Lecture 1 – What is Life?

The talk around the country among health insurance companies is that their insurance business is dying.

What is happening? First, the consolidations in other industries, resulting in large, multistate corporations, already mean that many companies self insure their employees. Even many local firms have large enough work forces that they can be self-contained risk pools. (One source I found says that in 2008, 89 percent of workers employed in firms with 5000 or more employees were in self-insured plans.) There is no sense compensating insurance companies for actuarial risk when your employee base is that large. Instead, the insurance companies or other firms are hired solely to administer the benefit plans.

For those insurance markets that still exist, the provisions for transparency under the national health care reform law, and the insurance exchanges that will be set up, will result in the commoditization of insurance products. That commoditization will drive down the profit margins that would otherwise exist in this market segment.

The result is that health insurance companies will become financial services organizations more than insurance entities. Think of them as another form of banking, where minimizing transaction costs becomes imperative, and where the use of derivatives and other hedges makes the difference in who makes money and who doesn’t.

This, in turn, also implies that scale matters. Like banks and credit card companies, the larger ones incur a lower cost for each transaction. Several years ago, I was told that the minimum size needed to be a successful insurance company was two million subscribers. That was before the national health reform bill passed.

What does all of this mean for the relatively small insurance companies that serve Massachusetts? The same trends apply, but they have been aggravated by recent state action that limits premium increases for small business and individual policies. That action has explicitly made that business line unprofitable.

What can Massachusetts firms do to maintain their profit margins? (Yes, I know they are non-profits, but even non-profits need a positive bottom line.) There are two basic approaches: One is to grow in size to reduce transaction costs. On that front, is it reasonable to expect some consolidation of companies in this state? (See chart with membership, courtesy of figures reported by Rob Weisman at the Boston Globe.)

The other approach is to find new lines of business. The large national companies are already exploring that. What valued-added services could Massachusetts insurers bring to the marketplace?

Scientists in the US have succeeded in developing the first living cell to be controlled entirely by synthetic DNA. The researchers constructed a bacterium’s “genetic software” and transplanted it into a host cell. News Report @ BBC News

The synthetic cell looks identical to the ‘wild type’

Full Paper: D. G. Gibson et al [2010].”Creation of a Bacterial Cell Controlled by a Chemically Synthesized Genome” Science. 329 (5987): 52-56

Nature | Opinion [2010] “Life after the synthetic cell“. Nature 465: 422–424

“a lab led by Jack Szostak, a molecular biologist at Harvard Medical School, is building simple cell models that can almost be called life. Szostak’s protocells are built from fatty molecules that can trap bits of nucleic acids that contain the source code for replication. Combined with a process that harnesses external energy from the sun or chemical reactions, they could form a self-replicating, evolving system that satisfies the conditions of life, but isn’t anything like life on earth now, but might represent life as it began or could exist elsewhere in the universe.” Full article @
Wired Science

Could alien life exist in the form of dancing specks of dust? According to a new simulation, electrically charged dust can organise itself into DNA-like double helixes that behave in many ways like living organisms, reproducing and passing on information to one another. Full article @ The New Scientist Space

• Lecture Notes: What is life?


• Dennet, D.C. [2005]. “Show me the Science“. New York Times, August 28, 2005


• Kanehisa, M. [2000]. Post-genome Informatics. Oxford University Press. Chapter 1, Blueprint of life, pp. 1-23.


• Scientific American: Special Issue on the evolution of Evolution, January 2009.

This blog is used to post and discuss materials for the I-485/H-400/I-585 “biologically inspired computing” course at Indiana University. Welcome!

Here is a story by Robert Gavin in the Boston Globe about the deteriorating financial condition of Massachusetts hospitals. This is another in the now all-too-familiar type of story about layoffs of health care workers in our state, something some of us predicted several months ago.

While there are some who suggest that a move from fee-for-service to global, or capitated,* payments is the key element in solving rising health care costs, some questions need to be answered as part of the payment reform movement in Massachusetts. If the wrong answers are given, the movement will result in a simple transfer of risk and finances between and among insurers and hospitals, and between and among hospitals. This will aggravate the problem noted above and, with the creation of Accountable Care Organizations, may also lead to greater market concentration in the state.

1) Given the underpayment to hospitals and doctors by Medicare and Medicaid, what margin would private payers need to be pay to provide hospitals with an operating margin consistent with maintaining and renewing physical plant and equipment and with providing proper levels of clinical staffing? (Medicare is the largest single payer for most hospitals, and the percentage of patients it covers in hospitals is growing as the baby boomers age.)

2) How is that needed margin consistent with the current actions by the state’s insurers to impose rate increases on hospitals and doctors below the rate of inflation — actions that are based in part on the decision by the state to require insurers to undercharge for small business and individual premiums?

3) As insurers move to capitated rates, do they have any intention of equalizing rates among provider groups in the state to reflect population-based characteristics as opposed to the relative market power of providers? If so, what is their timetable for doing so?

4) As insurers move to capitated rates, shifting actuarial risk to providers, will there be a commensurate reduction in capitalization requirements for those companies? Will there be a reduction in the remarkably constant 10% of premiums that goes to paying administrative costs for those companies? How and when will those savings be passed along to consumers?

5) How will the body politic deal with the inconsistency in payment models between capitated-limited network plans offered by private payers and the open choice (i.e., PPO) model offered by Medicare?

As an economist, I recognize the merits of capitation. But, if it is done with incomplete consideration of these questions, we will have traded one set of problems for another.

—
* On the more humorous front, the main semantic difference between “global” and “capitated” seems to be that “global” is a softer term, implying inclusiveness; whereas “capitated” brings up memories of the guillotine!

Image via WikipediaHere’s a short and sweet digestible tip sheet, from Chromadex, on how to successfully tackle the FDA GMPs for Dietary Supplements, Dietary Supplement cGMP Highlights and Tips for Success – Tech Tip 0014 (PDF) 

Return Home: http://drughealth.blogspot.com/
GMP Posters
The Health, Drug, Prescription, and GMP Supersite Gift Store
Return to Mobile Home: http://drughealth.mofuse.mobi/

The ADA Guide to Herbs and Nutritional Supplements

Sometimes an expression that would be appropriate and kind in normal circumstances can add pain or anxiety in a clinical setting.

A friend recently went to the Emergency Room because of some bad symptoms. After a few tests, the attending returned to give the diagnosis. He started out by saying, “I hate it when I have to give this kind of news” and then proceeded to summarize the test results and finally to tell my friend that she likely had a very serious, probably terminal form of cancer.

I think what happened here was that the doctor thought that his introductory clause displayed empathy. But what this patient and her spouse heard was that the doctor was more concerned about what he was feeling than what the patient was feeling. Especially after they found out that, no matter how badly he felt, it was the patient who was likely to suffer and die.

Further, in the extended minutes of explanation before he actually delivered the diagnosis, his introductory comment caused a heightened level of stress. He felt the explanation was important to provide a context for the conclusion, but it mainly served to create suspense.

They would have preferred a more direct, “I am sorry to have to give you some bad news. We believe you have ** cancer. Let me explain why we think so.” In their minds, the slight change in wording would still have presented empathy but would have made clear that the doctor’s concern was about them and not about how badly he felt. The direct delivery of the diagnosis at the start of the explanation would have relieved suspense.

Some reading this might feel that my friend and her spouse were overly sensitive and were misinterpreting common courtesy. I can only respond that these folks’ reaction was immediate and negative. I conclude from this that common courtesy does not always feel like such in a difficult clinical setting.

I claim no expertise in how bad news should best be delivered by doctors. But I have told this story to other people with serious diseases, and they have resonated with the feelings of this couple, often remembering their own moments of diagnoses in a similar fashion.

I would love to get reactions and wisdom from both clinicians and patients on this matter. Please comment.