Economics

Economics

Unreformed: Taming the Charge Monster

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Any backpacker travelling on a shoestring budget in Thailand knows not to blow their entire budget on premium whiskey in a premium hotel on the first night in Bangkok. Rather, you need to skip the occasional meal, stay in a cheap dorm with random strangers, and drink cheap beer on Khao San Road if you wish to see the country and return home without having to wash dishes in a restaurant in Bangkok to repay the loans. Both Democrats and Republicans seem impervious to a simple wisdom that I learnt when backpacking – you save money if you go for cheap stuff. The operative word here is “cheap.”

Both the Affordable Care Act (ACA) and the Better Care Reconciliation Act (BCRA) impose cost sharing, such as deductibles. Deductibles lower premiums by cost shifting. Because the sick, for obvious reasons, are more likely to meet their deductibles sooner than the healthy, deductibles shift costs from the healthy to the sick, or are a “tax on the sick.” Deductibles also reduce premiums by reducing the administrative loading of insurance – because insurers have fewer small claims to process, administrative costs reduce.

The New FDA Commissioner

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That the appointment of Scott Gottlieb to head the FDA has elicited a decidedly mixed response is a good thing. I fear consensus as much as the late Christopher Hitchens loved dissent which, he believed, was an indicator of a healthy democracy, which means that rather than facing the morgue, the US might be going through her healthiest days in these times.

Gottlieb has served on the boards of industry, and earned a nifty pocket money doing so. Detractors argue that he’s unfit to head the FDA because of his financial conflict of interest (FCOI). I will not revisit the arguments for and against physician’s FCOI with industry, because all arguments for and against have been made, and it’s unlikely that anyone’s mind will change with new evidence or new arguments. Suffice it to say that both sides have plausible arguments, and we’ll never know the truth, because to know the real impact of physician’s FCOI with industry we need parallel universes with everything held constant, except the degree of physician ties with industry, and measure the net benefits to society in terms of morbidity, mortality, drug prices, and innovations.

Interview with Mark Pauly: Part 2

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President Trump and Obamacare

 

 

Healthcare reformers, like the wives of King Henry the 8th, have a thankless job. In a curious inversion of the Tudors, President Trump, who has promised to make healthcare great again, finds himself in the same predicament as the King’s sixth wife who knew what she had to do, just didn’t know how she could do it any differently. Dr. Mark V. Pauly (MVP), Professor of Economics at the University of Pennsylvania, believes President Trump’s options are neither exhaustive, nor exhausted.

The Interview

SJ: I’m quoting from your book Healthcare Reform without side effects “with community rating…doors are open for political and special interests to lobby…Imagination will be stifled…political rent seeking will be rampant.” When I read this paragraph I checked the publication date of your book. It was not 2016. It was 2008 – before the passage of the ACA.

MVP: Unfortunately, the book wasn’t published soon enough before the ACA.

SJ: What, in a nutshell, is the problem with the ACA?

Interview with Mark Pauly: Part 1

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Community Rating – The Worst Possible Way To Do a Good Thing

I have a grudging respect for health economists, “grudging” because, like many doctors, I want my pieties unchecked. Health economists check our pieties with quantitative truths. They describe the way the healthcare world is – a view from 29, 000 feet, pour cold water on the way we think the world should be, and guide, with abundant disclaimers, the way we can make things better. It’s unwise climbing Everest without a Sherpa, nor is it wise reforming healthcare without listening to health economists from across the political spectrum.

President Trump, along with the Republican House and Senate, will be dismantling the Affordable Care Act (ACA). In a sense, President Trump is not just descending Everest, a treacherous feat in its own right, but scaling a peak arguably more dangerous than Everest. Despite their differences, Mr. Obama and Mr. Trump share one commonality – an implicit distrust of the health insurance industry.

How did the American health insurance industry become so vilified? This is, in part, because necessity is the father of all vilification. Insurers are a necessary evil in a country where there’s still deep mistrust of the government. Partly, this is because we transfer our angst about the uncertainty of our future, the dice which plays with our lives, to insurers who are in the business of rolling the dice. But mostly it’s because the misdeeds of the insurance market have been grossly exaggerated, and the benefits of the market have been attenuated by a few damning anecdotes. This is what Mark V. Pauly (MVP), Professor of Health Economics at the University of Pennsylvania, and one of the most eminent health economists of his generation, believes.

Fail to Scale: Why Great Ideas In Healthcare Don’t Thrive Everywhere

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In the world of fine wine, it is well known that some types of wine grapes grow only in very specific climates and ecologies. The concept borrowed from the French is “terroir” (ter-WAHR). Terroir explains why the finest champagne grapes grow only in a small district in northeastern France, characterized by rolling hills and a chalky limestone subsoil that provides a steady level of moisture and imparts a mineral note to the wine’s flavor.

Health policy advocates have sought for generations to propagate promising forms of health care organization across the country. Yet one finds repeatedly that some forms of organization that prosper in one part of the country fail to thrive in others. Is it possible that the concept of terroir also applies in health care?

The Case Of Kaiser Permanente

Kaiser Permanente’s health plans would be a great example. Kaiser has been a darling of health policy advocates such as Alain Enthoven, Paul Ellwood, and others because of its integrated structure, global risk, and salaried employment model of physician practice. Yet, despite repeated federal interventions, beginning with the Health Maintenance Organization Act of 1973, Kaiser only recently exceeded 10 million in enrollment for the first time in its 71 year history. Moreover, 82 percent of that enrollment is in two states—Oregon and California—where Kaiser originated. The percentage of Kaiser’s enrollment that derives from its origin states is basically unchanged in a decade.

The Rise and Decline
of the Dartmouth Atlas

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flying cadeuciiIn my first comment  in this series (an open letter to President Obama), I criticized Obama for stating in an article  in the Journal of the American Medical Association that the Affordable Care Act is deflationary. I promised him I would post more essays showing how badly he had been misled by three experts who influenced him: Elliott Fisher and his colleagues at the Dartmouth Institute, Atul Gawande, and Peter Orszag.

My second post presented evidence that the research by Fisher et al. on regional variation in Medicare spending has been enormously influential with US policymakers for the last three decades.

In this comment, I demonstrate the gross inaccuracy of the Dartmouth group’s research.

Let me state at the outset: Even if every paper Fisher et al. wrote about regional variation in Medicare spending were true, none of them constituted evidence for the “accountable care organization.” In other words, even if we accept the Dartmouth group’s claim that regional and hospital variation is due primarily to overuse, we would still have no reason to accept the group’s claim that ACOs are the solution to all that overuse.

So, Do Transparency Tools Actually Work?

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flying cadeuciiA new report by economist Jon Gabel and his colleagues at NORC, a research center affiliated with the University of Chicago, looked at the use of transparency tools in an employer health plan. The analysis found the use of price transparency tools to be spotty. For instance, 75 percent of households either did not log into the transparency tool or did so only one time in the 18-month period of study. Fifteen percent did so twice; but only 1 percent logged in 6 times or more. The authors concluded:

It could very well be that we are asking too much of a single tool, no matter how well-designed. Consumer information for other goods and services on price and quality are seldom dependent upon information gained mainly, if not solely, through a digital tool. Rather, information on relative value is spread far and wide through advertising and other kinds of promotion using conventional, digital, and social media communication channels.

An earlier Harvard study on transparency tools, published in JAMA, found patients do not tend to use the tools to comparison shop for lower prices (in fact, spending rose slightly). An NBER study concluded that when transparency tools do lower spending, it is because consumers used to tools to identify prices and use the information to decide whether they can afford the service and skip it if they cannot.

The transparency tool in the current study also emailed “Ways to Save” suggestions on how consumers could reduce medical spending. The authors made an important observation:

It is also possible that the message on the “Ways to Save” e-mail turned off many households. While the emails did highlight opportunities to save a specific amount of money, a vast majority of the savings were for the employer and a much smaller amount of savings applied to the employee. It is possible that many employees viewed the transparency initiative as simply a means for the employer to save money.

The Rest of the Story About the Economic Good News

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Legendary radio commentator Paul Harvey ended his daily report with a final story introduced by the tease “Now for the rest of the story.”

Last Tuesday, the U.S. Census Bureau announced that median household income increased 5.2% in 2015 to $56,516—the first increase in inflation adjusted income since the start of the downturn in 2007.

The Bureau also noted that the U.S. poverty rate decreased to 13.5% in 2015, down from 14.8% in 2014 and those lacking health insurance coverage shrank to 9.1% from a high of almost 16% in 2007. According to the Center for Budget and Policy Priorities, that’s the first time all three have improved in 20 years which it attributes to a lower unemployment rate (5.3% vs. 6.2% in 2014) representing an increase of 3.3 million in the workforce. That’s the story, but here’s the rest of the story.

The Levers We Have at Our Disposal to Reduce Spending on High Cost Claimants

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CindySweb

A new report out from the American Health Policy Institute and Leavitt Partners further quantifies what we already know: a handful of employees are responsible for the bulk of employers’ health care spending. The new report documented that among 26 large employers, 1.2 percent of employees are high cost claimants who comprise 31 percent of total health care spending. Interestingly enough, the report was released on the heels of news yet again that high deductible health plans continue to be more popular than ever as a strategy for employers to control costs, with employee cost sharing expected to rise yet again this year.

And yet high deductible health plans may do more to bend the cost trend for healthy employees by reducing spending on items like pharmaceuticals and lab testing but not on inpatient care.

The least heathy employees quickly blow through their deductible, and their health issues are so acute and their bills so large, they don’t shop around for care. So what is a large employer or any purchaser concerned about these high cost claimants to do?

Consumerism in how we typically think of the concept doesn’t seem to be working.  For example, according to McKinsey,most healthcare consumers are not doing their homework – they aren’t researching costs or their choice of providers. And even for the handful that do use price transparency tools, new research shows this doesn’t result in savings. It’s not that patients with serious health conditions don’t want to understand their condition, the latest evidence-based treatment options, who are the best physicians, and treatment costs. It’s just that they need assistance curating and interpreting this complex information.

On the Wondrous U.S. Market For Prescription Drugs

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Citing a recent report in the Los Angeles Times, an article in FirecePharma entitled “Some generic drug prices soar despite heavy competition” rises questions on the ability of market forces to reign in drug prices – for example, on the idea that the price of Mylan NV’s EpiPen would not have risen to $614 per 2-pack from about $100 per 2-pack or less in 2007 if the Food and Drug Administration (FDA) had not prevented Sanofi’s and a new product by Teva to come on market, leaving Mylan NV in full monopolistic control, of this blockbuster market.

According to data assembled by the Los Angeles Times, prices of generic drugs can rise sharply even if multiple manufacturers compete for market share. As an illustration, the article cites the generic drug ursodiol for gall stones, produced by no less than 8 manufacturers. “Several years ago, the wholesale price ran as low as 45 cents a capsule. In May 2014, Lannett Co. ($LCI) bumped its price for ursodiol to $5.10 a capsule, a price hike of more than 1,000%. Rather than keeping their own generic versions of ursodiol low to steal market share, each competitor followed Lannett’s lead and priced their versions the same or close.”