products usually received a less rigorous review than brand new medical innovations.

“As the FDA considers regulatory revisions, what’s at stake is the ability of companies to attract investors in order to continue developing innovative, life-saving products and sustaining American competitiveness in the global marketplace,” said John Linehan, a professor of biomedical engineering at Northwestern University and lead author of the survey.

Paulsen, the Minnesota lawmaker, cited the example of Xtent, a Menlo Park, Calif., device maker that tried to gain approval to start a U.S. clinical trial for its coronary stent. Surgeons had already inserted the company’s stent in hundreds of European patients. When the FDA refused to consider data from the European experiences and insisted on a prospective clinical trial, the company closed its doors and sold the technology to foreign investors.

Last week, the House Oversight and Government Reform Committee called in the FDA’s top device regulator to explain the changes underway at the agency, which Republican members claimed had gone too far. “In some cases, the conveyor belt for medical devices has come to a grinding halt,” charged Rep. Trey Gowdy, R-S.C., who chairs the health subcommittee.

Jeffrey Shuren, a lawyer and physician who 18 months ago replaced the previous head of the troubled Center for Devices and Radiological Health at FDA, promised to “do a far better job to make the process more efficient without compromising our standards for safety and efficacy.” Earlier this year, the FDA proposed new rules that would give companies more certainty about what would be expected from them when bringing new products to the agency. But it postponed consideration of any major changes in the oversight process pending the IOM report, which could propose companies do more clinical trials proving efficacy for follow-on devices.

The current rules are a product of the 1976 law that ushered in the modern era of medical device regulation. They require any new device whose failure would pose a serious risk to public health to go through rigorous clinical trial testing in humans for both safety and effectiveness before going on the market.

But the law also set up a regulatory scheme, known as the 510(k) process, which allows follow-on devices deemed substantially similar to something already on the market to get approved without the same level of testing. Regulators have discretionary power to order more tests.

The vast majority of new devices use the follow-on process, even though their manufacturers often claim superior performance to the older models and charge accordingly. The result is a lack of scientific data for making those comparisons, which leaves Medicare, private insurers and physicians in the dark as to their relative worth.

The regulatory framework for potentially life-saving devices differs from drugs, where follow-on products – say, the four or fifth statin to come to market for lowering cholesterol – must still go through rigorous clinical trial testing. While that doesn’t meet the gold standard of head-to-head comparisons between competing products, at least that gives medical analysts sufficient information to know if one drug is significantly better or worse than another product in the same class.

Safety issues can arise when there are no clinical trials for follow-on devices. And that also contributes to rising health care spending, since it can result in costly recalls or even follow-on operations to replace faulty devices.

The updated devices often change materials or tweak the engineering, which can alter their performance once put in the body or deployed in health care settings. A published earlier this year in Archives of Internal Medicine found that of 113 major product recalls between 2005 and 2009, only 19 percent had gone through the more rigorous clinical trial testing required for new products, while 71 percent had used the follow-on process. There had been only 49 major recalls in the prior five years.

“Yes, the FDA’s getting tougher and it’s long overdue,” said the study’s lead author, Diana Zuckerman, executive director of the National Research Center for Women and Families. “Too many things were sailing through without clear evidence they were safe and effective.” She cited last December’s recall of 359 million glucose test strips manufactured by Abbott Laboratories, whose malfunction could give diabetics false readings and lead to under or over-medication.

Last week Redberg of UCSF told the Oversight subcommittee to reject calls for speeding up the regulatory review process in the name of fostering greater innovation. She cited a 2009 Government Accountability Office report that found that a majority of high-risk devices do not go through clinical trial testing prior to marketing. “Only high-quality clinical trials can assure safety and effectiveness, especially when it comes to high risk devices that are used with invasive procedures,” she said.

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Employees will be experiencing higher co-pays and deductibles in their health insurance next year as employers continue to reduce their overall coverage to deal with rapidly rising costs. A of 1,700 firms in 30 industries from PwC (PriceWaterhouseCoopers) released Wednesday showed that this year’s health care claims are running slightly ahead of a year ago. As the recession-driven slowdown in discretionary health care spending began to abate, claims rose 8.0 percent compared to 7.5 percent in 2010. –The projected increase for next year is 8.5 percent, the survey showed.

The health insurance premiums employers paid for their workers in 2010 stood at $13,770 for family coverage and $5049 for individuals, according to the latest annual survey, which covers over 3,000 employers. The reported increase of 5 percent over 2009, while the smallest in a decade largely due to the recession, left employers paying premiums that were more than double what they paid in 2000.

Employer costs, however, will only go up 7 percent on average. “The medical trend does not take into account changes in benefit design, such as changes in cost-sharing,” the report said. “Typically these changes reduce the trend by 1.5 to 2 percentage points” by shifting more costs onto workers and their families.

A growing number of employers are turning to in order to lower costs, said Michael Thompson, a principal in PwC’s health care practice said. In 2011, 17 percent of the employers surveyed by PriceWaterhouse offered high-deductible plans as their most common benefit plan compared to just 13 percent in 2010.

If the trend continues, high-deductible plans, often coupled with health savings accounts, could become the most prevalent form of private sector health insurance by 2014. “There are employers who offer high-deductible plans as their only option; some offer it as an option, but an increasing number of employees are choosing that option to lower their own costs; and some employers are offering high-deductible plans with a health savings account, where employees can manage their own spending,” he said. “It’s to facilitate making employees more engaged and aware of the costs of health care.”

Another tactic that shifts costs onto employees is increasing the penalties for going out of network when selecting physicians or hospitals. “In some markets, payers are becoming more selective about who’s in the network,” the report noted.

The survey respondents, which also included executives as insurance firms that cover an estimated 70 million lives, identified three major trends that are driving costs higher in 2012. First, more physicians and hospitals, encouraged by the health care reform law, are merging to promote efficiency and reduce costs over the long-term. The result in the short-run, however, will be an uptick in rates, the report suggested.

“Health plans and providers are always working at the bargaining table over what’s fair year to year,” PwC’s Thompson said. “As providers have consolidated, they certainly have a stronger hand at that table.”

Insurers that cover private-sector workers and their families will also face increased costs to cover shortfalls in hospital payments by Medicare and Medicaid. “The increase in Medicare in-patient hospital rates is expected to be 3.3 percentage points below the expected growth in their costs,” the PwC analysis said.

And employers and health plans reported that post-recession stress was taking its toll on workers’ health, which is increasing the frequency of claims. Medical utilization is also rising because workers who deferred health care during the recession are returning to more normal patterns of visiting their doctors or dealing with non-emergency situations.

On a positive note, drug cost increases for health insurers and individuals should ease somewhat in 2012, the report suggested. The number of blockbuster brand-name drugs coming off patent will be the largest in history, leading to greater use of

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Rep. Jack Kingston, a Georgia Republican, leaned forward in his seat at a Wednesday armed services appropriations hearing and practically begged the Pentagon’s top health care official for tips on how to explain a proposed hike in military retiree health care fees to constituents and the news media back home.

“There is this pressure for free health care for life for veterans,” , who represents many veterans in his Savannah area district. Jonathan Woodson, the assistant secretary of defense for health affairs, replied that “Congress never meant for the health care benefit” for 5.3 million military retirees and their family members “to be entirely free.”

The exchange illustrates  how difficult it is for legislators on Capitol Hill to make even minor changes to that have come to be seen as largely untouchable – even a small adjustment to a copayment requirement in a health insurance program that has turned out to be a for military pensioners.

Members of the military can retire after 20 years with a full pension and heavily subsidized health care for life. It is one of the chief drivers of rapidly rising military health care spending, which has tripled in the past decade to more than $52 billion a year.

It’s not the only factor driving higher military health spending, to be sure. The system also provides care for the health needs of the military’s 3.8 million active duty personnel and family members. After ten years of war, that health care system is beset with a host of problems ranging from the special needs of tens of thousands of severely wounded veterans of Iraq and Afghanistan; to the 20,000 traumatic brain injuries incurred every year; to the uncounted tens of thousands more suffering from post traumatic stress disorder.

In addition, the military, like the rest of society, is trying to figure out ways to slow down the rapidly rising cost of care for those it covers both in and out of the military. In one effort to combat that problem, the Obama administration in its calls for increasing retirees’ co-insurance, currently $230 a year for individuals and $460 for families, by 13 percent; indexing it for medical inflation; and lifting co-pays on doctor and hospital visits and drugs. This would mark the first increase in these charges since 1996, according to Woodson.

It’s an approach to holding down costs that has long been used by the private sector with little success. The amount of money raised through the higher co-pays is small, and it rarely leads people to stop using marginally effective or unnecessary care.

The proposal drew immediate fire from veterans groups, which in turn received support from members of both political parties. A House Armed Services subcommittee on military personnel two weeks ago postponed the fee increases for at least one year on , the health maintenance organization-like plan that is the largest military health care program. However, with the Pentagon under pressure to cut costs, moves are underway in Congress to restore the fee increase for next year, but index its annual increase to the cost-of-living, rather than medical inflation, which is far higher.

Still, even that is causing queasiness among legislators leery of crossing veterans, whose entitlements remain sacrosanct. They’re getting an earful from groups like the Veterans of Foreign Wars, whose chief spokesman, Joe Davis, told The Fiscal Times on Wednesday that “we don’t want any increases and we don’t want it tied to any outside factor, not COLA, not anything.

When asked how he could justify his position when  everyone else, including other government employees, had seen their health care co-pays and co-insurance rise in recent years, he replied: “How can you put military people and the rest of society on parity, especially after ten years of war. This is a health care benefit that people were promised by their recruiters. We paid for that benefit up front by 20 or more years in the military.”

The military is trying several other tactics to reduce its . In recent years, it has funneled more of its retirees into coordinated care programs, which hopefully will better manage the costs of ex-soldiers and their family members with . They’ve also given special prices for people who use a mail order house for pharmaceuticals, which can substantially lower cost. The military already uses a preferred drug list, known as a formulary, which imposes significantly higher co-pays for drugs not on the list.

“We are proposing minor changes to out-of-pocket costs that are exceptionally modest, manageable and remain well below the inflation-adjusted out-of-pockets costs enjoyed in 1995, when TRICARE Prime was first introduced,” Woodson testified before the House Armed Services Appropriations subcommittee on health. The proposed increase amounts to $2.50 per month for single retirees and $5 a month for retiree families.

Caring for the rising number of seriously wounded soldiers from the wars in Afghanistan and Iraq is also driving military health care costs skyward, and will for years. The military now employs 4,280 staff in 29 “Warrior Transition Units” to care for the 10,011 wounded, ill or injured soldiers still in the military. More than 40,000 wounded soldiers have passed through the program since June 2007, with just 16,000 returning to their former units.

The military is also grappling with a rising tide of substance abuse cases, often related to chronic use of prescription pain medications initially given after being wounded. Lt. General Eric Schoomaker, the surgeon general of the army, told the subcommittee that immediate treatment of battlefield injuries with opium-derived drugs and other painkillers can reduce incidences of post-traumatic stress disorder by 50 percent.

But the army is now looking at alternatives for reducing use of the drugs for chronic pain, such as acupuncture, yoga, and biofeedback, Schoomaker said. However, it could wind up increasing the military health care bill. “There is a good evidence-based case” for these approaches,” he said. “But to be perfectly blunt, the reimbursement system is not adequate.”

Meanwhile, the army is also in the midst of a major five-year, $5 billion program to rebuild its far-flung hospital network, both on domestic bases and abroad. It has   asked for a 30 percent increase in its construction budget to $1.3 billion for next year.

Heading the list is the total reconstruction of the Landstuhl Medical Center in Germany, which has served as the way station for wounded soldiers from the Middle East but also serves the 170,000 U.S. military personnel and their families stationed in that country. The 122-bed project heads the wish-list for this year’s appropriation.
While some critics seeking to pare military budgets have called for shutting down the German bases, which have housed 50,000 U.S. troops and their families since the end of World War II, the army is digging in for the long haul. “This is a very important time for rebuilding and replacing our facilities,” Schoomaker said about the hospital projects.

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The annual scramble to prevent next year’s scheduled pay cut for doctors who treat Medicare patients kicked off Thursday with physician leaders calling for a five-year program of guaranteed annual raises and a high-ranking House Republican calling for another short-term fix.

The issue – known inside the Beltway as “the doc fix” – is the residue of a law enacted by Congress in the late 1990s that sought to limit the growth of Medicare spending on seniors’ health care. The law limited physician pay increases to same growth levels as the overall economy, which became known as the sustainable growth rate or SGR. Since health care spending over the last decade grew twice as fast as gross domestic product, implementing the SGR would dramatically shrink physician pay as a share of overall Medicare spending.

It never happened. Every year members of the American Medical Association and specialty societies bombard Capitol Hill with demands to restore the old system. And every year, Congress voids the SGR-mandated cuts.

But that means that every year the size of the scheduled pay cut under the original law grows larger. Unless Congress acts before January 1, physician pay next year will be reduced by 29.4 percent. The estimated 10-year cost for the “doc fix,” according to the Congressional Budget Office, is approaching $300 billion.

Rep. David Camp, R-Mich., chair of the House Ways and Means Committee, told a Health Affairs briefing on Thursday that finding $300 billion for a ten-year fix “was untenable in the current situation” when Congress and the White House are struggling to find ways to reduce the $1.5 trillion budget deficit. Rather, he said, the Republican-led House will consider a “several-year fix . . . to get out from under this, and then look to the long-term fix.”

However, even a short-term fix would cost tens of billions of dollars next year, which could wipe out a significant portion of the budget reductions that Republicans are seeking as part of the debt-ceiling negotiations that kicked off yesterday.

Legislators looking for a magic bullet to the physician pay issue received no help from physician lobbying groups who testified on Capitol Hill. At a hearing of the House Energy and Commerce subcommittee on health, the American Medical Association called for scrapping the SGR and instituting a five-year program of regularly scheduled pay increases, during which time the Centers for Medicaid and Medicare Services (CMS) could experiment with alternative payment models like bundled payments — a single payment for all services related to a treatment or condition, rather than a series of separate payments — or special reimbursements for coordinating care.

“The SGR is a failed formula,” said Cecil Wilson, an internist from Winter Park, Florida, who is the current president of AMA. “The longer we wait to cast it aside, the deeper the hole we dig.”

The American Academy of Family Physicians, which represents relatively low-paid primary care physicians, called for higher reimbursement rates for their specialty. The American College of Surgeons, which represents some of the highest paid specialists and would be hurt by a shift in pay toward primary care, also called for SGR’s repeal and setting a “realistic” budget baseline for future payment increases for all specialties, which should reflect the actual cost of providing care.

Mark McClellan, who headed CMS during the George W. Bush administration and now heads the Brookings Institution’s health care policy shop, told the subcommittee “the payment reforms in the Affordable Care Act are a foundation for this.” That was an ironic statement coming from a former high-ranking Republican official, since the House majority, in a vote taken earlier this year, repealed the new health reform act in a largely symbolic gesture.

The special interest scramble to get Congress to ditch the SGR every year is a cautionary tale about strategies from both sides of the aisle for Medicare cost control. The health care reform legislation pushed through by President Obama and the Democrats achieves a half trillion dollars in Medicare savings over the next decade largely by putting a ceiling on the program’s annual growth rate that is one percentage point faster than GDP.

Obama, in his deficit reduction plan announced last month, upped the ante by calling for a ceiling growth rate of GDP plus 0.5 percentage point. The vehicle for achieving these savings in either case will be the reform law’s new Independent Payments Advisory Board, which starting in 2015 is scheduled to send mandatory cuts to Capitol Hill whenever health care grows faster than the target rate. Congress could either approve those cuts, or substitute a package of its own that achieved similar savings.

Camp attacked that approach yesterday, saying it was unacceptable for “a bunch of unelected bureaucrats” to dictate cuts that “will only cut payments to providers.” But the Republican plan for lowering Medicare’s unsustainable growth, which is called premium support because it would give future seniors a voucher to buy private insurance, has a cap of its own. It pegs the growth in the government’s annual contribution of premium support payments to a formula that is one percentage point higher than the consumer price index, which in most years is well below the growth in the economy.

In reality, any such formula could be thrown out the window by future Congresses – just as the SGR will be when Congress passes its next “doc fix” sometime before next January.

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On a near party-line vote delayed a half dozen times by protesters in the packed galleries, the Republican-controlled House passed a budget plan for the next decade that would dramatically shrink the role of the federal government. The controversial spending and tax blue print, designed by House Budget Committee Chairman Paul Ryan, was approved 235 to 193, with no Democratic support and four Republicans voting against it.

U.S. House Majority Leader Rep. Eric Cantor (R-VA) (C) speaks as (L-R) Rep. Dave Camp (R-MI), Rep. Diane Black (R-TN), Rep. Paul Ryan (R-WI), and Rep. Jeb Hensarling (R-TX) listen during a news conference Wednesday on Capitol Hill. (Photo by Alex Wong/Getty Images)

As the contentious day-long debate neared its conclusion, House Speaker John Boehner, R-Ohio, threw down the gauntlet to President Obama for the upcoming negotiations over raising the $14.3 trillion debt ceiling, which will become necessary sometime in the next several months. “The president wants a clean bill,” Boehner said, but “there will be no debt limit increase unless it is accompanied by spending cuts and real budget reforms.”

Though the House-backed plan stands no chance of passage in the Senate, much less being signed by the president, as a starting point for negotiations it sets a stake in the ground as far to the right as any political party has attempted since Barry Goldwater ran for president in 1964. It calls for far-reaching changes to government programs – more extensive than what was proposed in the 1994 GOP “Contract with America” — that affect about a fifth of the U.S. economy.

The fiscal 2012 budget resolution:

• Cuts spending on domestic programs by over $100 billion next year and continues to add cuts to the environment, housing and education for the next decade, lowering domestic spending as a share of the economy to levels not seen since the first half of the 20th century.
• Shrinks Medicare by giving seniors who turn 65 after 2023 a voucher that would cover about one-third of the cost of insurance-industry provided plans.
• Turns Medicaid back to the states and cuts the federal contribution by $700 billion over the next decade.
• Holds defense spending at levels that remain 20 percent above the last peak during the 1980s.
• Overhauls the tax code to lower taxes on wealthier Americans and some corporations.

The House-passed budget would cut all programs by $6.2 trillion over the next decade. By contrast, President Obama’s budget plan released this week would cut approximately $3 trillion over the next decade and nearly $4 trillion over 12 years. The Republican blueprint uses most of its budget savings to reduce tax collections by $4.2 trillion. The GOP plan would lower top tax rates on individuals and corporations and not allow the Bush-era tax cuts to expire.

Ryan, R-Wis., the plan’s architect, said of the House action today: “This is our defining moment.”

Four Republicans, who joined the 189 Democrats in the chamber, voted against the budget plan. The four were David McKinley, a freshmen from Wheeling, West Virginia who won election last November with 50 percent of the vote; Walter Jones, a nine-term member from Greenville, N.C.; Denny Rehberg, the sole representative from Montana whose two Senators and governor are Democrats; and Ron Paul, a libertarian gadfly from Texas who favors cuts in defense and reduced American commitments abroad.

Rep. Chris Van Hollen of Maryland, the ranking Democrat on the Budget Committee, led the Democratic opposition to the bill. In a preview of what is certain to be a top issue in campaigns across the country in the next election, he and House Minority Leader Nancy Pelosi, D-Calif., repeatedly homed in on the dramatic changes to Medicare contained in the Republican approach to reducing deficits.

“The Republican plan disconnects the amount we give seniors from rising health care costs,” Van Hollen said. “That’s why seniors wind up paying more and more and more.” Democrats repeatedly referred to a Congressional Budget Office analysis released last week that showed seniors who turn 65 after 2023 will pick up 68 percent of their health care costs compared to 20 to 25 percent today.

“Do you realize your Republican leadership is asking you to cast a vote today that abolishes Medicare as we know it?” Pelosi asked in her final comments on the bill. Responded Ryan: “The biggest threat to Medicare is the status quo. … What we say is that in the future people who are wealthy do not need as much subsidy. People who are sick and who are poor get more.

The House-backed plan now goes to the Senate, where it stands no chance of passage since it is controlled by Democrats. A bipartisan group of six Senators, including several who served on the president’s fiscal commission, have been meeting for weeks to craft an alternative.

Their efforts were largely overshadowed this week when President Obama shifted sharply to the right by endorsing much of what was contained in his deficit commission’s plan released last November. The president proposed cutting deficits by $4 trillion over the next dozen years by cutting both domestic and defense spending, and raising taxes on well-off Americans through tax reform and ending the Bush-era tax cuts for those earning over $250,000 a year.

The Republicans who rose in support of the bill repeatedly castigated the president for proposing higher taxes in what is likely to be one of their major election-year themes. “The debt and deficit problem we have today is not because we have taxed too little, but because we have spent too much,” said second-term Rep. Tom Graves, R-Ga.

But Democrats continually linked their tax increases to the cuts in Medicare. “The question is not whether to reduce the deficit, but how,” said Rep. Xavier Becerra, D-Cal., who served on the deficit commission. “This plan gives $130,000 in tax cuts for millionaires while eliminating the guarantee for Medicare beneficiaries to choose doctors [and] adds $6,000 in health care costs. We don’t think Americans should get a coupon instead of a guarantee.”

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Everyone agrees that controlling health care costs is the key to bringing long-term federal budget deficits under control. Government spending on Medicare for seniors and Medicaid for the poor has grown nearly twice as fast as the rest of the economy for decades and is by far the largest component of future projected deficits.

But government funded health care programs aren’t unique in that regard. Employer-based coverage for the working population, which is provided through private insurance companies, has grown just as fast. The problem in a nutshell is the cost of health care, not its funding source.

That’s why it’s important to consider how the two separate sides of our health care system – public plans and private plans – will interact should the Medicare privatization plan that Rep. Paul Ryan, R-Wis., touted on Fox News Sunday become law. The House Budget Committee chairman’s alternative budget would turn Medicare over to private insurers for anyone who retired after 2021. Future retirees would receive a capped payment to buy insurance (he called it “premium support,” not a voucher). Medicaid would be turned into a capped block grant – which translates as a fixed sum awarded to states.

Capping expenditures is central to cost-control in the Ryan plan, which is essentially the same plan that he co-authored with former Congressional Budget Office director Alice Rivlin during the fiscal commission deliberations. The plan limits the annual growth in the amount earmarked for either premium support or block grants to one percentage point more than gross domestic product (call it GDP+1).

That’s about half of the actual health care cost outlays in most years. According to projections released in January, federal spending on Medicare and Medicaid is expected to nearly double to $1.6 trillion by 2021, about a 7 percent annual increase. If the primary goal is holding down taxes and spending, capping that rise at GDP+1 provides the upside. With a wave of the legislative wand, government spending on health care for the old and poor would be reduced to more manageable proportions – between 3.5 and 4.5 percent a year depending on how fast the economy grows. Taxpayers could rejoice.

But just because the government slowed its spending doesn’t mean that old people and the poor wouldn’t have the same health care bills they had before. Health care for these vulnerable populations absent some other force in the marketplace would continue growing at rates significantly faster than the Ryan plan’s GDP+1 formula, just as it has for decades.

Who would pick up the costs that once were picked up by the government? Under the existing system, doctors and hospitals already complain bitterly about the insufficient fees that Medicare pays for the services they provide seniors. Whenever Congress gets close to actually cutting physician pay, which is mandated by prior cost control laws, they immediately restore the cuts out of fear thousands of doctors will carry out their threats to stop seeing Medicare patients.

One option for physicians and hospitals under a capped Medicare premium support system would be to step up what they have always done when faced with inadequate Medicare reimbursement. They could shift even more costs to private, non-Medicare payers, that is, employers and their covered employees. For working stiffs and their bosses, higher taxes would be replaced by higher insurance premiums.

Another option would be for insurers to begin making skimpier plans available to seniors, who would have to make up the additional costs out of their own pockets. Co-pays would rise. Deductibles would rise. Fewer services would be covered.

Isn’t it possible that making seniors have “more skin in the game” through higher out-of-pocket expenses will succeed in cutting out wasteful spending and keep premiums within the capped limits? That’s what a group of conservative think tank experts argued in a letter to on Friday. Premium support “is a new way of structuring the financing of Medicare benefits that gives beneficiaries more control over their health choices and spending,” they wrote. “This premium support arrangement would reverse the incentives now in Medicare that promote wasteful spending.

What this ignores is an extensive body of research that shows raising has consistently failed to hold down costs. Moreover, when people do self-ration care based on price, they are just as likely to eliminate vital and cost-effective health and preventive services as they are to jettison waste. Most citizens, especially the frail elderly and the under-educated poor, are ill-prepared to sort out the wheat from chaff in modern high-technology medicine.

There is one way to avoid these negative outcomes. The government could set minimum standards for the insurance plans sold to seniors and the poor and set up exchanges, perhaps in the states, to enforce those standards. It could also guarantee that the premium support was adequate for poorer seniors (about half live solely on Social Security) to purchase those plans.

There’s a precedent for this approach. Republicans call it “Obamacare.” Democrats call it health care reform, which also included an Independent Payment Advisory Board that every year after 2015 is going to recommend to Congress cuts in Medicare anytime expenditures go over GDP+1. Republicans want to repeal this measure, along with the rest of the bill.

Turning Medicare and Medicaid over to the insurance industry selling exchange-regulated policies would require one more law change in order to achieve the savings promised by Ryan-Rivlin. It would require the government directly regulate the prices charged by insurers so they never grew faster than GDP+1. While Democrats were willing to put that on the table for Medicare (subject to a Congressional vote, of course), no one has been willing to suggest price controls on the private sector.

Princeton University health economist Uwe Reinhardt, who sits on the boards of device-maker Boston Scientific and Amerigroup, a managed care provider, argued in his February critique of the Ryan-Rivlin plan that the most likely outcome of turning Medicare into a defined contribution plan from its current defined benefits would be an ever-widening gap between the level of government support and what constitutes good health care in our society. That would lead to “a multi-tiered health system with a highly financially constrained, bare-bones system for tax-financed health insurance, a broad but varied set of tiers for privately insured patients and a boutique tier for Americans able to afford that style of care.”

Ryan suggested his plan would avoid this fate by means testing the . “Wealthy seniors” would get less, while poorer and sicker seniors would get more. Yet he acknowledged that a premium support system would shift more costs onto seniors as a group.

And it was that element that drew immediate fire from his counterpart on the Budget Committee, ranking member Rep. Chris Van Hollen, D-Md., who was more than willing to send a surge of current down the third rail of American politics. The Ryan plan, he said, would “end the current health care guarantees for seniors on Medicare, and deny health care coverage to tens of millions of Americans. That’s not courageous, it’s wrong.”

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For most of the past decade, Democrats and Republicans in Congress have competed over who could pour more money into the National Institutes of Health, the largest funder of biomedical research in the world.

But the party is over. The  by a leading House Republican this week included cancellation of the $1 billion that the Obama administration wanted to add to the $31 billion NIH budget.

It was part of a broad assault on science funding that was announced by appropriations , R-Ky., who also called for large cuts at the National Science Foundation, the White House Office of Science, the National Oceanic and Atmospheric Administration and the National Aeronautics and Space Administration.

The purpose, , is “to rein in spending to help our economy grow and our businesses create jobs.”

If creating jobs is his goal, Rogers might want to take a look at  that appeared Thursday in the New England Journal of Medicine, which found that publicly-funded research is a far more important contributor to the creation of new drugs and vaccines than previously thought. The classical view of innovation is that government funds basic science, while industry comes up with the new and innovative products based on that science.

But innovation never was solely the province of private actors pursuing their self interest. And it turns out that now it is even less so. Nearly one out of every five important medical advances approved by the Food and Drug Administration between 1990 and 2007 was invented in a federally-funded lab, according to the study, which previous estimates had put at closer to one in 15.

Moreover, those inventions, which included 40 new drugs for cancer, are currently generating in excess of $100 billion a year in sales for drug and biotechnology firms. That’s about one-sixth the total revenue for the entire global .

“These federal grants are not for product development, they’re for advancing basic science,” said study author Ashley J. Stevens, a senior researcher at Boston University’s School of Management. “But they happen to have both significant public health benefits as well as economic development benefits.” The transmission belt that allows transfer of government-funded inventions from grant recipients to the private sector was built in 1980 with passage of the Bayh-Dole Act, named after its two Senate sponsors, Democrat Birch Bayh of Indiana and Republican Bob Dole of Kansas. The law became a core element of the U.S. innovation system, and a major source of the U.S.’s competitive advantage in global commerce.

It allows scientists and their institutions to patent government-funded inventions and license them to the private sector. Prior to Bayh-Dole, those breakthroughs were put in the public domain, which eliminated the incentive for commercialization since no firm would invest in developing the product when another company could simply copy the invention.

In the wake of that law, the role of the public sector in spurring biomedical innovation surged, the study found. Over the past 40 years, 153 new FDA-approved drugs, vaccines or new indications for existing drugs were discovered through research carried out at public institutions with federal funding. More than half were used to treat or prevent cancer and infectious diseases, which isn’t surprising since the National Cancer Institute ($5 billion) and the National Institute for Allergy and Infectious Diseases ($4.7 billion) are the .

Last month, NIH  plans to take its efforts to spur biomedical innovation to a higher level by creating a new institute specifically aimed at generating new products for industry. NIH director Francis Collins stripped $700 million from existing NIH science budgets to get the project up and running, and asked Secretary of Health and Human Services Kathryn Sebelius to seek an additional $1 billion from Congress for the program.

That’s wishful thinking now. The once-powerful lobbying groups that push for increased NIH funding – ranging from patient advocacy groups to university medical centers to drug and biotech firms – fear the cancellation of the president’s proposed increase is just the first wave of what will shortly become a major assault on federally-funded biomedical science. “We seem to be treating defense like an entitlement while carving deeper and deeper into discretionary budgets,” said Mary Woolley, president of Research America.

“Congress should definitely cut NIH spending,” said Michael Cannon, a health care analyst at the libertarian Cato Institute, which backs large cuts in federal spending. “Cutting NIH spending probably would result in less innovation, but it is less clear that the benefits of those forgone innovations exceed the costs.”

The chairman of Research America is former Republican Rep. John Porter of Illinois, who spent his years on Capitol Hill as the chief champion of increased NIH funding. Unfortunately for Porter and Research America, moderate Republicans like himself have gone the way of the dodo bird.

“This will undercut U.S. competitiveness in biomedical research in a very big way,” Woolley said. “Other countries have learned from the U.S. that putting resources behind biomedical research will lead not only to better health outcomes but economic growth.” That isn’t a message with much appeal to the new House majority.

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