Cost Drivers of Healthcare

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The Mayo Clinic and the Free Market

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The Mayo Clinic and the Free Market

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Dr. Michel Accad is a practicing cardiologist who blogs for a medical audience at alertandoriented.com

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The Most Costly Medical Conditions

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Penthouse Interviews Murray Rothbard

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A Free Market Repudiation of Evidence-Based Medicine

Michel AccadIn a recent article entitled “A Hayekian Defense of Evidence-Based Medicine” Andrew Foy makes a thoughtful attempt to rebut my article on “The Devolution of Evidence-Based Medicine.”  I am grateful for his interest in my work and for the the kind compliment that he extended in his article.  Having also become familiar with his fine writing, I return it with all sincerity.  I am also grateful to the THCB staff for allowing me to respond to Andrew’s article.

Andrew views EBM as a positive development away from the era of anecdotal, and often misleading medical practices:  “Arguing for a return to small data and physician judgment based on personal experience is, in my opinion, the worst thing we could be promoting.”  Andrew’s main concern is that my views may amount to “throwing the baby with the bath water.”

On those counts, I must plead guilty as charged.  I have been trying to sink that baby for a number of years now, attacking it from a variety of angles.  I have made a special plea in favor of small data and I have even questioned the intellectual sanity of EBM.  On the question of the coexistence between EBM and clinical judgment, I have been decidedly intolerant, relegating EBM to second class citizen status.  In other words, I’m an unapologetic EBM-denialist which, as I found out yesterday on Twitter, puts me in the same category as climate change skeptics.

My main concern today, however, is to address the relationship between EBM and the free-market, and to reject Andrew’s point that EBM is somehow compatible with it.  First, though, let me say that in no way do I deny the notion that American medicine has, for decades, harbored practices of highly doubtful benefit to benefit to patients, and that many such practices may, in fact, have been dangerous or harmful.  I am fully on board with any effort to eradicate “eminence-based medicine.”

But before we reach out for an EBM solution to that problem, perhaps we should first wonder about causes.  What keeps the errors of eminence-based medicine persisting for so long?  Why do patients and doctors remain so wedded to a course of therapy as to blithely engage in unbeneficial or even harmful care?

If I read Andrew correctly, he seems to believe that these errors persist because outcome uncertainties are inherent to clinical care, hence the need for EBM. But that cannot be the fundamental reason.  Why would patients continue to pursue a treatment for which they have neither objective nor subjective tangible benefit?  Why wouldn’t they refuse to go along?  After all, many of them do exercise their ability to be non-compliant in the case of treatments deemed beneficial to them according to the truths of EBM!

Outcome uncertainty, then cannot be the reason why futile or harmful treatments persist, and if outcome uncertainty is not the reason, reducing it by way of EBM may not be the answer either.

What eludes Andrews is that eminence-based medicine is not simply the result of individual doctors exercising judgment with limited knowledge. Rather, eminence-based medicine happens when doctors apply their own pet theories and disregard the needs and wants of the patient at hand.

By missing that point, Andrew misses that eminence-based medicine is precisely minimized by the free-market and, on the contrary, encouraged by government intervention.  The history of American medicine provides ample examples to make that point.

In the late nineteenth century, healthcare in the United States was uniquely unregulated.  Yet, contrary to common belief or fabricated myths, care was improving by leaps and bounds, getting at once better, cheaper—and more scientific.  It is during that time that some of the finest medical institutions emerged, including the Mayo Clinic and the Johns Hopkins Hospital.  Sure, there were snake oil salesmen, but these were by-and-large being driven out of business by a growing community of serious, well-trained, and effective physicians.  And competition among these practitioners kept them humble and at the service of patients.

All of this changed in the 1910’s when, following the Flexner reforms, state licensing laws were enacted.  It is in the heels of these laws that medical paternalism emerged.

As an illustration, consider this passage excerpted from an official report published soon after the enactment of licensing laws:

The physician is the outstanding practitioner of medicine.  The need and the value of his service sets him above all others.  He alone, of all types of medical practitioners in the United States, is permitted by law to diagnose and treat all diseases and conditions and to use (with certain minor exceptions) any form of diagnostic or therapeutic technique which he considers necessary, desirable, and within his professional skill.  (Report of the Committee on the Cost of Medical Care, 1928, p. 195)

From that point onward, medical abuses of privilege became much more widespread than they had been.

Furthermore, as Kenneth Ludmerer has pointed out, this elevation of the physician to the status of demi-God by government fiat went hand-in-hand with the rise of the academic ivory tower, since academic medical schools were producing the “cream of the crop” among doctors.  Academic ivory towers, naturally, become common sources of practices founded on eminence.

Of course, licensing laws and the emergence of the ivory towers are not the only factors to consider.  Other government interventions soon followed to bring about systems of third-party payment for medical care—health insurance.  Without these government interventions, and without the existence of licensing laws, it is unlikely that health insurance would have emerged from the free market.  By unmooring medical decisions from any financial constraints, health insurance contributes immensely to the perpetuation of eminence-based practice.

It is this regulatory context, then, that is at the root of eminence-based medicine, and not the uncertainties of clinical care which, in a profound way, are inherent to the medical encounter.

Andrew believes that EBM discovery is akin to price setting on the free market.  I strongly disagree with that analogy.  As Andrew himself has noted, prices set in the free market convey consumer values and are the end results of myriad decisions made on the basis of dispersed knowledge.

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The-Psychology-of-Analytics-When-Working-is-Not-Working

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EBM results, on the other hand, are statistical relationships between interventions and outcomes which are carefully selected by investigators in highly contrived experimental settings.  In these settings, the choices and preferences of doctors and patients are ignored or neutered by design in order to isolate the relationship of interest.  Any value obtained as a result of an EBM experiment is primarily imputable to the investigators or sponsors, and only secondarily (and statistically) of benefit to patients.

EBM is no free market phenomenon.  EBM is an academic invention incubated in Canada, a country with a single-payer healthcare system!  As I described in my article, this invention has spun out of control and has turned EBM into a weapon wielded with equal vigor by the pharmaceutical industry, by regulators, and by those who aim to equalize the historical excesses of eminence-based medicine through the dubious doctrine of “Less-Is-More.”  None of these movements, it seems, are motivated by a desire to advance a genuine human science that is meaningful to individual patients.  In fact, to the extent that is a pet theory which standardizes care for entire populations, EBM is eminence-based medicine on steroids.

But if EBM is by no means a product of the free market, can the free market address our need to improve therapeutic predictions or will it set us back to a clinical stone age?

So long as narrowing clinical outcome expectations is truly desired by doctors and patients—and there is no reason to doubt that it is—then the free market is demonstrably the optimal environment that can allow human ingenuity to devise clever ways and methods to achieve that goal.  But what shape or form would those methods take and how closely would they resemble what we now take to be evidence-based science, I have no idea.  If I believed I held that knowledge, I would be repudiating Hayek.

Assessment

EBM Systems Engineering Vision MARCINKO

An FA Hayekian Defense of Evidence Based Medicine

About

Michel Accad is a cardiologist who practices in San Francisco.  He blogs at Alert and Oriented and can be followed on Twitter @michelaccad

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On Pregnancy Ultra-Sound Price Variations

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Specialty Medication Cost Trends

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FOR 2015

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CMS Announces New Random Payment Generator

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Center for Medicare & Medicaid Innovation

By CMS and CMMI

CMS JUST ANNOUNCED a new Innovation Model from the Center for Medicare & Medicaid Innovation, the Random Payment Generator, which will launch as a demonstration in January 2017.

“We’re pleased to add an eighth category of Innovation Models to our innovation portfolio,”

says CMMI spokesperson Dr. Emmett Brown.

“We felt that with the wide range of models developed to date, we needed to develop a ‘placebo’ initiative that could be measured against the various concepts we have been testing. We’ll be able to better determine if simply taking random actions while facing the formidable challenges in purchasing and coordinating healthcare services yields any different results than the complex models we have undertaken.”

The Random Payment Generator will simply randomize payment amounts to be paid for billed services, based on an algorithm that has programmed into repurposed surplus portable equipment being distributed to Medicare Administrative Contractors. Doctor Brown explained that the older equipment has no Internet connectivity and thus is not susceptible to breaches from outside hackers.

CMS is seeking hospital and medical group applicants to participate in the one-year Medicare trial in which they may render services and submit billings without being subject to most provider program requirements, but will accept whatever payment amount is assigned by the Random Payment Generator as payment in full.

“A number of provider participants in our other models have complained that they can’t understand or find any logic in how they are getting paid, and the basis for payment under this new model will certainly be easier to communicate and understand,”

Doctor Brown continued.

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[A Random Payment Generator being shipped to Medicare Administrative Contractors]

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Capitation?

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What Capitation?

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By Ira Nash, MD

By Policy makers who are responsible for shaping how the federal government (the country’s biggest payer of health care services) pays physicians are pushing CMS on a rapid path away from traditional …

Capitation? What Capitation?

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Sherlock Health Administration Expense Benchmarks Invitation

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Sherlock Benchmarks – Participation and Licensing

By Douglas B. Sherlock CFA

sherlock@sherlockco.com

thoughtSherlockHello All ME-P Readers and Subscribers:

This email invites your participation and/or licensing of the Sherlock Benchmarks.

A central effect of the Affordable Care Act is to sharply increase the incentive for health plans to minimize their administrative expenses. The Sherlock Benchmarks can be a catalyst to respond to these incentives since they identify and prioritize cost variances.

Use of the Sherlock Benchmarks reflects this:

• At least 40 health plans serving at least 40 million people with health insurance are so far committed as participants in this year’s Sherlock Benchmarking study.

• Of the 36 U.S. – based Blue Cross Blue Shield primary licensees, one-half are participating in this year’s Sherlock Benchmarking Study, either as an enterprise or through a subsidiary.

• Of the 13 members of the Alliance of Community Health Plans that are not focused on public programs or are staff-model plans, 11 are participating in this year’s Sherlock Benchmarking Study for Independent / Provider – Sponsored Health Plans.

• Most of the largest members of the Health Plan Alliance that are not focused on public programs are participating in this year’s Sherlock Benchmarking Study for Independent / Provider – Sponsored Health Plans.

• Health plans serving at least one-half of all insured Americans are licensed users of Sherlock Benchmarks since January 1, 2015.

Licensing and participation is available to all health plans

We have recently launched the Independent / Provider – Sponsored and Blue Cross Blue Shield surveys. There is still time, but the financial metrics survey form must be returned to us by the end of April.

So please contact me immediately if you wish to join these robust panels.

Our universes of Medicaid and Medicare plans will launch in a few months to avoid conflict with your Medicare bid process. If a plurality of your members are in either Medicare or Medicaid, please contact us about participation. Note that all costs are segmented by product as well as by function to assure an apples-to-apples comparison between the plans.

Licensing is available without participation. Licensing costs more but it entails less effort.  The 2016 Sherlock Benchmarks for Blue Cross Blue Shield Plans and Independent / Provider – Sponsored plans will be available beginning in July. The 2016 Sherlock Benchmarks for Medicare plans and Medicaid plans will be available beginning in September. 

Assessment

We look forward to working with you.

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Shoppable Healthcare Spending

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On Outpatient Care Cost Savings

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Healthcare Costs for 7 Primary Care Consumer Markets

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Update on the FOMC and Interest Rates

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What if the Fed DOESN’T Raise Rates?

Michael-Gayed-sepia

 

 

 

 

 By Michael A. Gayed CFA

***

With odds high for the Federal Reserve’s first rate hike in nearly a decade, and seemingly everyone predicting that rising rates are coming in the next few weeks, why in the world is the yield curve not steepening aggressively?

Something curious is happening

There is a mistaken notion out there that if the Fed raises rates, the cost of capital on everything is going to rise.  This is far too simplistic a way of viewing the bond market.  If the Fed raises rates and the market perceives it as being too early, then longer duration bond yields likely would actually fall and credit spreads likely would widen.  In other words, some rates could fall because the Fed is raising short rates.

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gv

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In a healthy environment, Fed hiking would coincide with a steepening yield curve, as growth and inflation expectations become more aggressively priced in. As of late, it seems as though the bond market vastly disagree with the Fed’s December timing.

Of course all this could change, as probabilities continuously change

So, if the Fed decides not to raise rates, and the yield curve continues to flatten, then something very serious may be underway in terms of 2016 economic expectations.  It does seem plausible that from a cycle perspective, the era for passive buy and hold investing in large-cap stocks is nearing its end, allowing for more active alpha opportunities to present themselves.

This would likely translate into more volatility in equities, which we believe our alternative Morningstar 4 Star overall rated ATAC Inflation Rotation Fund (Ticker: ATACX, rating as of 9/30/15 among 234 Tactical Allocation Funds derived from a weighted average of the fund’s 3-year risk-adjusted return measures) is distinctly qualified to handle given our focus on being defensive in Treasuries at the right time.

Having said that, despite my own personal believe the Fed will raise rates, it is concerning to see how longer duration bonds are behaving.

The key needs to be a comeback in commodities and emerging market stocks

For the yield curve in the United States to steepen, and for the Federal Reserve to “get it right,” likely a surprise recovery is needed in cyclical growth sentiment.  Commodities and emerging markets are among the most sensitive areas of the investable landscape to that, so it stands to reason that their movement would show the whites of the eyes of that happening.  The issue however is that every time is looks like budding momentum is about to become more entrenched, that momentum quickly reverses and creates a false positive on rising growth expectations.

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gears

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Recent manufacturing data confirms that not much has changed on the growth side of the equation.  So far, broader equities seem to not care given historically favorable December seasonality.  That doesn’t mean one should not be considering this in an overall asset allocation policy.

Complicating-The European Central Bank

In many ways, crushing the Euro through more stimulus has the same effect as Federal Reserve tightening precisely because a rising Dollar is a contractionary force to exports.  European stimulus is Fed tightening IF it results in a Dollar super-spike.  Should that occur, the Fed would be more likely that not to not raise rates and actually do another round of stimulus.

Assessment

Insane sounding?  Maybe.  But; so is an environment where no amount of money printing seems to be accelerating the economy.

ABOUT

The ATAC Rotation Mutual Funds are managed by Pension Partners, LLC, an independent registered investment advisor.  The strategies were developed by Co-Portfolio Managers Edward M. Dempsey, CFP® and Michael A. Gayed, CFA. The Funds rotate offensively or defensively based on historically proven leading indicators of volatility, with the goal of taking less risk at the right time.

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Are Interest Rates expected to increase in December?

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And, the Bureau of Labor Statistics (BLS) said …

Art

By Arthur Chalekian GEPC
[Financial Consultant]

U.S. job growth surpassed expectations in October. About 271,000 jobs were created across diverse industries: professional and business services, health care, retail, construction, and others. That was a significantly higher number than predicted by economists who participated in a survey conducted by The Wall Street Journal. They expected to see 183,000 new jobs for October.

BLS revised

The BLS revised August and September jobs numbers higher overall and reported improvement on the wage front, too. Average hourly earnings increased by nine cents during October. For the year, hourly earnings are up 2.5 percent. Rising wages and a 5 percent unemployment rate “appear to indicate the labor market has reached full employment,” reported Barron’s.

Strong employment data supports the idea the Fed will begin to lift the Fed funds rate this year. On Friday, former Chairman of the Federal Reserve Ben Bernanke wrote in his blog:

“Wednesday was something of a trifecta for Fed watchers: Chair Yellen, Board Vice-Chair Stanley Fischer, and Federal Reserve Bank of New York president Bill Dudley (who is also the vice chair of the Federal Open Market Committee) all made public appearances. Moreover, the comments by all three members of the Fed’s leadership explicitly or implicitly supported the idea that a December rate increase by the FOMC is a distinct possibility. (The possibility of a rate increase is even more distinct with this morning’s strong job market report.)”

Markets responded swiftly, according to The Wall Street Journal, as investors repositioned their portfolios in anticipation of a rate hike. While stock market indices remained relatively steady, there was considerable volatility within certain sectors. An expert cited by the publication commented:

“…one of the big rotation trades on Friday was investors taking money out of companies such as utilities and real-estate-investment trusts, and putting it into those that are expected to benefit from higher rates, such as financial companies.”

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Congrats to Dr. Angus Stewart Deaton

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[Staff reporters]

Angus Deaton – Princeton University

The Princeton University economist Angus Deaton won this year’s Nobel Prize in economic sciences.

https://en.wikipedia.org/wiki/Angus_Deaton

Nobel Prize Medal

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ME-P Health Economics, Financial Planning & Investing, Medical Practice, Risk Management and Insurance Textbooksfor Doctors and Advisors

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Dr. David Edward Marcinko, editor-in-chief, is a next-generation apostle of Nobel Laureate Kenneth Joseph Arrow, PhD, as a health-care economist, insurance advisor, financial advisor, risk manager, and board-certified surgeon from Temple University in Philadelphia. In the past, he edited eight practice-management books, three medical textbooks and manuals in four languages, five financial planning yearbooks, dozens of interactive CD-ROMs, and three comprehensive health-care administration dictionaries. Internationally recognized for his clinical work, he is a distinguished visiting professor of surgery and a recipient of an honorary Bachelor of Medicine–Bachelor of Surgery (MBBS) degree from Marien Hospital in Aachen, Germany. He provides litigation support and expert witness testimony in state and federal court, with medical publications archived in the Library of Congress and the Library of Medicine at the National Institutes of Health.

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A primer to tonight’s GOP debate

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Health Entitlements & the Deficit

By Nancy Chockley PhD

NIHCM.org

Congress is poised to pass a budget plan that will raise funding levels for the next two years. While these changes are paid for, the plan does not include structural changes to the health entitlement programs that are a leading driver of our budget deficits and mounting debt.

The GOP presidential candidates are likely to discuss a variety of proposals for structural reforms to these programs during tonight’s debate.

As a primer to this important conversation, this chart story presents essential facts about spending for Medicare, Medicaid and the Affordable Care Act and the impact of these programs on the deficit.

http://www.nihcm.org/health-entitlement-spending-a-growing-threat#one

business-valuation1

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[HEALTH INSURANCE, MANAGED CARE, ECONOMICS, FINANCE AND HEALTH INFORMATION TECHNOLOGY COMPANION DICTIONARY SET]

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[Mike Stahl PhD MBA] *** [Foreword Dr.Mata MD CIS] *** [Dr. Getzen PhD]

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Healthcare Costs During Retirement

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Estimations ….

By http://www.MCOL.com

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FREE! In Swedish Medicine

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An Interesting Innovation

dan-snapshot

[By Dan Ariely PhD]

I recently learned of an interesting innovation in medical pricing coming from Sweden.

This pamphlet from the healthcare authority states (translated):

“If you have a respiratory problem and you don’t take antibiotics for it during your first visit to the doctor, you have the right to a second visit within five days free of charge”.

Read more about this approach here …

FREE! In Swedish Medicine

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Medicine: A Lesson In Efficient Markets

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MEDICINE: A Lesson In Efficient Markets

dan-snapshot

[By Dan Ariely PhD] http://danariely.com

The market for medicine is incredibly interesting. Almost every day we learn something new about a treatment that we thought would work but does not, or about a treatment that we didn’t think would work but does.

Beyond the particular fascination, I think that the medicine market can also teach us important lessons about rationality … read more:

Medicine: A Lesson In Efficient Markets

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  [Foreword Dr. Hashem MD PhD] *** [Foreword Dr. Silva MD MBA]

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Some Cost Ranges for Common Medical Procedures

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A Price Transparency Survey in MASSACHUSETTS

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More: FAIR Health Dental Cost Look Up

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Blue Cross Blue Shield, Independent / Provider – Sponsored Plans

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Transcripts and Slides

DougBy Douglas B. Sherlock, CFA sherlock@sherlockco.com

The Affordable Care Act is intended to create strong incentives to reduce the administrative costs of health insurers. The medical loss ratio rules and the new ACA-related taxes are manifestations of this policy, and the recent announced business combinations between leading national health insurers are adaptations to these incentives.

It follows that the most recent rate of increase in health plan administrative expenses, excluding the new taxes, is dramatically lower than in recent years. Sherlock Company materials summarizing the results of our surveys are found below.

Independent / Provider – Sponsored Plans

Blue Cross Blue Shield Plans

Assessment

The contents above are a very small portion of the 1,000 page Sherlock Benchmarks for each of these universes. The Sherlock Benchmarks are essential tools to manage administrative costs for your health plan.

budget

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[Foreword Dr. Phillips MD JD MBA LLM] *** [Foreword Dr. Nash MD MBA FACP]

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National Mega Health Plans

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Membership Top 10 Largest Plans

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Investing and the “Tragedy of the Commons”

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On Economics, Investing and Behavioral Finance

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[By Dr. David E. Marcinko MBA]

Although I did not fall asleep during my psychiatry rotations, or psychology classes, in medical school; the concept of ToC was not known to me until my first economics class while in B-School.

What it is!

The tragedy of the commons is a term, originally used by Garrett Hardin, to denote a situation where individuals acting independently and rationally according to each’s self-interest behave contrary to the best interests of the whole group by depleting some common resource.

The term is taken from the title of an article written by Hardin in 1968, which is in turn based upon an essay by a Victorian economist on the effects of unregulated grazing on common land.

Commons” in this sense has come to mean such resources as atmosphere, oceans, rivers, fish stocks, the office refrigerator, energy or any other shared resource which is not formally regulated; not common land in its agricultural sense.

The tragedy of the commons concept is often cited in connection with sustainable development, meshing economic growth and environmental protection, as well as in the debate over global warming. It has also been used in analyzing behavior in the fields of economics, evolutionary psychology, anthropology, game theory, politics, taxation, and sociology.

However the concept, as originally developed, has also received criticism for not taking into account the many other factors operating to enforce or agree on regulation in this scenario.

Example: UMD ‘tragedy of the commons‘ tweet goes viral – Baltimore Sun

Investing Behavior?

Today, some financial advisors, wealth managers, doctors and behavioral psychologists believe the ToC is an increasingly important concept in investing.

Source: https://en.wikipedia.org/wiki/Tragedy_of_the_commons

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confirmation-bias

Greed is still trumping fear, and that’s bad for stocks …

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Assessment

So what does all this have to do with investing? Are we experiencing this phenomenon in the markets, today?

Read the article thru the link above; fear and greed.

More:

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Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners(TM)

Front Matter with Foreword by Jason Dyken MD MBA

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“BY DOCTORS – FOR DOCTORS – PEER REVIEWED – FIDUCIARY FOCUSED”

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Connect to the ME-P Searchable Virtual Library

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Our Searchable, and Ranking, Knowledge Portal

By Ann Miller RN MHA

[Executive Director]

We’ve collected all of our best research, solution information, and social buzz to create the Medical Executive-Post Portal and new virtual, and real, library.

From the new ME-P Portal, you can search, sort, and filter through our information archives to quickly find what you’re looking for—or feel free to browse and explore a variety of topics when you have a few minutes to spare.

From subject-specific original, or curated, blog posts and researched-based white papers, to solution overviews, e-Briefs, infographics, dictionaries, CD-ROMs, handbooks, major textbooks and more; you’ll find the answers to your healthcare economics, administration, financial planning and medical practice management and business questions here.

And explore a library of answers to your complex healthcare business decisions

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David Belk MD Announces New Website [True Cost of Healthcare.net]

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A Site Re-Design

belk[By David Belk MD]

Here’s the new website with a whole new look that’s been redesigned by Modern Creations: http://truecostofhealthcare.org

There are three new sections:

The first is a study of the prices of brand name medications. It shows that the price pharmacies in the US pay for brand name drugs have gone up an average of 40% in 2 1/2 years. That’s about 18 times the rate of inflation.

The other two new pages examine Medicare supplemental policies as well as Part D and Advantage programs:

The page on supplemental policies is an expansion of the blog I wrote 2 years ago on the subject. It answers just about any question you might have about what Medicare covers and how much you would expect to pay if you have Medicare and need medical treatment

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 David Belk, M.D., Announces New Website

hospital bills

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Assessment

Feel free to tell me what you think of it. Also, I’m sending this message from my new email address – truecostofhealthcare@gmail.com

Conclusion

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“Navigating a course where sound organizational management is intertwined with financial acumen requires a strategy designed by subject-matter experts. Fortunately, Financial Management Strategies for Hospital and Healthcare Organizations: Tools, Techniques, Checklists and Case Studies provides that blueprint”

 —David B. Nash MD MBA Jefferson Medical College, Thomas Jefferson University, PA

On Medical Inflation Rising [Managed Care vs Reference Based Pricing]

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Beating Medical Trends

[By William Rusteberg]

www.RiskManagers.us (click on WEBLOG)

Medical inflation continues to rise at a rate above the growth rate in the economy. Facing rate increases year after year, plan sponsors, with their financial backs to the wall, have historically resorted to cost shifting. These continued failed attempts to control costs have driven some to seek alternate means to restore pricing sanity to health care. To many, the cost of health insurance can mean the difference between profit and loss.

The Problem

Understanding the cost of health care is directly related to what we agree to pay, more and more employers are questioning managed care contracts upon which their health care costs are based. Many are discovering the truth for the first time. Secretive contracts between health care givers and third party intermediaries contain provisions that guarantee continuous and systematic cost increases. Shared savings side agreements and other schemes found in the health industry economic chain help fuel raging health insurance costs.

Known as medical trend, cost increases have proven to be consistent and predictable. The expected rise in the cost of medical services over time is expressed as an annual percentage increase and is an important element in underwriting future risk. Medical trend is a dominant cost driver in rate making. The annual compounding effect can double or triple health care costs in just a few years.

“For managed care plans, the medical care inflation part of trend is a function of the changes in provider reimbursement rates that are negotiated. To the extent that such negotiations entail factors such as outliers and provider bonuses, the trend rate may be materially more than simply the weighted average increase in fees.” Kevin Gabriel, MBA, FSA, MAAA, Chief Actuary of Sierra Berkshire Associates, Inc.

Photo of hands of businesspeople during discussing

Photo of hands of businesspeople during discussing

The Solution

Moving away from managed care contracts, more and more employers are embracing a myriad of reference based pricing models. These models can vary in scope and reach; however all share certain common characteristics in conformance with prudent business practices. Price transparency and claim benchmarking are key elements.

In 2007 – 2008 we approached several of our clients to suggest something different to control costs. The concept was simple. Eschew managed care contracts in lieu of claim benchmarking off multiple data points such as Medicare reimbursement rates. Removing managed care contracts, i.e, PPO, and paying providers quickly, fairly and directly had an immediate impact on claim costs.

After 15 months we performed a study by running 100% of claims back through the prior PPO network reimbursement rates. This exercise proved a net savings of 43% above and beyond the PPO discounts we would have otherwise experienced. Instead of doing the same thing year after year, our clients did something different and it worked.

It has been seven years since our first client exited the managed care world.  Subsequently more clients have embarked on the same journey, most with equally good results. None have returned to the world of managed care.

stock market

The Evidence

Skeptics may ask “How have your clients fared over time? Have they won the battle against medical trend?” The answer may be found by reviewing the experience of four of our clients who have been on a reference based pricing model for five years or more.

Our study is based on actual paid, mature medical claims through succeeding plan years starting in the first year on reference based pricing benchmarked off the prior year under a managed care plan. All claims above stop loss levels have been excluded.

This abbreviated analysis does not recognize changing demographics and plan changes. For example the leveraging effect of higher deductibles will increase trend factors. Of particular importance it should be noted that plan changes occurred in each case through improved benefits supported by claim savings. This study includes medical claims only.

One must understand that medical trend is just one of the factors used to calculate renewal rates for health plans and stop loss insurance. Each year carriers set their own trend level based on various factors, including the current health care inflation rate, analysts’ forecasts and their own experiences. However, our clients are self-funded and thus bear most risk with actual trend directly affecting costs without the benefit of pooling to any significant degree.

Over the past several years, trend rates have consistently run 8-10% nationally, though certain regions have seen significantly higher or lower figures. Prescription drug trends (which are a component of this) have been more volatile. In the early 2000’s these trends were above 15%. They then fell back to single digit levels. But they have now returned to the teens.” – Kevin Gabriel, MBA, FSA, MAA

In comparing our client’s experience with average medical trend, we relied upon Heffernan Benefit Advisory Services – 2013 Trend Report; Historical Trend Factors. Based on this report, we are using 9.615% as average annual medical only trend factor.

statistics

Political Subdivision – 400 Employee Lives

This case has been on RBP for 7 years. They experienced poor claim years in 2010 and 2012. In 2012, for example, there were 14 large claims that approached or exceeded $125,000. Medical PEPM for 2014 and 2015 (to date) is less than 2008. Benefits have been improved; no deductible or co-insurance features with all benefits subject to co-pays only. Funding increase over seven years has been 15.6% or 2.23% per year.

Beating Medical Trends

Public School District – 900 Employee Lives

This case has demonstrated a consistent downward claim trend. Current PEPM (2015) is less than 2008-2009. No benefit reductions. Some benefit improvements. Plan funding has remained essentially static for the past five years. 

Beating Medical Trends

Medical Industry – 280 Employee Lives

Plan year 2012-2013 experienced an outlier year with several large claims and 34 pregnancies. Current medical PEPM is 16% higher than under managed care plan in 2008-2009, representing a 2.66% increase per year (sans outliers). This illustrates that higher utilization and outlier claims will result in increasing cost which would occur under either managed care or RBP model. However, RBP trend factor continues below industry benchmarks. 

Beating Medical Trends

Retail Business – 818 Employee Lives

This case has consistently been well below medical trend. Current medical PEPM is significantly lower than plan year 2008-2009. This case has not raised plan contributions in seven years.

Beating Medical Trends

Conclusion

Managed care has failed. Medical costs continue to soar. Providers are charging more and we continue to agree to blindly pay up through secretive contracts negotiated by vested interests. Medical trend has, and continues to be, consistently at double digits or close to it.

Cost plus insurance / reference based pricing is a proven method to maintain and even improve comprehensive coverage while at the same time keeping costs reasonable, predictable and consistent. Industry sources estimate reference based pricing plans represent 10% market share and rising. An east coast hedge fund, seeking opportunities in reference based pricing models, predicts reference based pricing will gain 60% market share within the next five years.

“What moves things is innovation. But it’s not easy to innovate in stagnant, hyper-regulated, captured sectors” – Max Borders  (www.fee.org)  Cost shifting under the Affordable Care Act will continue to fail to control costs.

Reference Based Pricing represents the last frontier in innovation to control health care costs in a tightly regulated and controlled market.

Plan sponsors can reasonably expect to reduce their health care costs below medical trend without benefit reductions or cost shifting of any kind.

Conclusion

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“Navigating a course where sound organizational management is intertwined with financial acumen requires a strategy designed by subject-matter experts. Fortunately, Financial Management Strategies for Hospital and Healthcare Organizations: Tools, Techniques, Checklists and Case Studies provides that blueprint”

 —David B. Nash MD MBA Jefferson Medical College, Thomas Jefferson University, PA

A Mid-Year Update on Physician Compensation

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Medscape Compensation Report

vicki

By Vicki Rackner MD

A 2015  Medscape Compensation Report sheds light on physicians’ earning potential.

Here are some key findings from a survey of 20,000 physicians in 26 specialties:

  • Orthopedists ($421,000) and cardiologists ($376,000) are still the top earners among physicians.
  • Physicians in private practice earn significantly more ($329,000 for specialists) than do employed physicians ($258,000 for specialists), despite the trend toward employment.
  • Male physicians earn more ($284,000) than their female counterparts ($215,000).
  • North Dakota and Alaska ($330,000) are the top-paying states for physicians, while Rhode Island ($217,000) and Maryland ($237,000) are the lowest-paying.
  • 9% of physicians have concierge or cash-only practices, the same percentage as last year, while ACO participation continues to grow.
Assessment

However, it’s not what you make that’s important; it’s what you keep. Click here to read a blog post about the Myth of the Rich Doctor that addresses the disconnect between income and wealth.

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More:

So, what are your thoughts about physicians’ potential to enjoy financial independence?

ABOUT

Vicki Rackner MD is an author, speaker and consultant who offers a bridge between the world of medicine and the world of business. She helps businesses acquire physician clients, and she helps physicians run more successful practices. Contact her at (425) 451-3777

pnhp-long-setweisbartversion-52-638

Will single-payer really reduce administrative waste?

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Risk Management, Liability Insurance, and Asset Protection Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™8Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

There is no other comprehensive book like it to help doctors, nurses, and other medical providers accumulate and preserve the wealth that their years of education and hard work have earned them.
—Dr. Jason Dyken MD MBA

[Dyken Wealth Strategies, Gulf Shores, Alabama]

Milliman Medical Index [CPI June 2015]

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By Javier Sanabria

The price of medical care boosts Consumer Price Index June 2015

A sharp rise in medical care prices contributed to a recent increase in the Consumer Price Index (CPI).

Although economists and healthcare experts have not clearly identified the reasons for the spike, the 2015 Milliman Medical Index (MMI) indicates that prescription drugs are driving medical costs upward.

MMI co-author Chris Girod offers some perspective in this CNBC article.

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The so-called medical care index, maintained by the Bureau of Labor Statistics, rose 0.7 percent in April, “its largest increase since January 2007,” the BLS wrote in a report issued Friday. The BLS report comes three days after the large actuarial and consulting firm Milliman projected 6.3 percent growth in the costs of health care for a typical family of four on an employer-based plan in 2015. That compares to a low-water mark growth rate of 5.4 percent last year. Milliman’s report is the latest indication that health-care costs, which saw a historic slowdown in their rate of inflation in the years after the Great Recession of 2008, are headed back up toward the trends seen before the financial meltdown. Before the recession, double-digit inflation in health-care costs was common. “There’s a correlation between the CPI medical index and the MMI, but they’re very different measures,” said Chris Girod, a principal and consulting actuary at Milliman, who added that the MMI looks at a broader range of prices. “The annual increases [in the MMI] tend to be a lot higher than CPI.” Milliman’s report blamed resurgent inflation on price increases for prescription drugs, particularly specialty drugs. “The rest of the category, the increases were pretty ho-hum this year,” he said. Prescription drug prices overall are expected to increase by 13.6 percent in 2015, according to Milliman’s index. In the category of specialty drug prices alone, “the annual increases are around 20 percent right now,” Girod said. Those specialty drugs include Sovaldi, made by Gilead, which in a 12-week course of treatment can cost $84,000. “The drug trends have actually been coming down in the last four or five years until now,” Girod said.

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stock market

See more at:

http://www.healthcaretownhall.com/#sthash.xgDF7hpd.dpuf

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The Opportunity Cost of Healthy Behavior

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On Health Economics

md

By Mark MD MPH

Living a “healthy” lifestyle – however defined – takes work and energy. It means extra time to make it to the grocery store (instead of ordering in), saying no to that extra drink, and being conscientious when eating out. It can have the added social side effect of making you seem uptight, judgmental, or boring.

So, what exactly is the Opportunity Cost of Healthy Behavior?

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health

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The Opportunity Cost of Healthy Behavior

ABOUT

Mark J. Harris received his MD/MPH from Columbia University in May 2015. He will be starting Anesthesiology residency in June at Brigham and Women’s Hospital in Boston, MA. Mark is interested in the intersection between medicine and public policy, especially as it relates to chronic disease prevention (such as for diabetes, heart disease, and obesity), and he wishes to merge medicine, outcomes research, and public policy to address issues of perioperative risk factors, pain management, and end-of-life care.

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On Non-Financial Conflicts of Interest

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Devastating?

Austin Frakt PhD[By Austin Frakt PhD]

Noam Schieber’s NYT piece today is devastating.

About selecting papers to be most prominently featured at a top economics conference, David Card is quoted,

“‘I choose papers that are going to be written up’ in the mainstream press. […] ‘It’s what the people want.’”

via Non-financial conflicts of interest.

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Censure

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Assessment

Has this philosophy seeped into medicine, the financial services industry and health economics; etc?

Dr. David Edward Marcinko MBA

More: Another report casts skeptical eye on patient satisfaction surveys

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UPDATE

Conflicts of interest, the NEJM, and where we go next

Posted: 04 Jun 2015 03:20 PM PDT

If you haven’t yet, take a look at Lisa Rosenbaum’s NEJM essays (here, here, and here) calling for new thinking about researchers and financial conflicts of interest. The essays are nuanced and go against the grain of much recent writing on research ethics.

Rosenbaum’s essays have generated many responses (the Lown Institute has collected some of them here). I examine Rosenbaum’s views in an essay in the New Republic. I’m sympathetic to many of her arguments, but I think we need more transparency in science, not less (see also here). Austin explores her views herehere, and here. Rosenbaum has elicited some exceptionally harsh rejoinders, including one from two former editors-in-chief of the NEJM.

This discussion has been intense because the stakes are very high. If manipulated research data allow bad drugs to enter the market, people can die. Conversely, if unjustified prejudice against industry slows the progress of research, that could kill people too.

@Bill_Gardner

Great Book Gifts for Medical School and Health Care Graduates

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An Educational Resource Supporting Doctors, Universities and Consulting Advisors  

We are an emerging online and onground community that connects medical professionals with financial advisors and management consultants. We participate in a variety of insightful educational seminars, teaching conferences and national workshops. We produce journals, textbooks and handbooks, white-papers, CDs and award-winning dictionaries. And, our didactic heritage includes innovative R&D, litigation support, opinions for engaged private clients and media sourcing in the sectors we passionately serve.

Through the balanced collaboration of this rich-media sharing and ranking forum, we have become a leading network at the intersection of healthcare administration, practice management, medical economics, business strategy and financial planning for doctors and their consulting advisors. Even if not seeking our products or services, we hope this knowledge silo is useful to you.

In the Health 2.0 era of political reform, our goal is to: “bridge the gap between practice mission and financial solidarity for all medical professionals.”

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Risk Management, Liability Insurance, and Asset Protection Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™8Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

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On Valuing Physician Work in Medicare

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Time for a Change?

By Miriam J. Laugesen PhD
[Assistant Professor, Department of Health Policy and Management, Mailman School of Public Health, Columbia University]

via: NIHCM Foundation | 1225 19th Street, NW | Suite 710 | Washington | DC | 20036 www.nihcm.org

The Government Accountability Office (GAO) just released an important review of the way the Relative Value Scale Update Committee (RUC) and CMS value physician services for Medicare. The report finds significant flaws in the data and processes used, echoing a recent Expert Voices essay by RUC researcher Miriam Laugesen.

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Assessment

In this essay, Dr. Laugesen illustrates inaccuracies with work time estimates and the shortcomings of specialty society surveys. She also highlights ways to introduce greater precision and transparency to the process of updating Medicare physician fees. Read more…

EVEN MORE:

Gail Wilensky
The Outlook for Reforming Payments to Graduate Medical Education

John Iglehart
Meeting the Demand for Primary Care: Nurse Practitioners Answer the Call

David Dranove
Federal Antitrust Enforcement in Health Care

Michael L. Millenson
Paradigm, Not Pill: The New Role of Patient-Centered Care

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The Evolution of Care Bundles for Sepsis

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Latest complimentary resource reviews the rationale for bundled interventions

WH

[By Winifred Hayes RN PhD]

Sepsis is a deadly condition with a high mortality rate.

In an effort to improve survival in patients with sepsis, clinicians have adopted care bundles—sets of clear evidence-based practices that, when reliably performed together, result in better patient outcomes than when they are implemented individually. The Evolution of Care Bundles for Sepsis, the latest white paper from Hayes, Inc., reviews how and why sepsis care bundles came to be and discusses how they may evolve in the future.

“Sepsis may lead to death in a large percentage of patients who come to the hospital for treatment,” says David Wade, MD, FACS, Chief Medical Officer at Hayes, Inc., and the author of the white paper. “Rapid treatment within the first few hours of diagnosis is the key to reducing mortality and morbidity.”

Studies

Many studies have reinforced the importance of early diagnosis and rapid treatment. Dr. Wade explains, “In thinking about this, I am struck by a phrase that comes from the world of fighter pilots and aerial combat. When you talk to fighter pilots about dog fighting, a phrase repeatedly rises to top as the most important thing. That phrase is Speed is Life. Sepsis is similar; the sooner you realize what is going on and start doing something about it, the better chance the patient will have of surviving.”

Care Bundles

Care bundles enable clinicians to act quickly and strategically. In the United States, the most widely known sepsis care bundles are those published by the Surviving Sepsis Campaign. Interesting developments in sepsis management also are coming out of the United Kingdom, where clinicians have embraced the Sepsis Six 1-hour bundle, a set of 6 interventions to be performed within 1 hour of diagnosis.

Download your complimentary copy of The Evolution of Care Bundles for Sepsis today to learn more about how these practices are improving survival for patients with sepsis.

About Hayes, Inc.

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Achieving best patient outcomes by using proven medical technologies is the basis on which Hayes was founded. Our team of analysts and clinicians is a trusted resource for unbiased and timely research, evidence analysis, and guidance that drive effective health care and contribute to cost management. For over 25 years, Hayes has been empowering clinicians, health plan policymakers, and government agencies in their mission to make sound evidence-based decisions that balance cost, quality and patient outcomes.

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Cost of average U.S. hospital stay $33,079

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A Healthcare Financial Infographic

By FaceThe factsUSA.org.

The cost of the average American hospital stay nearly doubled from 2000 to 2010 while average stay length declined. The decade was a period of low inflation, but some sectors of the economy didn’t get the memo. Charges for a hospitalization soared from an average $17,390 in 2000 to $33,079 in 2010.

In the U.S. we spend almost three times as much on a hospital stay as other industrialized countries, even though their average stay tends to be longer.

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The “Doc-Fix” Taxpayer Calculator

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Determining you Financial Share on “TAX DAY”

[By Staff Reporters]

One of the most-onerous votes in recent years on Capitol Hill is the so-called “doc fix.” That’s the patch Congress re-ups periodically to make sure that seniors on Medicare continue to receive medical care.

If Congress doesn’t cough up a chunk of change for the doc fix, doctors who treat Medicare recipients could experience an abrupt 21 percent reduction in their federal reimbursement – and would likely stop taking those patients.

In late March, the House approved a permanent replacement for the doc fix.

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Click here to see your share of the Medicare doc fix

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A solution has eluded lawmakers for years 

In fact lawmakers tinkered with this particular Medicare payment method some 17 times since 1997. That’s when the amount of money the federal government had available to pay doctors started to dip into the red. So in order to make sure physicians were paid and seniors didn’t lose benefits, Congress engineered a short-term –but expensive– Band-Aid to cover the difference.

Assessment

Hence the name, the “doc fix.”

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Sign the pledge to create the healthiest nation in one generation

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The Healthiest Nation Pledge

  • By Susan L. Polan PhD
  • [Associate Executive Director]
  • Public Affairs and Advocacy

Dear Dr. David E. Marcinko,

Study after study consistently confirms an unpleasant fact: Americans live shorter lives and suffer more health issues than people in other high-income countries.

  • We live up to four years less than our peers.
  • We suffer more chronic disease, such as diabetes, cancer and heart disease.
  • We have higher infant mortality rates.
  • Within the U.S., there is as much as a 15-year difference in life expectancy depending on where you live, your race, your income and how educated you are.

In truth, the U.S. trails other high-income countries in these and most other measures of health.

Hope and Change

How do we change this? We need to make healthy lifestyle choices both as individuals and as a society. Our health is affected by a complex web of social and environmental factors that are often outside of our individual control. The homes we live in, our access to healthy food, the quality of our schools, clean air and water – these and other factors directly affect our health. And for many people, they limit their ability to make healthy choices.

Together We Can

Together we can change this. If we join together, we can demand that our leaders consider health in all their decisions. We can create communities that have a positive influence on our health – communities where it is easy for us all to make healthy choices.

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Assessment

Take the first step. Sign the pledge to create the healthiest nation in one generation. Ask your colleagues, friends and family to sign also. The more people who sign, the more influence we can wield. And the more momentum we can build for change.

Sincerely,

Susan Polan

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The Resurgence of Prescription Drug Price Increases‏

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Trends 2006-2014

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Curing By Numbers

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Taking Cloud Computing to a New Level

[By GE Healthcare IT]

American healthcare has by far the most expensive system in the world, but few would argue that it’s also the most efficient. A study published in the Journal of American Medical Association found that almost 40 percent of patients are misdiagnosed in primary care1. Another report by the American College of Physicians discovered that unnecessary testing and medical procedures, and extra days in the hospital caused by wrong diagnosis could add up to $800 billion per year2.

That’s close to a third of all U.S. healthcare costs. “There is a lot of waste in the system,” says Jeanine Banks, general manager of marketing at GE Healthcare IT. “We want to help rein in the costs and make the system far more efficient.”

That’s not just talk. Engineers at GE Healthcare IT are developing a new “cloud imaging” solution that will allow doctors to create a professional profile, store patient images and data together in one place, view 3D images from anywhere, and access intuitive analytics. “It’s like LinkedIn professional networking meets diagnostic imaging,” Banks says. “It’s all about virtually limitless computing, storage and collaboration on tough cases to help healthcare teams make more informed decisions.”

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Banks says that the information physicians need to make diagnoses is often fragmented and sits in siloes. The new platform, GE’s Cloud Imaging solution, allows doctors to exchange images and use social digital tools to share cases with each other over a network instead of distributing CDs, as common practice now. “They can open their browser, click on a link and share quickly,” she says.

Banks says that GE intends to give hospitals the flexibility to host the system on their own servers, as a private cloud, or through GE’s public cloud environment. “We are committed to using industry standards to make it easy to connect medical devices, link with existing PACS (picture archiving and communication systems) and EMR (electronic medical records environments), and enable consistent access to a flourishing ecosystem of apps,” she says. “Providers don’t need more silos of data.” GE’s first Cloud Imaging pilot site is the Kadlec Health System in Washington State. Kadlec is helping evaluate the platform ahead of plans to demonstrate the new solution during the annual meeting of the Radiological Society of North America in December. “It’s an opportunity for them to use it inside their health system and give us feedback,” Banks says.

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For Banks, this is the beginning of a new healthcare revolution. “What if together with industry we could help physicians reduce waste?” she asks. “We could process that information, learn from past diagnostic decisions and store the data all in the cloud to inform future decisions. One day, we could tap into knowledge based on cases from around the world.”

Assessment

That’s just brilliant.

Citations:

1 Journal of American Medical Association 2012

2 Reuter’s, citing study by American College of Physicians  

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The Economics of Electronic Healthcare Transactions

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For FY 2013

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Five Most Costly Domestic Surgeries

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USA Aggregate Hospital Stays for 2011

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Socio Economic Status, Payment Reform and Medical Records

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Yet Another Component of the Medical Record?

[Dr. David Edward Marcinko MBA CMP™]

http://www.CertifiedMedicalPlanner.org

Dr David E Marcinko MBAHistorically, medical records [paper or electronic] were previously used to aid in the quality of medical care.

Now they are also the basis for payment for services, not as a record or reflection of the care that was actually provided, but as a separate justification for billing. The lack of appropriate documentation now no longer threatens just non-payment for services but risks civil money penalties and criminal charges.

Enter S.E.S.

Today, the idea known as Socio Economic Status [SES] is conceptualized as the social standing, or class of an individual or group. It is often measured as a combination of education, income and occupation. Examinations of socioeconomic status often reveal inequities in access to medical resources, plus issues related to privilege, power and control.

Assessment

SES is increasingly being considered as another payment component [CPT® codes] to medical providers, as reflected in the paper medical record, EMR and elsewhere.

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eMRs

[Electronic Medical Records]

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PARTICIPATE: An Observational Research Study

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 By Patti Peeples; RPh PhD of HealthEconomics.com

SOAR

The results of this Survey will be distributed in a report to all participants in the HealthEconomics.com Newsletter, and ultimately presented in manuscript form.
Your participation is encouraged and should take no more than 15 minutes to complete.

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Link: https://www.surveymonkey.com/r/ObsResSurvey9

The Survey

In collaboration with HealthEconomics.Com, Jeff Trotter of Continuum Clinical is resuming the widely-praised series of Surveys with this all-new edition focused, once again, on the critical subject of Observational Research.

This thought-provoking Survey strives to uncover challenges associated with the design and implementation of Observational Studies, and the important organizational challenges and opportunities.

  • Who should “drive the bus” in running Observational Studies?
  • How conclusive are findings from Observational Studies?
  • What processes are optimal in support of Observational Research?

Your participation will help provide critical insights regarding this important topic, increasing clarity and shared understanding.

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A Medicare Fraud 2.0 Prediction

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More on Healthcare Fraud and Abuse with Video

Edward Bukstel

 By Edward Bukstel

ME-P SPECIAL REPORT

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Medicare Fraud 2.0 Prediction.

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fraud

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On Digital Health Investments

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258 Digital Health companies raised over $2 million in Venture Capital in 2014

By Edward Bukstel

Edward Bukstel

    ME-P SPECIAL REPORT

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$4.1 Billion in Digital Health Investments in 258 Digital Health Investments 2014.

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business

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Disease Management and Preventative Health Savings?

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For … Successfully Engaged Members

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Investing in State Health Innovation Plans [SHIPs]

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Top Five Investment Priorities
By http://www.MCOL.com

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SHIPS

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Why Healthcare is F@#Ked !

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And … What I Learned at The Wharton School of Business

Edward Bukstel

By Edward Bukstel

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What I Learned at The Wharton School of Business and Why Healthcare is F@#Ked !

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Business%20Optimization

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State Abortion Coverage PP-ACA

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Market-Place Plans 2015

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