In the New England Journal of Medicine on May 26, 2011, Thomas Smith and Bruce Hillner describe a series of strategies to reduce the cost of spending on cancer care in the United States. The article is compelling, and highlights the reasons health care spending is so difficult to talk about—much less do something about: all five strategies involve changes to attitudes and practice that are both fundamental to making a difference—and extremely difficult to accomplish.

Cancer care is an important area to examine, not only for its impact on health care spending but also because of its human dimension. Despite progress on many fronts clinically, cancer continues to be a disease that strikes fear into most. Individuals and families face difficult choices balancing the risks and benefits of treatments, many of which have toxic side effects that can interfere with the quality of life. Oncologists and other treating practitioners must take into account the very human desire to have hope, along with the reality of the prognosis and availability of effective treatments.

Spending on cancer care is no small issue. In 2006, direct cancer costs were $104 billion and are continuing to rise. With genetic breakthroughs, new therapies continue to be developed and the costs associated with many of these new therapies are astronomical. Some treatments have scant evidence of positive impacts on quality of life or longevity but nevertheless are promoted as offering hope—sometimes the only hope left for survival.

What do Smith and Hillner recommend? They hit all the big points: different approaches to screening, more judicious approaches to treatment choices, changes in compensation, and a greater willingness to confront the realities and speak honestly with patients about prognosis and treatment choices.

For example, they note that surveillance testing or imaging does not change outcomes for most cancers—including pancreas, ovary, lung and breast—yet these approaches are commonly used. In a 20-year old study of breast cancer, scheduled imaging (not symptom related) was not shown to detect curable recurrences or alter survival rates—yet more a $1 billion per year was spent on these tests.

Smith and Hillner also suggest limiting treatment strategies, both to better comport with the evidence of what works to impact survival or quality of life, and based on the functional status of the patient. They advocate for more data on comparative effectiveness and a willingness to make treatments choices by weighing cost with the potential for benefit—a position that has been demagogued by some as a plan to kill off patients.

As part of these changes, the authors also recommend that palliative care be provided earlier and more extensively than happens today. They understand that choices must be made regarding which (and whether) treatment is to be provided, and that sometimes, it may be better to focus on comfort and quality of life rather than extending life. Being able to make these kinds of choices is fundamental to our ability to make changes in the quality of life in a patient’s last days, as well as the cost picture for cancer (and all other medical care).

These are difficult conversations for both physicians and patients. Smith and Hillner cite a study that indicates that most patients with lung cancer expect to live two years, when the actual average life expectancy with this diagnosis is six months.

Having these kinds of conversations requires not only oncologists willing to be clearer about prognosis and patients open to hearing it, but also a change in our reimbursement systems to compensate providers for these kinds of discussions. Today, our reimbursement system for all practitioners focuses heavily on providing more compensation for doing things—procedures, drugs and the like—and not enough for the talking and coordinating aspects of care that are essential to the transformation of the health system.

The Smith and Hillner’s recommendations focus on patients with incurable solid tumors. In these cases, it would seem that some limits on care might be easier to accept. But it is precisely because many Americans—patients and doctors alike—are unwilling to accept the concept of “incurable” that these changes are so difficult to make.

Honest conversations about the limits of medicine will be crucial if we are really going to change the trajectory of spending and interventions in which we are so enmeshed today.

I get asked to speak about health reform on a fairly frequent basis. It is actually quite fun, because health reform is so topical and there is always something new going on. I also enjoy the subject because there is always a range of viewpoints in any given audience: from those who strongly advocate for a single payer system to those who think the whole thing should be scrapped. It is interesting to hear the foundations for the various points of view.

At a recent talk to a group of physicians, one individual—clearly an opponent of the Affordable Care Act—raised the idea of just repealing the law and starting over. He was reacting to polls that say many Americans think the Act should be repealed entirely or in part.

The problem with this conclusion is if you go deeper into the polls, you actually find that most Americans like the core elements of the law. The two pieces people don’t like are (1) the individual mandate, (2) and the excise tax on high cost (“Cadillac”) health plans.

The problem with repealing just these two pieces is it is hard to get the “good things” in health reform without some form of these two relatively unpopular ideas.

Two individuals who understand this point very well are on the Republican side of the aisle: Newt Gingrich and Mitt Romney. Both have come out in support of the individual mandate in recent days—though they both also criticized key elements of the Affordable Care Act.

It was most interesting to hear the terms that Gingrich and Romney used in this discussion because both are actually quite knowledgeable about health insurance related issues. Both used the term “free rider” in their defense of the individual mandate, a term for the concept that people without health insurance still have to be treated and stabilized in a hospital. The cost of care for those individuals ends up being paid by all the rest of us who have health insurance. Thus, the uninsured become “free riders” in the health care system and the only way to deal with that problem is to make sure that everyone is insured one way or the other. The individual mandate is one among several alternatives for accomplishing that goal.

The individual mandate is in fact a truly conservative idea. Oh…eons ago, in the ’90s, the idea was most strongly advocated by those with strong Republican and conservative credentials and criticized by those on the left.

Indeed, Newt Gingrich first endorsed the concept in 1993, during the Clinton health reform years when a very different structure for funding of health insurance was on the table. At the time, Newt likened requiring individuals to purchase health insurance to the requirement to purchase automobile insurance.

Similarly, when discussion about health reform began in earnest in Massachusetts in 2004, all proposals that were put on the table included the idea of an individual mandate. In 2006, then-Governor Romney signed the bill into effect while vetoing a number of its specific provisions. The individual mandate was not one of the provisions he either vetoed or criticized. And, most recently in Ann Arbor, Mich., Governor Romney again noted his support for the individual mandate in Massachusetts, though he argued that the Massachusetts approach should not necessarily extend to other states.

Despite the fact that both Newt Gingrich and Mitt Romney are criticizing the Affordable Care Act as an overreach by the federal government, the law’s core issue– the issue under attack in the courts and by the public – is one that both men fundamentally support.

And, both men also understand this truth: there are truly only a few ways to get to universal coverage (or anywhere close to it), and the other ways are even more repugnant to a conservative world view than the individual mandate.

So as long as there is agreement that the goal of universal coverage is a good thing—if for no other reason than to deal with the free rider issue—the individual mandate has to end up in the discussion, and “starting over” to produce something else is unlikely to satisfy the critics.

Part of what makes health care so interesting is how opinions shift over time. Who knew, 20 years ago, that Democrats would be relatively united in support of the individual mandate while Republicans would be divided?

Hmmm – this is going to be a most interesting political season.

With the announcement of  Rep. Ryan’s proposal to convert Medicare into a voucher program and Medicaid into a block grant, contrasting visions of health care reform became very clear.

The Ryan/Republican House approach embraces a market strategy and would effectively cap federal government payments for health care. A Medicare voucher program would leave seniors to purchase health insurance with government financial help. This concept has been used by many employers with regard to pension benefits: it’s called a defined contribution approach because it sets a capped limit on what the employer (or government) pays.

The Affordable Care Act, in contrast, retains and in fact strengthens what is known as a defined benefit approach. In a defined benefit approach, there is a commitment to fund a certain set of benefits (the Affordable Care Act calls those “essential benefits”). Even if individuals contribute financially through copayments, deductibles, or premium sharing, a promise is made: within certain parameters, a known set of benefits will be covered.

For Medicaid, while Ryan’s proposal does not use a voucher approach, it ends the entitlement foundation. That is, the federal government would cap the payments to states and allow states considerable flexibility in program design. Some states would certainly continue offering programs close to those offered today, while others would likely cut eligibility categories, reduce benefits, place more restrictions on where and how care is delivered, etc. And, in times of financial challenge for states, the safety net would likely be eroded.

Rep. Ryan’s approach is relatively simple to design and implement from the sponsor’s perspective (the federal government in this case). On the other end of the spectrum, the Affordable Care Act is much more complicated – and in some eyes, more intrusive – in the way it structures benefits and delivers care.

In fact, recent articles have described hospitals as having “buyer’s remorse” when it comes to health care reform because so many regulations are now coming out that affect what they do – either by reducing/holding back and redistributing payments, or otherwise telling hospitals in a very direct way what to focus on (such as patient satisfaction along with certain quality measures).

States, too, are increasingly challenged by some of the strictures placed on them by the Affordable Care Act. A new rule from HHS is designed to make it more difficult for states to cut payments to providers of care.  In recent years, many states have tried to reduce their Medicaid cost trends by cutting provider reimbursement. And as a result, fewer and fewer providers (especially specialists) have been accepting Medicaid patients. The imposition of “maintenance of effort” requirements, which limits the ability of states to reduce benefits or cut categories of existing Medicaid enrollees, have more states looking to balance their budgets by cutting payments to providers. The new rule would curtail many of those efforts.

The structure of the Affordable Care Act is as much as anything else, a balancing act. It attempts to balance the often competing goals of access to health care and health care security, and at the same time, reduce health care cost trends. While the Ryan approach represents a true market place vision of health care benefits and the government’s role in that regard, the ACA reflects the messy, sweeping approach to health care that has been an American tradition for the past 40 years –ever since the advent of Medicare and Medicaid.

Whether this sweeping and more complicated approach can work in the long run is still an open question. But, what is not a question is that the ACA builds on where America has been whereas the Ryan approach would take us in a sharply different direction – and, if recent polls are to be believed, a direction even less popular than the Affordable Care Act.

Mayor Bloomberg of New York made headlines when he decided to take on the soda industry (ok, I know, my New York roots are showing – pop for those of you from the Midwest!). Specifically, Mr. Bloomberg is seeking a federal waiver in the food stamp program (now called SNAP – supplemental nutrition assistance program) to ban the purchase of sugary beverages because of their contribution to diabetes and obesity.

Under the mayor’s proposal, there would be a “ban [on] the use of food stamps for carbonated and non-carbonated beverages that are sweetened with sugar or high-fructose corn syrup and have more than 10 calories per eight-ounce serving.” Mr. Bloomberg is proposing a two-year experiment that would test this change to see if it can make an impact on obesity and diabetes among the food stamp eligible population.

This issue brings out folks on all sides of critical questions about health, ethics, poverty, individual rights, etc. – and makes for strange bed fellows in some cases. It is, indeed, a very important policy debate and the kind of debate we should be having more of because it focuses on the proper role for government in public health.

Surprisingly, in a recent poll, 57 percent of Americans said that the federal government should take a stronger role in reducing childhood obesity. But is eliminating food stamp funding for sugary drinks what the American public had in mind? That is less clear.

Mayor Bloomberg and others who support the ban argue that between $75 and $135 million in food stamps is spent on sugar-sweetened drinks in New York City each year. They also assert that consumption of sugar-sweetened beverages is the single biggest contributor to obesity. The mayor has allies in the public health community who note the federal government is, indeed, spending hundreds of millions nationally supporting the purchase of sugary drinks that have been linked to obesity (saying that alone is the single biggest contributor to obesity is a much more debatable statement).

Of course, the soft drink industry is opposed to this change – that is to be expected.

But other groups are opposed as well. Most notably, the Congressional Black Caucus raised particular concerns about the discriminatory effect of singling out the food stamp population for this change.

Our history of using social policy to achieve health outcomes is not especially good. One has only to think of prohibition and what a failure it was at achieving its goals to question whether banning funding for these drinks is an approach that will really work to achieve the laudable outcomes articulated by Mayor Bloomberg.

But the more compelling argument against the mayor’s approach can be made by looking at a different approach taken to a similar issue: smoking.

The quest (not yet over) to reduce or eliminate smoking has been a more than 10 year effort to change public opinion – and ultimately, behavior – around smoking. The effort to reduce tobacco use in this country has been multifaceted and actually, relatively egalitarian. While the cost of cigarette tax increases aimed at reducing smoking rates may have been disproportionately borne by the poor, it was not uniquely directed at them.

Like smoking, obesity is not an epidemic unique to the poor. To aim a policy at them and them alone seems sure to result in a backlash of some kind. People always figure out ways around policies that are intended to limit behavior.

Instead, a much more reasoned (and likely more effective) strategy would pursue a systemic, multidimensional approach involving communities, schools, and public education, along with broad-based approaches to food and nutrition policy including advertising and taxation. Targeting one segment of society and one particular public program could unintentionally stymy this kind of broader-based effort.

I hope the Agriculture Department gives long and deep thought to these possible consequences as it considers the approach suggested by Mayor Bloomberg.

For years, many in the health policy world have talked about the emphasis that pharmaceutical manufacturers were putting on “me too” drugs – drugs that are structurally similar to existing drugs with only subtle differences. And for a long time, I have been reading articles about the lack of new drugs in the drug development pipeline – especially blockbuster drugs that break new ground in the treatment of disease.

A stunning statistic in the New York Times, however, caught me totally unawares in its magnitude. According to David Bornstein, 800,000 medical research papers were published in 2008 but only 21 new drugs – twenty one – were approved by the FDA last year. Assuming there should be some connection between medical research and new drugs, the paucity of new drugs is remarkable.

So: what is going on here? Many explanations have been posited; among the most plausible is the way the structure and financial incentives of the drug industry have built up over time.

I have been fascinated to observe what has happened to Pfizer, as an example. (My fascination might be connected to the fact that our offices are across the street from the old Pfizer Research and Development headquarters in Ann Arbor and I live in a community that suffered as Pfizer’s fortunes suffered.) Pfizer scientists invented Lipitor – a true blockbuster drug in its impact on cholesterol levels, and, concomitantly for many people, heart disease.

Lipitor was a double edged sword for Pfizer – both a blessing and a curse. The blessing bestowed on the company is fairly obvious: profits from Lipitor were enormous and made Pfizer one of the top drug companies in the country. And the curse? Today, as Lipitor is about to come off patent protection, this is becoming clearer: Lipitor brought in $10.7 billion of Pfizer’s $67.8 billion in worldwide sales last year. It is an enormous danger for any company to be so heavily dependent on one product for such a large share of its profits.

The Wall Street Journal interviewed Ian Read, the new CEO of Pfizer, to see how he is planning to handle this major loss of a proprietary market. In the article, Read emphasizes his plans to cut costs – to be a leaner organization.

What costs are being cut, according to Read? One major area he emphasizes is research and development. His plan is for Pfizer to spend one third less on R & D in the future than it does now.

Say what? Isn’t R & D the engine of growth for a pharmaceutical company?

Read defends this decision by saying that he is “right sizing” the company (every CEO says that when they cut costs). But, what is more telling is how Wall Street is viewing these cuts: when the plan was announced in February, Pfizer’s shares reached 52-week highs with more than $7 billion in share buybacks planned for this year.

What is wrong with this picture? Well, nothing, if you are the CEO of a pharmaceutical manufacturer. But everything, if you are a clinician or consumer hoping for new drug development. The drug industry seems to have become more about protecting patents than innovating; more about making money than making new pathways to cure disease. The industry is responding to the incentives in the system: but it is a broken system that rewards short term thinking and cost cutting rather than long term investments.

We are all the losers in this process. The only question is: what will it take to fix this system and will we be able to get there any time in the near future?

The April 13 issue of the New England Journal of Medicine includes an important article on how comparative effectiveness research can pay for itself.  In it, the authors describe two procedures to treat osteoporotic vertebral fractures (compression fractures caused by osteoporosis): one in which cement is injected into the vertebral body to support the fractured bone; and one in which a balloon is inserted and inflated in a collapsed vertebral body, restoring the bone’s height before the cement injection.

There were some early studies of these procedures to determine their effectiveness but the studies were flawed in some significant ways. Nevertheless, these procedures were widely adopted because the pain of these fractures is significant and people are desperate for help and help quickly (most of the symptoms of compression fractures abate over time but the waiting can be difficult for many patients).

Recently, these procedures have been studied in a more rigorous way. The more recent evidence about these procedures shows that they are either not effective, or only marginally effective, at treating osteoporotic vertebral fractures. And, even more significant: there are serious risks associated with the procedures – risks such as leakage of the cement, pulmonary problems and even death. The new studies caused the Blue Cross and Blue Shield Association to recommend against coverage of these procedures and the Medical Society in Ontario to determine that these should not be the standard treatment for these fractures.

Comparative effectiveness research has been maligned by some as a form of rationing of health care. Opponents have raised the specter of death panels when describing this process. And, historically, when payers have determined not to cover certain procedures, they have been pressured by some practitioners who perform those procedures and by patients who see it as a greedy insurance company trying to limit benefits for patients.

But, the reality is quite different, as in this example of osteoporotic fractures.

Comparative effectiveness research, done right, can not only reduce health care costs but also unnecessary deaths and disability. Comparative effectiveness research starts with a focus on quality and safety of care and what works clinically. It should be the foundation for evidence based medicine, helping to understand the best ways to treat patients with various conditions.

Anyone who has worked in the field trying to reduce even the rate of increase of health care spending knows that the easiest approaches – squeezing prices paid to providers, introducing wellness programs, providing care management strategies for patients – are all either limited in their effectiveness or marginal in their impact on health care spending. Some may be very good things to do (such as wellness programs and care management) and highly cost effective; but not necessarily cost saving.

True savings in health care come about from more fundamental changes: restructuring how health care is delivered to better coordinate and integrate care (which also involves changing the structure of provider payment incentives in the system), reducing practice pattern variation, and delivering more care based on the evidence of what works, including decisions about what services to cover – and what not to cover.

So what are we talking about in terms of health care trends? Well, for just the two procedures dealing with these particular compression fractures, the all payer national spending in 2008 was $1 billion. That is $1 billion in spending for two procedures that may have done more harm than good. Reducing that spending by even half would make a significant contribution to reducing health care cost trends.

All payers make coverage decisions. Some things are included in the scope of coverage and some are not. Wouldn’t it be better for everyone if those decisions were informed by high quality, nationally funded, and nationally disseminated research? Well, that is the promise of comparative effectiveness research.

Whatever else happens with the Affordable Care Act, for all of our sakes, let’s hope that comparative effectiveness research is here to stay.

Lately I’ve noticed a resurgence of the term “population health” in the health policy literature. It seems to me that the term is being used differently today than in the past, and I wonder how that might affect our ability to actually affect and improve population health.

Like many who read this blog, I was trained in a school of public health where I was taught to think about population health as something bigger than simply the aggregation of the health of individuals. Rather, I learned that communities themselves have a health status, and that achieving good population health in a community means reducing disease burden in an entire community. Reducing disease burden, in turn, creates an environment in which individuals in that community can be healthy and productive.

Historically, our conceptions of population health have varied and expanded. At the turn of the last century, improving population health mainly meant learning to control infectious diseases. By mid-20th century, many thought of population health in the context of family planning and population control. And in the last decade or two, our conception of ways to improve population health expanded as we began to understand the impact of the social determinants on our ability to improve the health of entire communities. This broader notion of population health recognizes a wider range of contributing social, economic and environmental factors.

In the context of health care reform, I read and hear a lot today about the expectation that reorganizing our health system – for example, by establishing accountable care organizations (ACOs) or ensuring that patients have medical homes – will improve population health.

I like hearing these aspirations, but I wonder what authors really mean when they say “improve population health”? Do they simply mean that incentives will be aligned in ways that encourage ACOs to try to keep those in their direct care healthy, the way we think of managed care plans encouraging preventive services for plan members and coordinating care among health care providers? Or do these statements mean something broader than that? The proposed regulations on ACOs require substantial reporting of health information for individuals receiving care within these organizations. Will ACOs also generate or use health surveillance data for the communities in which their patients live and work, or make efforts to ensure that providers within their systems know about challenges to the health status of the community? Will ACOs conduct community outreach to engage them all in public health issues, not just those “attributed” to their organization?

Twenty-five years ago, in a book titled, “Just Health Care,” Norm Daniels emphasized the importance of designing a health care system that would achieve population health by fairly allocating resources. He suggested that health care is valuable because as it improves health status, it creates opportunity. I like to imagine what opportunities might be afforded to all individuals in our communities if we really focused on improving population-level health.

It is ok with me if the meaning of the term “population health” morphs in a way that improves our likelihood to achieve it, like it did when it became more inclusive of the broader social determinants of health. But I worry about the narrowing of the term when it refers just to those individuals “in the system.” I think if we spend a little more time clarifying what we mean by the term “population health” in the work that we do, we might have a better chance of actually improving it.

In the April issue of the journal Health Affairs, my colleagues and I descibe the success of a broad collaborative effort that has been in place in Michigan to improve quality of health care. The focus of the April Health Affairs is what has happened since the seminal work by the Institute of Medicine – Crossing the Quality Chasm – was published.

The Quality Chasm was published by the IOM in 2001 and contained a virtual litany of the failures of the American health care delivery system to provide quality care (in this context, I would note that it isn’t entirely clear that other systems in the developed world are any better).

The issue is worth taking a look at for the breadth of its commentary on efforts around the country to improve quality of care in the wake of Quality Chasm and its 1999 predecessor, To Err is Human. There are many positive stories, including one by Peter Pronovost, who profiled his efforts in partnership with the Michigan Hospital Association (MHA) to encourage the use of simple checklists to improve quality and safety.

Pronovost’s work in partnership with MHA’s Keystone group has shown remarkable results. The effort was also low cost, and could be implemented without reliance on changes in information or other hospital technology. The idea is now part of the global dialog on safety in health care.

Interestingly, Pronovost’s work borrowed heavily from safety improvement strategies in the airline industry that are also simple and yet, powerful.

There are key lessons that can be drawn from Pronovost’s and MHA’S Keystone effort and the work my colleagues and I have done on Collaborative Quality Initiatives reported on in our article. The lessons are profound, and if used by policy makers, can provide insight into strategies included in the Affordable Care Act and elsewhere to improve quality.

Key lessons include:

1. To really improve quality and safety, we must take systemic approaches to changing culture and practice patterns. It is not enough to dictate that something will happen (or won’t). Dictating outcomes by payers may feel good and have some short term effect, but in the end, it won’t do much to change the underlying reasons for safety/quality issues.

2. Collaboration among providers in a peer setting is a powerful tool to create change. It is only in a peer setting where problems can be discussed openly without fear of reprisals. The airline industry has pioneered this insight. In punitive cultures or with punitive policies, people will react by hiding the truth (hmm, we seem to know this in parenting but not in health policy!) rather than by seeking to understand and fix underlying programs.

3. Solutions can be low cost and low tech. The health care world seems to have fallen in love with information technology as the answer to the cost and quality of health care. While these approaches may well help improve quality, they are harder to deploy than people would like to think and their impact on quality and safety is likely somewhat over-valued. The approaches we and Peter Pronovost described can be implemented without special technology and make a profound difference.

4. Infrastructure and data are fundamental if real change is to occur. We don’t like to pay for infrastructure because it feels like unnecessary overhead. But, the reality is that clinicians need to focus on taking care of patients and don’t have time to put together the information and tools that are essential if systemic issues are to be addressed. Sharing robust data and funding for the infrastructure to support its interpretation is essential if progress is going to be made.

There isn’t a lot of magic in these lessons: they should be common sense based on an understanding of how human beings function best and what we know from other fields.

But, if we look at health policy coming out of Affordable Care Act and elsewhere, these lessons don’t yet seem to be fully embraced. Susan Dentzer’s opening piece in the April Health Affairs issue, Still Crossing the Quality Chasm, notes that we still have far to go if we want to make real, sustained progress in improving the quality of clinical care.

The idea we have shared is only one way to get to this goal. But, without a doubt, it is an idea we can all build on.

I met a young man last week who lost his job in December of 2009, and despite his best efforts, still hasn’t found another. He told me he had excellent health benefits through his previous employer, but rarely needed to use them. He described himself as a typical young and healthy patient – going in for routine cleanings at the dentist’s office and seeing a primary care physician for nothing worse than a bad cold. Given this, losing his health insurance was not at the top of his worry list when he lost his job.

That is, not until he became sick and had to be transported to the emergency department in an ambulance.

Without insurance, although his ambulance ride lasted just 15 minutes and his visit with the attending physician less than 20, his medical debt from that one incident will last many years.

This young man is just one of the over 1.2 million people in Michigan – over 50 million in the U.S. – who lack health coverage. Hearing his story reminded me that those big numbers are more than statistics describing a population. Those numbers are made up of individuals – people we know, work with, our own families, even – whose health and financial security is at risk every day they are uninsured.

And thousands have lost their jobs during the economic downturn, which usually means losing access to health care coverage. Many thousands more work in low-wage jobs with no benefits and can’t afford to purchase health coverage. And too many times, even when people are employed and have coverage, medical expenses have driven families into bankruptcy.

The young man I talked to last week said he is now trying desperately to find some type of coverage so he can follow up with a physician and get the drugs he needs to manage his condition. Even though he has little or no income, as an able-bodied male with no dependent children he does not currently qualify for Medicaid.

In her April 19, 2010 blog post[CHRT BLOG POST TITLED “ADVANCING SOCIAL JUSTICE AND EQUITY:”], Marianne Udow-Phillips describes the history of the Medicaid program, originally intended to cover certain categories of low-income people: mainly children, pregnant women, people with disabilities, and those over age 65 living in nursing homes. Because of this “categorical” eligibility, being poor alone does not qualify one for Medicaid, leaving many low-income individuals out of this public insurance program. And outside of Medicaid and other smaller state-based and local public programs, there aren’t many other options for low-income individuals to get consistent and affordable care.

In 2014, the Affordable Care Act will change this picture for the first time in U.S. history by eliminating categorical eligibility and expanding Medicaid eligibility to all non-elderly citizens and resident immigrants who are below 139 percent of poverty. In Michigan, 686,600 uninsured individuals under the age of 65 meet this income standard today. The Medicaid expansion will open up coverage for millions in the U.S. who have limited or no access today.

With millions of individuals potentially entering Medicaid rolls in 2014, states and communities should be planning now to support these individuals and connect them with the health care system. Federal, state and local communities must also address how to fund the Medicaid program and allocate resources so that the influx of new patients will have access to medical care, not just an insurance card. A loss of a job in the U.S. should never again mean loss of health.

It is my hope that in fifty years, when the history books, blogs, and articles are written about health care and health reform in the U.S., stories like the one I heard last week will be just that. Stories from the past.

In November 2010 we released an issue brief on the cost of prematurity in Michigan. In that issue brief we noted that in 2008/2009, Blue Cross and Blue Shield of Michigan spent a total of more than $46 million on preterm infants in the first year of life. The average cost of medical care for a preterm baby in its first year of life was almost $42,000, compared to just over $4,000 for a full-term infant. In 2007, the March of Dimes published similar national numbers that set the medical cost of a preterm birth at $49,000.

The cost of prematurity is of considerable concern, and so are the health consequences. Data in our issue brief and elsewhere highlight the relationship between prematurity, infant mortality, and developmental delays.

Finding treatments that can mitigate the risk of prematurity is clearly desirable, both to individuals and society at large.

And, indeed, such treatments exist. In 1956, the FDA approved a drug called Delalutin, developed by Squibb for another purpose and later shown to reduce prematurity. Squibb withdrew this drug from the market in 1999, for business – not safety – reasons.

Since that time, patients have been able to obtain the drug from pharmacies that compound it themselves under the label “17 OHP.” But not all pharmacies compound drugs, so individually compounded drugs are somewhat less accessible than drugs produced by pharmaceutical manufacturers.

Because of the accessibility issue, the March of Dimes pushed the FDA to classify 17 OHP under the orphan drug statute to give pharmaceutical manufacturers more incentive to produce it.

On June 25, 2010, the FDA published a notice that because Delalutin was withdrawn from the market for reasons not related to safety, it would therefore authorize an abbreviated new drug approval (ANDA).

According to the FDA notice, “ANDA applicants must, with certain exceptions, show that the drug for which they are seeking approval contains the same active ingredient in the same strength and dosage form as the ‘listed drug,’ which is a version of the drug that was previously approved. ANDA applicants do not have to repeat the extensive clinical testing otherwise necessary to gain approval of a new drug application (NDA). The only clinical data required in an ANDA are data to show that the drug that is the subject of the ANDA is bioequivalent to the listed drug.”

In other words, compared to the cost of a new drug discovery, the cost of ANDA approval would be fairly minimal.

On February 4, the FDA gave an exclusive contract to K-V Pharmaceuticals for the drug Makena (essentially the same drug as Delalutin) under the “orphan drug” provision. This approval gives K-V exclusivity on production of the drug for seven years.

The 20-week cost of treatment using 17OHP is about $300 – a true boon to women at risk of having a repeat premature birth, and a clear cost savings to society.

So, what is the cost of Makena? The wholesale price first published by K-V for 20 weeks of treatment was $29,000.

That’s right: $29,000 for Makena – essentially the same drug as 17 OHP but at 100 times the cost.

What does that cost difference mean to society? Some have estimated the number of women that could benefit from this drug at 139,000 women each year. The cost of treating all 139,000 women using 17 OHP would be $41.7 million per year, with a potential total medical cost savings of $519 million. In contrast, the cost of treating all these women with Makena would be $4 billion – a net increase in costs to society!

Rarely in the world of health policy does one see such a strong and clear public policy debacle: a law intended to increase the availability of drugs could result in reduced access for patients and increased cost to society. The New England Journal of Medicine and a number of consumer advocates exposed this pricing in articles framed as the “unintended consequences” of the orphan drug law.

Since the New England Journal article, K-V has been feeling the heat. First, the company offered “hardship relief,” and to subsidize copays for this drug (a great marketing strategy but nothing that brings down the unnecessary cost to society, or addresses the fact that employers would still be picking up the bill, making health care coverage unaffordable for some). Unhappy patients started a Facebook page entitled, “Shame on You, K-V Pharmaceutical and CEO Greg Divis.” Now Senators Sherrod Brown and Amy Klobucar are demanding federal hearings.

On March 30, the FDA announced that despite KV’s request, it would not take enforcement action against pharmacies that continued to compound 17 OHP. The next day (April 1), K-V lowered the cost of the drug from $1,500 to $690 per treatment (no, truly – not an April Fool’s joke). That brings the cost of a course of treatment “down” to $13,800 – now, only 50 times higher than the cost of the compounded drug!

This is not the only instance of this kind of pricing in the pharmaceutical world. It just happens to be extremely clear cut and getting the kind of visibility no one in this business wants. Ultimately, there is a much bigger issue here about the laws and regulations around pharmaceutical pricing: laws intended to promote drug discovery that have now become anti-competitive and, in too many cases, turned into protectionism.

So, when we talk about ways to reduce the rate of increase in health care spending and improve health at the same time, Makena and K-V should be the case study we remember!