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Healthcare Economics: Why This Stuff Doesn’t Actually Work The Way You Think It Does

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This is a letter I sent to Gary Cohn, appointed by President Trump to head the National Economic Council and, among other things, come up with a plan for reforming healthcare. Formerly president of Goldman Sachs, Cohn may be a wizard at finance, but healthcare economics are wildly different and famously opaque. So I thought I would help him out.]

Subject: A brief on healthcare economics. (8 minutes)

 o Why healthcare economics are different.

 o Why the ACA is failing.

 o What would work.

Who I am (credentials): Independent healthcare author and analyst since Jimmy Carter’s administration. Speaker, consultant across the industry at all levels, including insurers, hospitals, device manufacturers, employers, Veterans, pharma, World Health Organization, Department of Defense. Look me up: ImagineWhatIf.com. Books on Amazon.

Core problem:
 The core problem in healthcare reform is the actual cost of medical care.

o Healthcare in the U.S. by any measure costs about twice what it should.
o Medical prices are completely disconnected from the cost of production.
o Few medical providers even know the true cost of ownership of their products.
o By a number of analyses at least one third of that (well over $1 trillion this year) is waste, paying for things that we don’t need and that don’t help.
o Solving just the federal part of this would completely wipe out the deficit.

Trying to “take care of everybody” will always be impossible politically and economically as long as healthcare costs twice what it should and wastes trillions of dollars.

Solvable: This is a solvable problem. Change the relationship of the sector to its true customers by shifting the payment structure, prompting business model innovation. Stop paying for waste, and $1 trillion/year in unneeded overtreatment will disappear. Prices will drop to something like a true market price. This will not happen overnight, but it could happen over five years with vigorous implementation.

Why does it cost so much?

No price signals: The structure of the U.S. healthcare market since the early 1980s has made it opaque to price signals. Customers in healthcare ask a different question than customers in most markets. Whether hospitals (as customers of suppliers) or individuals needing an operation, healthcare customers mostly don’t ask, “Can we afford it?” Or even, “What’s the best value for the money?” They ask, “Is it covered? Can we get reimbursed for this?” And the reimbursement or coverage is set by complex non-market mechanisms that in most parts of the market are themselves opaque to the customer. So there is no real customer and no real price signal in most relationships throughout the market.

Continuous Coverage Clauses in Healthcare Reform: Are They Benign?

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A House proposal for repealing and replacing the ACA surfaced this week. The Republican’s healthcare plan tries to seduce us by promising lower premiums and removal of the individual mandate. No longer will Obamacare encroach on personal freedom and financial stability, they boast.  But let’s not be fooled by their ACA alternatives. The GOP proposal is no better for us. In fact, it is worse.

I share this insight as a physician and policy maker in-training. In this role, it is my duty to identify, mitigate, and manage threats to patient health and wellbeing. Sometimes, these threats are obvious – say, a heart attack, pneumonia, or financial hardship imposed by exorbitant medical bills. But at other times, I must rely on my training to detect more subtle health threats, like heart murmurs, hypertension, and “continuous coverage” clauses in healthcare bills.

That last threat may sound unfamiliar, but continuous coverage provisions have consistently shown up in the Republican Party’s  prominent healthcare proposals.  Continuous coverage clauses mislead us into thinking we will be guaranteed insurance at low market rates. But the catch is if there is a lapse in coverage lasting more than two months, then insurance companies can hike up the price of the policy.  The most recent proposal capped this price hike at 130% of regular premium rates for the first year. But this limit may change, as previous versions allowed premium rates to reach 150% for the first 18 months. 

The continuous coverage provision aims to fulfill the same objective as the ACA’s individual mandate; both policies induce young and healthy people to buy insurance. The participation of these sprightly citizens helps to pay for and offset the large, costly claims of the ill and old, thereby lowering premiums across the whole population. 

But there is a striking and dangerous difference between the policy nudges in Obamacare and those in the replacement plan. While the ACA’s individual mandate taxes us if we opt out, the continuous coverage clause would punish us at a point when we are trying to opt in. For any of us, the cost of re-gaining insurance following a temporary lapse could be so high that we would not be able to afford new coverage. 

Even those Americans who are neither sick nor poor at the moment could be adversely affected by Republicans’ continuous coverage nudge. The need for acute or chronic medical care is impossible to predict, and financial health is likewise uncertain. As Sendhil Mullainathan, a Harvard Economist, and Eldar Shafir, a Princeton Cognitive Scientist elucidate in their book, Scarcity, none of us is immune to the sorts of mistakes that cause insurance lapses. Citing studies from a variety of fields, these experts explore how financial and emotional stress leads to difficulty performing tasks, like paying bills and making deadlines. This happens because the more tasks we are responsible for doing, the fewer we are able to do well.

What does this mean for healthcare reform and for Americans’ wellbeing? Changing jobs, moving, launching start-ups, and filing for divorce are all occasions where even the healthy and wealthy might need a new insurance plan but would be limited in their capacity to meet this need. In the face of these major life events, anyone could have limited cognitive bandwidth, making all citizens prone to unintended breaks in coverage.

So far, Republican leaders have narrow-mindedly put forth alternatives that seem better than Obamacare. And, at first glance, their continuous coverage clause does appear benign. But the nudges in their proposals won’t shepherd us to safety. They’ll push us off a cliff.

Perhaps the continuous coverage provision would be less dangerous if we were to de-link insurance from employment, as changes in job status are among the most common reasons for breaks in coverage. Unfortunately, Republicans are unlikely to pursue this sort of reform, because, even if premiums were lowered in an absolute sense, patients would feel as though they were higher; costs would come visibly out of our wallets instead of being paid for invisibly by employers. An alternative way to make continuous coverage clauses more humane would be having insurance as our default status in America. This won’t happen either; these leaders have consistently opposed universal coverage. 

Because the Republicans’ objective appears to be seduction, not protection, it is hard to believe they will take the necessary steps to keep Americans covered. To my medical eye, the replacement plan we’ve heard about thus far would harm more individuals than anything we’ve experienced in the ACA. If you would like a second opinion, I’d be happy to refer you to another specialist. But most doctors agree: health policies should facilitate insurance coverage, not discourage it.

Maggie Salinger is a MD MPP candidate at Emory Medical School and the Kennedy School of Government. This post originally appeared in the Kennedy School of Government blog. 

The House Republicans’ Terrible, Horrible, No Good, Very Bad Obamacare Replacement Plan

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It won’t work.

Obamacare works for the poorest that have affordable health insurance because all of the program’s subsidies tilt in their favor.

Obamacare doesn’t work well for the working and middle class who get much less support––particularly those who earn more than 400% of the federal poverty level, who constitute 40% of the population and don’t get any help.

Because so many don’t do well under the law, only about 40% of the subsidy eligible have signed up and, with so many insurers losing lots of money, the scheme is not financially sustainable because not enough healthy people are on the rolls to pay for the sick.

To fix it, House Republicans are proposing a very attractive program for the better off and, with the Medicaid rollback, gutting the program for the poor to be able to pay for it.

Healthcare Insurance: America’s Collective Action Nightmare

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Across the country, ugly confrontations are occurring between Republican lawmakers who pledged to repeal Obamacare and Americans who are afraid of losing their healthcare coverage.  The protesters’ fears are understandable.  The cost of medical services can be devastating.  The chief selling point for Obamacare was that, between the guarantee of coverage on the exchanges and the expansion of Medicaid, the vast majority of Americans would be protected.  And the main difficulty that Republicans face in repealing Obamacare is the widespread concern that tens of millions of people might be tossed off the rolls.

The confrontations are the unavoidable consequence of a collective action dilemma.  The dilemma is this: To achieve good collective outcomes, government must often prevent people from doing what they think is best for themselves.  Individually, I might like to be free to dump trash in the most convenient place, to pollute the waterways and skies, to fish and hunt without limit, to drink and drive, or to use other people’s property and possessions without their permission.  Millions of other people might want these liberties too.  But collectively, we’re all vastly better off when everyone’s freedom to do these things is constrained.  One of the benefits of government is that it can prevent people from acting in ways that are individually rational but that, when practiced widely, make us collectively worse off.

In healthcare, the collective action dilemma stems from the fact that comprehensive coverage—by which I mean all forms of third-party payment, including Medicare and Medicaid, as well as private insurance—is the main driver of the healthcare cost spiral that gone unchecked since the mid-1900s.

The problem is a vicious circle.

Hey, Machine Learning

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Hey Machine Learning,

I heard what Forbes said about your “setback” at MD Anderson.  I also heard rumors going around HIMSS that maybe it’s “too soon” for you to be in healthcare. At first I thought, “serves you right.” There was so much hype that I could barely recognize you.

Then I realized that, in a way, we’re all to blame. The journalists, vendors, researchers, and data scientists – all of us that tried to make you popular in healthcare. I guess things just sort of got out of hand.

You have to believe me when I say we meant well. We wanted people to see how special you really are. And the whole “30+ years of clinical research and thousands of published studies” wasn’t working. Apparently, evidence is only cool with your research buddies.

So you got a makeover. The cool kids in marketing gave you new nicknames. People started rumors about all these crazy things you were up to. Suddenly, after years of being invisible Machine Learning was the talk of the town. Did you hear, Machine Learning is now going by Artificial Intelligence!  Artificial Intelligence will cure cancer! I heard Big Data will replace doctors! Do you mean Machine Learning?  I don’t know but I heard Cognitive Computing just created the latest fashion craze!

Really, it was all just too much for any one set of methods to live up to.

But that doesn’t change who you are and what you’re capable of. Yes, Queries and Dashboards are more popular. But you don’t get caught up constantly dwelling on the past like they do. And sure, Traditional Statistics have prestige. But we both know they can be a bit myopic at times. And Risk Scores…don’t even get me started on Risk Scores.

You are different.  And that’s a good thing.

I personally have seen you consider millions of different data points – even free text notes – to spot falls in hospitals, prevent admissions of elderly patients, and route people with serious mental illness to appropriate care sooner. You don’t need to be a doctor. Because you can make doctors better at doctoring.

In (Gasp) Defense of the Coronary Stent

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A kerfuffle ensued recently when an oncologist and expert on evidence based medicine took the field of cardiology to task over the evidence for placement of the ubiquitous coronary stent.  What started with a lengthy article in Propublica that included coronary stenting for stable coronary disease as a prime example of a procedure done without evidence to back it up turned into this fiery twitter exchange between Drs. Kirtane (cardiology) and Prasad (oncology).

The crux of the debate revolves around placement of coronary stents in patients with stable coronary artery disease.  Stable coronary artery disease refers to narrowing of the arteries by a build of plaque that has occurred slowly over time.  Unstable coronary artery disease refers to eruptions that occur within the coronary vessel when a plaque ruptures, quickly leading a patent vessel to become completely occluded or nearly occluded.  Unstable coronary artery disease, otherwise referred to as an acute coronary syndrome is regarded as an emergency that requires urgent intervention by skilled operators (interventional cardiologists) who must race against time to abort a process that if left unchecked may lead to death or severe damage of the heart muscle.

Figure 1. Stable angina/Acute Coronary syndromes

Stable coronary artery disease on the other hand is not considered an emergency, but can result in patients being symptomatic because of diminished blood flow through the culprit artery. Angina pectoris is the descriptor one uses to describe chest pain that relates to a mismatch between the blood flow the heart muscle needs and what it receives. It is almost always the case that angina in stable coronary disease is triggered by activities such as physical or emotional stress that require more blood flow than the narrowed artery can supply.

A Great Leap Forward (Or Backward) For the National Health IT Agenda?

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At HIMSS, I listened carefully to payers, providers, patients, developers, and researchers. Below is a distillation of what I heard from thousands of stakeholders.

It is not partisan and does not criticize the work of any person in industry, government or academia. It reflects the lessons learned from the past 20 years of healthcare IT implementation and policymaking. Knowing where we are now and where we want to be, here are 10 guiding principles.

1. Stop designing health IT by regulation

Through its certification program, ONC directs the specific features, functionality, and design of electronic health records. As a result, technology developers devote the majority of their development resources to fulfilling government requirements instead of innovating to meet market and clinician demands. The certification program has established a culture of compliance in an industry ready for data-driven innovations. ONC’s role in the health IT industry made sense eight years ago when IT adoption in healthcare lagged considerably behind all other sectors, but today the certification program impedes a functioning market and must be reformed.

Imagine Ransomware, For Your Body

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Wired has an article up, “Medical Devices are the Next Security Nightmare.”  It’s all about how vulnerable almost all of these implantable devices and hospital telemetry devices are, with old, unpatchable operating systems, open ports, all that.

Let’s just think about this. Imagine someone hacking your implanted defib or insulin pump.

Wait. No need. Imagine just getting an email telling that they have hacked into it. They have the keys to your body’s engine. And they want something in return for not turning it off.

“Give us your credit card and bank account information — all of it. Now. Or we will start screwing up your body, a little bit or a lot, whenever we feel like it, dumping all the insulin into the bloodstream at once. Or just giving you a heart attack. You have until 5pm EST.

Yep, Health Care Is Complicated

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Yes, Mr. President, health care is complicated.

So glad you now understand this. But, um, within 24 hours of acknowledging that complexity, you made a speech to Congress that backtracked.

Namely, you once again said ACA repeal and replace legislation would “expand choice, increase access, lower costs, and at the same time provide better healthcare” even as you referred to Republican ideas and proposals that would, in fact, not easily achieve any of those goals, according to independent analyses.

You also said: “The way to make health insurance available to everyone is to lower the cost of health insurance, and that is what we will do.”

An achievement devoutly to be wished—if by lowering health care prices and costs. If achieved by making insurance skimpier or through even higher deductibles and co-pays, not so good.

How to Blow Up the Health Insurance Market In One Easy Step

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I call support for giving insurance companies the ability to sell insurance across state lines the cockroach proposal.

As bad as it is, you just can’t kill the damn thing!

Last night, President Trump once again listed this idea in his address to Congress as one of his health care talking points.

Any candidate that suggests such a scheme only shows how unsophisticated he and his advisers are when it comes to understanding how the insurance markets really work––or could work.

I gave a speech to 750 health insurance brokers and consultants in DC last week.

When selling health insurance across state lines, something Trump and a number of other Republican presidential candidates have been pushing, was mentioned the audience literally laughed. That’s what health insurance professionals who spend their days in the market think of it!

This is about as dumb an insurance “reform” idea as has ever been proposed.

This is nothing more than an attempt to take the market back to the days of cherry picking risk––figuring out how to sell policies to only the healthy people. If this were ever enacted it would only serve to shuffle the healthy people into one set of health insurance policies and the sick into another thereby driving down costs for the healthy and in return just driving costs up for the sick––and accomplishing nothing toward fundamentally making insurance cheaper.