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Do Hospitals Cost-Shift?

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By DAVID DRANOVE

This blog continues my exploration of the great mysteries of health economics.

Northwestern University is one of Blue Cross of Illinois’ largest customers. Suppose that premiums for all BC plans are expected to increase by 10 percent, but NU is able to force Blue Cross to accept a 5 percent increase. Would you expect Blue Cross stick McDonalds with a 15 percent increase in order to cover the shortfall from NU?

I wouldn’t, for two reasons. First, McDonalds would probably threaten to take its insurance business elsewhere. Second, the scenario I have described is inconsistent with profit maximization by Blue Cross. After all, BC’s ability to stick McDonalds with a 15 percent increase surely does not depend on the price paid by NU. Any negotiator whose willingness to stick it to McDonalds is conditional on the price charged to NU is leaving money on the table and probably would have been fired a long time ago.

We might never expect BC to raise prices to some customers to make up for shortfalls from others, so why do we believe that hospitals do this all the time? It is impossible to discuss Medicare and Medicaid payments without someone invoking the mantra of cost-shifting. The theory of cost-shifting is deeply ingrained in the minds of healthcare decision makers and the policy implications of the theory are profound. Consider that if hospitals cost shift, then the burden of Medicaid cutbacks falls on privately insured patients, not on Medicaid patients and the hospitals that serve them. This calls into question whether the cutbacks will result in any savings for taxpayers and cause any harm to Medicaid beneficiaries. It also makes you wonder why hospitals that serve low income communities struggle to survive. Couldn’t they just cost-shift their way out of financial difficulty? A cost-shifting zealot would conclude that the managers of these hospitals are incompetent.Continue reading…

The Massachusetts Numbers

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By Trudy Lieberman

Last week the Census Bureau released new numbers showing that 5.6 percent of the population in Massachusetts remained without health insurance coverage. That’s a 42 percent drop in the number of the state’s uninsured since the law took effect in 2006. A new study by the Cambridge Health Alliance, one of the state’s safety net providers, showed who was left out, putting a human face on those without insurance. The findings are illuminating given that the Bay State’s health law is the model for the national law, which takes full effect in 2014, and the Romney-Perry feud often flares up around the topic of health reform in the state.

The local press, primarily the Boston Globe and WBUR, covered the story; the national media whiffed on its implications for federal reform. If reform in Massachusetts cut the number of uninsured roughly in half, the same is likely to happen nationally, according to government data. The latest Census Bureau numbers show that nearly fifty million people have no health coverage; the Congressional Budget Office estimates about twenty-three million will be still be uninsured later in the decade. It was as if the national media has forgotten that Massachusetts is a harbinger of what will happen nationally. Or perhaps it’s easier for the national media to cover the he said/he said back and forth between Perry and Romney.

Writing on WBUR’s CommonHealth blog, Carey Goldberg started with an intriguing lead that showed she could sniff out a story—and showed why others should, too.

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Trickle Down Health

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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.

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Did a Scrappy Little Startup Just Embarrass the FDA?

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By Jan Gurley, MD

Adverse Events is a heath-tech start-up so new, they barely exist. Despite that, they’re getting some major results. This week they announced that they found from their early analysis – of the FDA’s own data – that two epilepsy drugs may be more dangerous in pregnancy than their FDA labeling might suggest. They used the FDA’s adverse event reporting data to compare the adverse events of commonly prescribed epilepsy drugs in pregnancy. What they found was that the FDA’s own labeling wasn’t consistent with their data.

Currently, the FDA classifies drugs used during pregnancy as being anywhere on a scale of safety from class A (“no known risk”), through levels of increasing risk labelled B, C, D, and then one final class X (“danger – do not use”). Specifically, Adverse Events found that two drugs, Lamictal and Keppra, which are Class C, may be “as dangerous to a fetus as drugs currently listed” in a more risky category (D).

In fact, Adverse Events’ analysis showed that an average birth defect rate comparison between the two groups, C and D, revealed no meaningful differences between the two. This scrappy little start-up’s analysis of the FDA’s own data may indicate that the FDA’s current categorization of pregnancy risks for epilepsy drugs may need revision. Or may be subject to bias.

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Health Care As Economic Engine?

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By Evan Falchuk

Former Office of Management and Budget (OMB) Director Peter Orszag is sounding a pretty serious alarm about American health care expenses lately. In the current issue of Foreign Affairs, he writes:

“The Congressional Budget Office (CBO) projects that between now and 2050, Medicare, Medicaid, and other federal spending on health care will rise from 5.5 percent of GDP [gross domestic product] to more than 12 percent. … It is no exaggeration to say that the United States’ standing in the world depends on its success in constraining this health-care cost explosion; unless it does, the country will eventually face a severe fiscal crisis or a crippling inability to invest in other areas.”

Are health care costs going to cripple America’s economy? Or could the polar opposite be true – that they are they really the overlooked engine of job growth for America’s 21st-century economy?

Consider China, a country transitioning into a modern economy, led by manufacturing. Manufacturing as a percentage of the Chinese economy today dwarfs the percentage from even 20 years ago. At this rate, manufacturing by 2050 will have all but consumed the Chinese economy, crippling its ability to invest in other areas.

It’s not outrageous to say a parallel can be drawn here with American health care.

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My Non-Linear Work Stream

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By JOHN HALAMKA, MD

In the era before Blackberrys, iPhones, instant messaging, social networks, and blogs,  I had a predictable day.

I could look at my week and count the meetings, lectures, phone calls, writing, and commuting I had to do.

Although my schedule was busy, I could schedule exercise time, family time, and creative time.

Today, I would not describe my work day as linear or predictable.   I do as much as I can, attending to every detail I remember, and hope that by the end of the week the trajectory is positive and the urgent issues are resolved.

Here’s what I mean.

Since there are no barriers to communication, everyone can communicate with everyone.   Every issue is escalated instantly.   Processes for decision making no longer involve thoughtful stepsthat enabled many problems to resolve themselves.     We’re working faster, but not necessary working smarter.   We’re doing a greater quantity of work but not necessarily a higher quality of work.

Everyone has a mobile device and their thoughts of the moment can be translated into a message or phone call, creating a work stream of what amounts to hundreds of “mini-meetings” every day.

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The Affordable Care Act Supreme Court Petitions: Issues And Implications

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By TIMOTHY JOST

Wednesday, September 28 was a busy day at the Supreme Court clerk’s office.

It had been widely expected that there would be a major pleading filed with the clerk in an Affordable Care Act challenge, as the response of the United States to a certiorari petition in the Sixth Circuit’s Thomas More case, which had upheld the ACA as constitutional, was due.  A cert. petition asks the Supreme Court to exercise its discretion to review the decision of a lower court, and the losing plaintiffs in Thomas More had requested the Supreme Court to reverse that decision and find that Congress had no authority under the Commerce Clause of the Constitution to adopt the ACA’s minimum coverage requirement.

The Justice Department did file a response in that case, but very late in the day.  Earlier in the day, to the surprise of most observers, three certiorari petitions were filed, asking the Court to review thedecision of the Eleventh Circuit Court of Appeals in the Florida case, which had held the minimum coverage requirement to be unconstitutional. The Eleventh Circuit upheld several other rulings of the lower court finding other parts of the ACA to be constitutional, and had reversed the decision of the lower court striking down the entire ACA as being not “severable” from the minimum coverage requirement.

Late in the morning on the 28th, the National Federation of Independent Business and two individuals, plaintiffs in the Eleventh Circuit case filed a cert. petition, asking the Supreme Court to reverse the decision of the Eleventh Circuit refusing to hold the entire ACA to be unconstitutional.  An hour or so later, the twenty-six states that are plaintiffs  in the Eleventh Circuit case filed their own cert. petition asking the Court to strike down the entire ACA, but also asking the court to reverse the appellate court’s decision upholding the constitutionality of the ACA’s Medicaid expansions and of the employer mandate as applied to the states.

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Mandate On Its Way To the Supreme Court?

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By ROGER COLLIER

It may have looked like a non-event, but it was a significant one.

Monday September 26 was the last day on which the Obama administration could ask the Eleventh Circuit Court of Appeals to reconsider its three-judge panel’s ruling that the Affordable Care Act’s individual mandate was unconstitutional. The fact that the Justice Department took no action almost certainly means that its intent is to ask the Supreme Court to decide the issue.

The administration’s thinking was most likely dependent on three factors. First, given that the full Eleventh Circuit is considered even more conservative than the three-judge panel that struck down the mandate, the only advantage of a second hearing would have been to delay consideration by the Supreme Court. Against this was presumably factored the political risk of a further well-publicized rejection of the mandate providing additional ammunition for opponents of reform.

Second, the administration may still be able to delay a Supreme Court decision either by filing its request for a hearing at the last possible moment in November, or even by asking for a filing extension—something that the Court might be willing to consider, given the potential impact of a decision in the middle of a presidential election.

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Top-Down vs. Bottom-Up

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By BOB WACHTER, MD

In my last post, I discussed the role of physicians in patient safety in the US and UK. Today, I’m going widen the lens to consider how the culture and structure of the two healthcare systems have influenced their safety efforts. What I’ve discovered since arriving in London in June has surprised me, and helped me understand what has and hasn’t worked in America.

Before I arrived here, I assumed that the UK had a major advantage when it came to improving patient safety and quality. After all, a single-payer system means less chaos and fragmentation—one payer, one regulator; no muss, no fuss. But this can be more curse than blessing, because it creates a tendency to favor top-down solutions that—as we keep learning in patient safety—simply don’t work very well.

To understand why, let’s start with a short riff on complexity, one of the hottest topics in healthcare policy.

Complexity R Us

Complexity theory is the branch of management thinking that holds that large organizations don’t operate like predictable and static machines, in which Inputs A and B predictably lead to Result C. Rather, organizations operate as “complex adaptive systems,” with unpredictability and non-linearity the rule, not the exception. It’s more Italy (without the wild parties) than Switzerland.

Complexity theory divides decisions and problems into three general categories: simple, complicated, and complex. Simple problems are ones in which the inputs and outputs are known; they can be managed by following a recipe or a set of rules. Baking a cake is a simple problem; so is choosing the right antibiotics to treat pneumonia. Complicated problems involve substantial uncertainties: the solutions may not be known, but they are potentially knowable.  An example is designing a rocket ship to fly to the moon—if you were working for NASA in 1962 and heard President Kennedy declare a moon landing as a national goal, you probably believed it was not going to be easy but, with enough brainpower and resources, it could be achieved. Finally, complex problems are often likened to raising a child. While we may have a general sense of what works, the actual formula for success is, alas, unknowable (if you’re not a parent, trust me on this).

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The Key to Improving Our Health? Look Beyond Health Care.

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By AARON WERNHAM, MD

The United States spent $2.5 trillion on health care in 2009, more per capita than any other nation. Yet our country is ranked 32nd in the world in life expectancy, and rates of conditions such as diabetes and obesity have increased dramatically in recent years.

If we hope to address spiraling medical costs and improve the health of all Americans, we need to begin focusing on the policies — in fields such as transportation, energy, education and agriculture — that shape the world outside the doctor’s office.

But how? Policymakers are already juggling shrinking budgets, crumbling infrastructure and competing priorities. A recently released report from the National Research Council offers a solution. The study, “A Framework and Guidance for Health Impact Assessment,” points out that good health is determined by more than money spent on the health care system. An NRC committee on health impact assessments, of which I am a member, took an in-depth look at why they are needed.

Similar to the way a Congressional Budget Office score predicts the fiscal impact of a proposed policy, an HIA identifies the likely effect on health of a decision in another field, such as building a major roadway, revitalizing a neighborhood or developing energy or agricultural policy. HIAs can help decision-makers identify unintended risks, reduce unnecessary costs and leverage opportunities to improve the health of their communities.

As a doctor, I’ve often cared for diabetics who struggle to follow exercise recommendations because there’s nowhere nearby that’s safe to exercise. I’ve seen patients with frequent asthma attacks exacerbated by living in housing with mold and poor ventilation. I’ve given diet advice to parents of overweight children, only to find that they live in a neighborhood with no grocery store for miles and eat school lunches that should but often don’t meet current nutrition guidance.Continue reading…