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John Irvine

How Much Is a Life Worth?

Oct 28, 2011• 105

By DAVID DRANOVE

This blog continues my ongoing series of “mysteries of health economics.”

The mystery this week is “what is a life worth?” We cannot ignore this question because it seems unthinkable. As will discuss, coverage decisions by public and private insurers depend on the answer. Some payers are rather explicit about they think a life is worth.

Before I try to solve this mystery, let me acknowledge that we should not spend money on health services that are of zero value (or worse.) But what about expensive health services that might prove to be of some value? How much should we spend on these?

Let us accept the reality of insurance. When we “purchase” health care, someone else foots the bill. Perhaps insurance should contain big deductibles, but even big deductibles are quickly exhausted if we need surgery or have a chronic health problem. If we are pooling our resources to pay for medical care, then we will probably want to reach some sort of collective decision about what drugs and treatments we will pay for. The alternatives would be to invite massive moral hazard. (Let me repeat for those who bang the drum loudly for big deductibles – deductibles are quickly exhausted when serious illness strikes and moral hazard again rears its ugly head.)

Now imagine a new cancer drug that offers a small prospect of survival to patients who have no other choices. Suppose that on average, patients who receive this drug can expect to live about another three months and that there are no downsides to this drug. If the drug company offered to give the drug away for free we would surely want patients to have access to it. If the drug company asked $100 million a dose, we would probably agree to spend the money elsewhere.

Paul Ryan Is Right (And Wrong)

Oct 11, 2011• 5

By Roger Collier

Having cost the Republican Party a Congressional seat earlier this year with his plan to turn Medicare into a voucher program, House Budget Committee Chair Paul Ryan is back with an even more sweeping health care proposal.

Ryan’s latest offering, unveiled in a speech a week ago at Stanford University’s conservative Hoover Institution, is nothing less than a blueprint for replacing the Affordable Care Act with a consumer-driven model that would eliminate the current tax-exempt treatment of employer-paid health insurance.

Is Ryan right? Or wrong?

Ryan believes that exempting health care benefits from employee income tax leads to insurance choices that are unnecessarily costly (since they are effectively subsidized), insufficiently tailored to employee needs (since few choices are offered), inadequately valued (since the employee isn’t paying), and unreasonably tie employees to their jobs (since they may not be able to move without switching insurance). He also believes the present system is unfair: higher-paid employees get a greater tax advantage, while employees of smaller businesses have fewer (or no) options at higher prices than their peers in larger corporations.

He’s right! Common sense says that people are likely to choose the most generous coverage available if it is free or offered at a very low price, while employers—especially those who must negotiate union contracts—see tax-subsidized health insurance as a “better buy” than salary payments.

Testing, Testing – Do We Test Interventions Sufficiently?

Oct 3, 2011• 5

By TIMOTHY WILSON

Are Americans becoming more skeptical of scientific inquiry? Some are, according to the pundits. See, for example, Chystia Freeland’s article in the New York Times, “A Deep Faith in What’s Been Proved,” and Paul Krugman’s article in the same paper, “Republicans Against Science.”

Although there does appear to be a growing skepticism about the value of science to address problems such as global warming, there has long been a neglect of social science when it comes to evaluating programs designed to change people’s behavior in beneficial ways, such as those that try to get kids to avoid drugs and alcohol, teach parenting skills, and prevent adolescent behavior problems. Myriad programs that receive federal and state funding have never been adequately tested to see if they work. When they are tested, they are often found to be ineffective or even to do harm.

Consider the D.A.R.E. drug abuse resistance program, which is used in 75% of school districts in the United States and in more than 40 countries. D.A.R.E. lists among its sponsors the U. S. Drug Enforcement Administration, the U. S. Food and Drug Administration, the U. S. Department of State, all five branches of the U. S. military, and the White House Office of National Drug Control Policy. President Obama, like his predecessors, designated a day in April as National D.A.R.E. Day to commemorate the program.

There is only one problem: D.A.R.E. doesn’t work. Studies have repeatedly shown that kids who take part in the program are no less likely to smoke, drink, or abuse drugs than kids who do not. To their credit, D.A.R.E. officials revamped the program in 2009, and maybe this new version will do some good (it is currently being tested). But doesn’t it seem like putting the cart before the horse to sink millions of dollars into a program and implement it in 75% of our schools before we know whether it works?

Decentralization and Mining Geodata: Thoughts from Health 2.0

Oct 3, 2011• 18

By JOE FLOWER

People have been talking for decades about decentralizing much of healthcare away from massive Big Bricks on the Hill — for lots of good, sound reasons revolving around the efficacy of convenient primary care and home care, and the improvement in communications. It hasn’t happened much because these are all “should” reasons, not “have you by the throat” reasons.

The HYBTT reason is arriving: In the approaching liquefaction of healthcare, provider organizations (today’s institutions or others that will arise to compete with them) increasingly will be identifying particular populations in their service area whose primary care (or chronic conditions) they can manage under risk contracts. They will be doing this so that they can give these people earlier, smarter, resource rich care, and profit from driving the cost of care down and the effectiveness up. To serve these populations, providers will locate wherever is most convenient to that population, because especially in chronic and primary care, convenience is clinical. It makes a big difference if the people you are serving can get care downstairs, down the hall, or down the block, instead of across town, down the freeway, at the end of three bus transfers. So we will see a lot of “forward stationed” clinics in workplaces, union halls, schools, convalescent homes, neighborhoods, wherever the risk-contracted population hangs out.

This drives the second strategic observation: Geographic datamining. Providers are not doing this yet very much, but when they come to be at risk for the health costs of populations they will be all over it like your favorite metaphor. It is now becoming trivially easy to mine your records and discover where your patients come from — not just to the zipcode level, or even the block, but to the level of the individual address (HIPAA compliant, as dots on a map).

Trickle Down Health

Oct 2, 2011• 2

By JOHN MOORE

Another year, another Health 2.0 under the belt. This being the fourth time attending it is interesting to see how this event and its participants have evolved. Like many things in life, some things at Health 2.0 have changed, some have not, most for the better, but there remain some troubling aspects to this event that cannot be ignored.

When thinking back on the demos of countless vendors of years’ past, this year’s Health 2.0 had two distinguishing characteristics:

Demos are cleaner, with better user interfaces (UI).

The companies demoing at Health 2.0 are spending a lot more time and resources on creating inviting, clean and engaging interfaces that are a welcome change from the cluttered messes of demos past.

As with Mark Twain’s famous quote: “I would have written you a shorter letter if I had the time.” reducing an application to its core elements takes time. Clearly, the majority of Health 2.0 vendors this year have spent the time and resources necessary to create a simple and engaging environment for the end user.

Business models are more sophisticated.

At the first Health 2.0 event, just about every single vendor there stated that their business model was going to be based on some mix of Freemium and advertising revenue. Needless to say, just about every Health 2.0 start-up from that conference has either gone out of business, is among the walking dead (takes a lot to completely kill a company – trust me, I’ve been there) or has changed their model to survive. This year, the business models presented are more creative and for some, likely to see success in the market.

The contributing factor to these two changes is the amount of money now flowing into the health IT sector. Investors smell opportunity and are placing some pretty big bets as represented by the investments in Castlight (~$80M), ZocDoc ($50M) and CareCloud, who announced a $20M round at the event. That’s some serious cash and with all the investors that were present at this event, quite sure there are more investments in the wings.

The Challenge of ICD10 Adoption

Sep 25, 2011• 15

By JOHN HALAMKA

On October 1, 2013, the entire US healthcare system will shift from ICD9 to ICD10. It will be one of the largest, most expensive and riskiest transitions that healthcare CIOs will experience in their careers, affecting every clinical and financial system.

It’s a kind of Y2k for healthcare.

Most large provider and payer organizations, have a ICD10 project budget of $50-100 million, which is interesting because the ICD10 final rule estimated the cost as .03% of revenue. For BIDMC, that would be about $450,000. Our project budget estimates are about ten times that.

CMS and HHS have significant reasons for wanting to move forward with ICD10 including

1) easier detection of fraud and abuse given the granularity of ICD10 i.e. having 3 comminuted distal radius fractures of your right arm within 3 weeks would be unlikely
2) more detailed quality reporting
3) administrative data will contain more clinical detail enabling more refined reimbursement

Large healthcare organizations have already been working hard on ICD10, so they have sunk costs and a fixed run rate for their project management office. At this point, any extension of the deadline would cost them more.

Most small to medium healthcare organizations are desperate. They are consumed with meaningful use, 5010, e-prescribing, healthcare reform, and compliance. They have no bandwidth or resources to execute a massive ICD10 project over the next 2 years.

The Power in What We Most Fear

Sep 25, 2011• 2

By JOE FLOWER

There is fire in the valley and smoke in the mountains. A plague is on the land and danger is afoot. That may be — maybe — the good news.

Health care is more unstable than it has been at any time in living memory. That’s pretty scary, but that instability may turn out to be its most important asset in this moment, as the whole industry becomes open to profound change.

As long as I can remember, thoughtful analysts have been saying, “We need to do this differently. This is not working.” In this century, the voices became louder and more insistent, and they spread. But health care has been very slow to evolve in any fundamental way. Even health care reform, when it came through extraordinary political pain and maneuver, was more a way to bolster business as usual, a way to shore up revenue streams and patch holes in the fee-for-service business model, than it was any fundamental restructuring.

Now the ground under our feet is liquefying.

The Super Committee—Will We Get a Deal?

Sep 22, 2011• 7

By ROBERT LASZEWSKI

It’s back to work in Washington, DC and all the attention is now on the Super Committee and their goal of cutting spending by at least $1.2 trillion over ten years.

If the committee fails to come up with a plan that passes the Congress, there would be $1.2 trillion in automatic cuts. The health care special interests have reason to hope they will fail—the fallback cuts would only impact Medicare providers in a small way—2% in provider cuts—and not directly impact beneficiaries or Medicaid generally. Any Super Committee deal would likely be more far reaching if for no other reason than to protect the defense budget from the huge cuts the fallback would require.

But the fallback would not solve any of the systemic problems the health care entitlements face and only prolong the inevitable day of fiscal reckoning.

Even a $1.2 trillion reduction—$2.1 trillion with the additional $915 billion reduction in discretionary spending that was part of the deal—is only a down payment on solving America’s fiscal woes—we face a $10 trillion budget shortfall over the next ten years.

Will the Super Committee succeed? That’s the big question in Washington.

Why Aren’t Medical Prices Infinity?

Sep 22, 2011• 26

By DAVID DRANOVE

This blog continues my exploration of mysteries of health economics. The title of the blog may seem inane, but when a senior colleague asked me this question 25 years ago, it changed my life. And the answer helps us understand a lot about what is wrong with today’s healthcare system.

I was in my second or third year as an Assistant Professor at the University of Chicago when my brilliant senior (but still young) colleague Dennis Carlton asked me to explain how medical providers set their prices. I told him that we needed to throw the traditional textbook economics model of pricing out the window. This wasn’t a market where price sensitive consumers chose among homogeneous sellers, with the result that prices in competitive markets converged towards marginal cost. Instead, consumers had insurance that paid for all or nearly all medical bills. Moreover, patients were loyal to primary care physicians and their referral networks. As a result, patients rarely shopped around for the best price. This was when Dennis asked me why prices weren’t infinity. The question stumped me! I supposed that insurers would only pay usual, customary, and reasonable rates but that didn’t prevent providers from asking for infinity and occasionally getting it. Perhaps providers didn’t want to appear unseemly or were bound by ethical constraints. Or perhaps, as I ultimately responded, medical prices were inflating so rapidly that they would soon reach infinity.Continue reading…