“There are some enterprises in which a careful disorderliness is the true method” – Herman Melville, Moby Dick
Asymmetry of Error
During the Ebola epidemic calls to ban flights from Africa from some quarters were met by accusations of racism from other quarters. Experts claimed that Americans were at greater risk of dying from cancer than Ebola, and if they must fret they should fret more about cancer than Ebola. One expert, with a straight Gaussian face, went as far as saying that even hospitals were more dangerous than Ebola. Pop science reached an unprecedented fizz.
Trader and mathematician, Nassim Taleb scoffed at these claims. Comparing the risk of dying from cancer to Ebola was flawed, he said, because the numerator and denominator of cancer don’t change dramatically moment to moment. But if you make an error estimating the risk of Ebola, the error will be exponential, not arithmetic, because once Ebola gets going, the changing numerator and denominator of risk makes a mockery of the original calculations.
The fear of Ebola, claimed Taleb, far from being irrational, was reasonable and it was its comparison to death from cancer and vending machines which was irrational and simplistic. Skepticism of Ebola’s impact in the U.S. was grounded in naïve empiricism – one which pretends that the risk of tail events is computable.
By SAURABH JHA, MD
An old disagreement between Uwe Reinhardt and Sally Pipes in Forbes is a teachable moment. There’s a dearth of confrontational debates in health policy and education is worse off for it.
Crux of the issue is the more efficient system: employer-sponsored insurance (ESI) or Medicaid. Sally Pipes, president of the market-leaning Pacific Research Institute, believes it is ESI. Employers spend 60% less than the government, per person: $3,430 versus $9,130, per person (according to the American Health Policy Institute). Seems like a no brainer.
Pipes credits “consumerist and market-friendly approaches to health insurance” for the efficiencies. She blames “fraud,” “improper payment,” and “waste” for problems in government-run components of health care.
But Uwe Reinhardt, economist at Princeton, counters that Medicaid appears inefficient because of the risk composition of its enrollees. Put simply, Medicaid recipients are sicker. Sicker patients use more health care resources. Econ 101.
The points of tension in their disagreement are instructive.
Dr. Jha writes on these pages in typically stirring fashion about his views on the recent health care kerfuffle and rightly so fingers what the real focus of our efforts should be: Cost. He ends by slaying both sides because of their refusal to confront the hospital chargemonster – the fee schedule hospitals make that remarkably only really applies to the uninsured.
Unfortunately, the solution proposed ensures hospital fee schedules for the uninsured are no greater than Medicare reimbursements, which is far from perfect. Consider that the Medicare reimbursement for a stent placed to an ischemic limb is in the range of $15,000. While this makes for a less daunting bill for the uninsured, in reality for the vast majority of folks that are uninsured $15,000 is about as far away as $150,000.
But my major disagreement with the good Dr. Jha relates not to his attempt to slay the chargemaster, but his underappreciation for the attempts made in the GOP bill to control health care spending. A conservative mantra about the why of health care costs focuses on the existence of deep pocketed third party payers that make costs opaque to patients. Attempting to have patients understand what they’re being charged has been conservative dogma, and there are a number of studies that suggest patients with health saving accounts are more cost conscious when they interact with the health care system. Dr. Jha glosses over this important point – This is the Republican attempt to bend the cost curve! And at least to this physician who’s lived through the last eight years, a plan that has a considerably greater chance of success than any number of failed acronyms designed so far by enlightened theorists from the Acela corridor.
The policy experts are hard to convince about HSAs, and point to the above chart as evidence of the uselessness of HSAs.
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.
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.
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.
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?
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.
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.
In 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.Continue reading…
A 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.