Category Archives: Economics

CVS and cigarettes: Asking the wrong follow-up question

After CVS, what's next for smoking?

After CVS, what’s next for smoking?

CVS’s decision to stop selling cigarettes is a smart one. Cigarette sales are incompatible with the company’s positioning as a health care provider. With the reduction of smoking rates, growing restrictions on where people can smoke, and increasing numbers of localities banning cigarette sales in drug stores it will probably make business sense over time as well.

I’ve been surprised that so much of the commentary on CVS’s decision has focused on what else the company should stop selling. Candy, gum and soda are bad for you, too, so maybe CVS should stop selling that. And the list goes on from there –maybe some of their toys are dangerous, for example.

Asking what else CVS should stop selling is asking the wrong question. Cigarettes cause an order of magnitude more harm than those other categories and are more addictive. That’s a good reason  to stop selling smokes without having to stop selling other things that aren’t 100 percent healthy.

I’d like to see a bigger emphasis on reducing the availability of cigarettes more broadly and making them more expensive.

Cigarette taxes vary wildly by state. Missouri is the lowest at $0.17 per pack and New York is the highest at $4.35. (New York City tacks on an additional $1.50.) The federal tax is $1.01 and some places add other taxes including state and local sales tax. The average retail price for cigarettes is about $6, so tax represents a big part of the price.

These big differences provide a major incentive for smuggling. Although no one knows exactly what percentage of cigarettes are smuggled, it’s a lot.

Indian reservations are another source of low-tax cigarettes. High tax states like New York have seen considerable friction as non-Indians have sought out on-reservation stores for bargain prices.

The effects can be insidious. A friend told me recently about a public housing project in his area where a man goes door to door selling cigarettes he obtains cheaply on a nearby reservation. If the price were higher the rate of smoking in this price sensitive population would be likely to decline.

I’m not proposing a specific mechanism to address these challenges, but I would like to see the low tax states raise their tax rates,  more enforcement effort devoted to stopping interstate smuggling, and more aggressive action to reduce the availability of reservation cigarettes. Although this will never happen, one approach could be fore the federal government to charge a tax of $6 minus whatever the states charge. That would provide an incentive for every state to raise the tax to a uniform, high amount.

photo credit: The Guncle via photopin cc

By David E. Williams of the Health Business Group.

Uber: An antidote to taxi corruption

Taxi service in the Boston metro area is pretty bad. Cabs are still booked by phone. The dispatcher lacks caller ID so the street address and name have to be dictated. Cabs often show up late or to the wrong street. In speaking with cabbies over the years I’ve learned that one of the problems is that dispatchers play favorites, in particular by awarding jobs to those drivers who pay them bribes. One of the results of that is poor service for customers who are not always sent the most convenient cabs. I’m not the expert on corruption in the cab business but you can read more about it in the Boston Globe if you don’t believe me.

So I’m grateful for the Uber service, which provides a more convenient, less expensive service that in my experience has also been more reliable and friendlier than the taxi alternative. (If you don’t know, Uber is a smartphone app that allows passengers to request private cars, cabs, SUVs or black cars and to pay automatically.) Interestingly –and not surprisingly to me– I am encountering UberX drivers who are former taxi drivers for the taxi companies in my town. When I ask them what they like about Uber they mention the ability to determine their own hours –but when I push them a little more they open up about the lack of corruption as another reason to participate.

Now, not every one is so sanguine about Uber. (See Why Does Uber Suck Now?) for a different take by one of my neighbors. I agree that Uber staff have been a bit sleazy, at least in New York, and I’m sure that experience with drivers will be variable. But I don’t object at all to surge pricing. As long as it’s disclosed it should bring more cars on the road when there’s demand for them. (You can always take a cab if you don’t like it.)

At least for now, Uber is giving out its venture capitalists’ money to build up the business. If you use my invite code: psx4h to join Uber you’ll get a $20 credit and so will I.

If you’ve read all the way to this point and are wondering about the connection to health care, I’m sorry to say there isn’t one.


By David E. Williams of the Health Business Group

Health Business Group assesses economic impact of Steward Health Care System

Steward Health Care System is having a major impact on the economy of Eastern Massachusetts. An analysis by Health Business Group, where I am president, demonstrates that Steward directly and indirectly supports approximately 33,000 jobs and was responsible for $8.4 billion in economic impact in 2011 and 2012.

The full report is available for download.

Cut-rate concierge medicine? One Medical resorts to discounting

Good stuff, cheap

Good stuff, cheap

I have mixed views about concierge medicine. On the one hand I like the idea of higher service levels for patients and the ability for doctors to practice medicine the way they think is right without feeling like hamsters on a wheel. But overall I’m pretty skeptical.

  • I’m worried that concierge medicine may draw in physicians who are more concerned than average about their own lifestyles. My non-concierge doc works 80 hours per week and answers my electronic messages right away for no extra charge
  • It’s far from clear that the best primary care docs are concierge docs
  • Many concierge offices are just like regular primary care offices in that they make use of physician extenders: nurse practitioners and physician assistants. I have nothing against these professionals but it’s not what I’m looking for in a premium offering
  • The practices may make primary care more convenient and comfortable but I’m skeptical that they achieve anything special for patients who are really sick and end up in the hospital or under the care of a specialist

It is interesting to see just how inexpensive concierge care has become. One Medical Group in Boston charges only $199 per year for its concierge services. To put that in perspective it’s less than one percent of what my firm pays in premium for family coverage. And yet even at that rate the company seems to be having trouble attracting customers.

I had to chuckle when I received a brochure in the mail yesterday offering a $50 discount –actually a Whole Foods eGift Card– for new customers. Apparently even $199 is too expensive to draw patients in.

Maybe another way to look at it is that regular primary care in Boston is pretty darn good. You can get a same-day appointment if you need it, the doctors will spend the time with you when it’s called for and will go out of their way to help you get in to the proper specialist when required. Many will communicate by electronic message and return phone calls.

I’d actually be happy to pay an extra $199 or even more for a real improvement. And if my current doctor switched to a concierge practice model I’d go with her and pay more. But the concierge model as a whole has a lot to prove before it really catches on.
photo credit: Daquella manera via photopin cc

By David E. Williams of the Health Business Group.

When using a free health care website, consider the business model

Is a free lunch worth the price?

Is a free lunch worth the price?

When Google first came along I assumed that their business plan was to get users addicted to search and then start charging for searches. But it turns out they were a lot savvier than that. Instead of thinking of Google as a service to help users search out content, they thought of it as a service to help advertisers target customers. Users revealed their interests through their search habits, and Google delivered relevant customers to advertisers. Brilliant!

For a long time now Internet users have expected useful sites to be free. That’s true of consumer sites and it’s also true of professional sites. But before getting too involved with these sites it’s worth stopping for a moment to ponder their business models. That’s especially important for medical sites, where privacy is often a concern.

iMedicalApps  reveals the business model behind popular websites used by physicians:

Many free apps aren’t really free, though. We talked about the hidden price of free medical apps about two years ago, an issue that was later highlighted in the New York Times as well. In essence, the price of these apps is that we share enough personal information to enable targeted advertising, surveys, and so on.

What may come as a surprise to many healthcare professionals is that many apps they frequently use like Medscape and Epocrates share users’ names, NPI numbers, and other identifying information with pharmaceutical advertisers. As it turns out, Facebook and Twitter have stricter privacy policies than some of your favorite free medical apps.

The comments section is interesting. Most of those posting profess not to care if their information is shared. Maybe that’s reasonable, but at least it’s worth knowing that it’s occurring.

If you stop to think about it, it’s kind of obvious that “free” apps are leveraging user data to make money from other parties. Even so, many people are surprised when they learn about these business models. But even when the user pays there’s no guarantee that their data will be protected. Marketers are eager for information on doctors and others regardless of whether the user is getting a freebie. If anything, marketers are more interested in obtaining information about users with a demonstrated willingness to pay. And the purveyors of the information see no real reason not to double dip.

Edward Snowden’s revelations about NSA spying are having an interesting effect on the market. Snowden has raised awareness that information is often improperly used. Theoretically that might make people wary of signing up for sites that disclose their information. On the other hand, some may reasonably conclude that since the government is looking at their information anyway there’s no reason to try to protect it.

photo credit: webted via photopin cc
By David E. Williams of the Health Business Group.

A better business model for antibiotics

For the past couple of decades antibiotics have generally been a low margin, low revenue business that big pharma has stayed away from. Lack of new drug development activity combined with an increase in antibiotic resistance and the rise of “superbugs” are leading us rapidly to a frightening place where we lack effective drugs to stop many dangerous infections.

A Wall Street Journal article (Drug makers tiptoe back into antibiotic R&D) provides the welcome news that drug makers are starting to invest in this area again. One reason: they are hopeful that when the new products get to market there will be a greater willingness to pay than there has been historically. Antibiotics can have a big payoff in the form of improved quality and length of life and avoided medical costs. Curing an infection in one person can also prevent others from getting it.

The article speculates about reimbursement from health plans and whether big insurance companies will be willing to pay more for new antibiotics than they have for old ones. The answer may be yes, but I’m not sure it’s the relevant question. I’m reasonably optimistic that in the new world of global capitation, accountable care organizations, and other methods for placing risk on providers that the providers themselves will be willing to pay because it will be a net positive for them financially.

There’s also a brief mention of introducing a licensing model for drugs based on number of patients and indications rather than quantity of product. I think that’s a great idea and have written about it in the past.


By David E. Williams of the Health Business Group.

More from the nursing shortage myth annals

Good news or bad news?

Good news or bad news?

FierceHealthcare has a weird little article about nursing shortages or lack thereof (As market worsens for hospital jobs, nurses look elsewhere). As I’ve written before, the nursing shortage is a myth. If you’re thinking of going to nursing school or sending your son or daughter there based on the inaccurate notion that good nursing jobs are plentiful, you should think twice.

The Fierce article mixes together two articles that tell almost opposite stories. The first, from the Indianapolis Star describes the dearth of hospital nursing jobs –which generally pay well. Nurses who can’t get jobs there are moving down the food chain to lower paying outpatient and home care positions.

New nurse grads are sending out 60 to 100 resumes and getting no responses, we are told.

That article mirrors my sense of the market. If there were a real nursing shortage you’d expect employers to be talking about it, yet I almost never hear a hospital clamoring for more nurses to be trained. Contrast that with the situation in high technology where employers are constantly beating the drum for more STEM (Science Technology Engineering Math) graduates.

The second article from the Long Beach Press Telegram is about a faculty shortage in the California State University system. Something like 90 percent of qualified applicants are being turned away, which we are told “is exacerbating the state’s nursing shortage.”

Actually, with a national nursing glut, the applicants may be receiving a blessing in disguise.

A commenter captures my feelings about the article well. He has a niece who graduated with her RN but is still waitressing six months later. Meanwhile, “if California has such a shortage of nurses, why don’t some of the new grads sending out the 60 to 100 applications go west?”

photo credit: via photopin cc

By David E. Williams of the Health Business Group.