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Tag: Costs

The Critics Are Wrong About IPAB

For Medicare, this has been a summer of good and bad news. On one hand, the program’s costs continue to rise remarkably slowly. So far this fiscal year, they have gone up by only 2.7 percent in nominal terms, the Congressional Budget Office reports.

On the other hand, opposition to the Independent Payment Advisory Board — created as part of the Affordable Care Act — continues to mount. And opponents continue to mischaracterize the whole point of the board.

What they seem not to understand is that the board is needed mostly so that that Medicare can continue to encourage slower growth in costs.

One reason costs have been rising so slowly is that systems for paying hospitals and doctors are changing. We’re moving away from the old fee-for-service plan and toward paying for value in health care — and we’re making the shift more rapidly than expected.

Redesigning the payment system is a fundamentally different approach to containing costs. The old way was to simply slash the amounts that Medicare pays for services. And here is where the criticism of the Independent Payment Advisory Board becomes somewhat Orwellian.

The point of having such a board — and here I can perhaps speak with some authority, as I was present at the creation — is to create a process for tweaking our evolving payment system in response to incoming data and experience, a process that is more facile and dynamic than turning to Congress for legislation.

Medicare Experiments
In particular, as Medicare experiments with accountable care organizations, bundled payments and other new strategies, the agency will inevitably need to make adjustments. Questions will come up, such as: How should the payments to doctors, hospitals and other providers be changed to reflect what is learned about the quality of care they provide? How much should the penalties or bonuses be? Is it better to have hospitals face all the costs associated with patient (as in an accountable care organization) or only the costs incurred during a specific episode of care (as in bundled payments)?

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Making Sense of Geographic Variations in Health Care: the New IOM Report

Since 1973, when Jack Wennberg published his first paper describing geographic variations in health care, researchers have argued about both the magnitude and the causes of variation.  The argument gained greater policy relevance as U.S. health care spending reached 18 percent of GDP and as evidence mounted, largely from researchers at Dartmouth, that higher spending regions were failing to achieve better outcomes.   The possibility of substantial savings not only helped to motivate reform but also raised the stakes in what had been largely an academic argument.   Some began to raise questions about the Dartmouth research.

Today, the prestigious Institute of Medicine released a committee report, led by Harvard’s Professor Joseph Newhouse and Provost Alan Garber, that weighs in on these issues.

The report, called for by the Affordable Care Act and entitled “Variation in Health Care Spending: Target Decision Making, Not Geography,” deserves a careful read. The committee of 19 distinguished academics and policy experts spent several years documenting the causes and consequences of regional variations and developing solid policy recommendations on what to do about them.  (Disclosure: We helped write a background study for the committee).

But for those trying to make health care better and more affordable, whether in Washington or in communities around the country, there are a few areas where the headlines are likely to gloss over important details in the report.

And we believe that the Committee risks throwing out the baby with the bathwater by appearing, through its choice of title, to turn its back on regional initiatives to improve both health and health care.

What the committee found

The report confirmed three core findings of Dartmouth’s research.

First, geographic variations in spending are substantial, pervasive and persistent over time — the variations are not just random noise. Second, adjusting for individuals’ age, sex, income, race, and health status attenuates these variations, but there’s still plenty that remain. Third, there is little or no correlation between spending and health care quality. The report also effectively identifies the puzzling empirical patterns that don’t fit conveniently into the Dartmouth framework, such as a lack of association between spending in commercial insurance and Medicare populations.

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Blood Pressure Monitoring, Telemedicine, and Automated Hovering: A Future Model for Disease Management?

Use of an at-home telemonitoring blood pressure device significantly reduced out-of-control high blood pressure, according to a recent study in the Journal of the American Medical Association. It’s another data point showing the potential of telemedicine to have a profound effect on American medicine, by positively modifying health behaviors, providing real-time data to clinicians through “automated hovering,” and helping Americans get and stay healthy – all of which holds the promise of bending the cost curve.

Led by Karen Margolis, MD, MPH, a Senior Investigator at Health Partners Institute for Education and Research, the cluster-randomized study investigated whether using a cloud-connected, at-home blood pressure monitor paired with pharmacist and case manager support would lead to controlled blood pressure more than typical care, which involved check-ups with a physician.

Those using the telemonitoring device were 90% more likely to have controlled blood pressure at both the six and twelve-month checkups than the control group (57.2% and 30%, respectively), and had, on average, statistically significant lower systolic and diastolic readings.
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What Happens In New York Stays In New York

While sitting in the crowded waiting room of a medical specialist’s office I was forced to listen to the television set directly over my head. Cranked up so that everyone could listen above the din of conversation, Wolf Blitzer introduced a video clip of the President hailing the latest news from New York about health insurance exchanges.

Speaking as if he was still on the campaign trail, the President’s words came through loud and clear over the television: thanks to his health reform, premiums in the New York exchange would be half that of premiums in the individual market. This was a model the entire nation should embrace.

No one heard me mutter under my breath that this was a model for New York and a small handful of other states that previously regulated their individual insurance markets effectively out of existence.

What the President undoubtedly knows, but dared not say, is that New York’s individual insurance market is unlike any other state. In New York, insurers cannot charge higher premiums to high risk enrollees.

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As a result of this aggressive community rating, high risk individuals are disproportionately represented in New York’s individual policy risk pools. This drives up premiums, which drives away low risks, driving premiums even higher. Insurers in New York are counting on the purchase mandate, combined with purchase subsidies, to lure low risks into the pool.

This is why they have lowered premiums.

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More Work Is Needed on the Safety and Efficacy of Healthcare Information Technology

If one were writing about the improvement of gastronomy in America, one would probably not celebrate “over 300 billion hamburgers served.”  But that’s very much the type of success Dr. Ashish Jha is celebrating in last week’s piece on recent US healthcare IT sales. Unfortunately, the proliferation of Big Macs does not reflect superior cuisine, and healthcare IT (HIT) sales do not equate with better healthcare or with better health. Quantity does not equal quality of care.

To be sure, Dr. Jha acknowledges the challenges of rolling out HIT throughout US hospitals. And he should be strongly commended for his admission that HIT doesn’t capture care by many specialists and doesn’t save money. In addition, Dr. Jha points to the general inability of hospitals, outpatient physicians and laboratories to transfer data among themselves as a reason for HIT’s meager results.

But this is a circular argument and not an excuse. It is the vendors’ insistence on isolated proprietary systems (and the government’s acquiescence to the vendors) that created this lack of communication (non-interoperability) which so limits one of HIT’s most valuable benefits.

In our opinion, the major concern is that the blog post fails to answer the question we ask our PhD students:

So what? What is the outcome?

This entire effort is fueled by $29 billion in government subsidies and incentives, and by trillions of dollars spent and to be spent by hospitals, doctors and others [1].

So where is the evidence to back up the government’s and industry’s promises of lower mortality, improved health and lower health care costs?

Single studies tell us little. Sadly, as many as 90% of health IT studies fail the minimal criteria of the respected international literature syntheses conducted by the Cochrane Collaboration.

In other words, studies with weak methodology or sweetheart evaluation arrangements just don’t count as evidence.
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The Father of Microlending Takes on U.S. Health Costs

What can a microlending bank in Bangladesh teach us about trimming healthcare costs in New York City? Perhaps much more than we think.

Nobel Peace Prize-winning economist Muhammad Yunus founded Grameen Bank, revolutionizing the fight against poverty by handing out “micro” loans of less than $30 to Bangladeshi women during the mid 1970s.  He went on to spread microfinance around the world, including to Queen’s, New York, where the flagship Grameen America office serves 12,000 women.

Now, he’s piloting a breakthrough health program aimed at dramatically cutting costs while improving the health of those borrowers in Queens. It’s a tall order, given that these women are mainly immigrants, single working mothers, and living on $20,000 a year or less.

What’s more, the program is designed to become self-sustaining. The borrowers will pay for some of the services from the start. Over time, their payments will cover more of the costs. That, Yunus argues, is the only way programs for the poor can be long lasting and deliver the quality of service people want.  Even the wealthiest nations, Yunus says, are starting to realize that their “free” health systems are still too expensive to pay for.

Healthcare insiders will be incredulous. How in the world will the priciest healthcare system serve people living below poverty without relying mainly on charity? Yunus answers that question, and explains why he’s going into health care in the first place, in a recent Financial Times op-ed [i].

In his work with the world’s poor, Yunus has been continually rankled by the fact that health care costs are such a burden to so many and are continually rising. For the poor, health costs are an especially serious threat, because even small bills can cause financial ruin.  To someone living on $25 per day, for example, a $300 prescription represents weeks of food and transportation.
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It’s the Jobs, Stupid. No, Wait. It’s the Stupid Jobs.

The U.S. Bureau of Labor Statistics came out with its June jobs report this week and, consistent with usual trends, healthcare jobs are booming. In June 2013 there were approximately 20,000 new healthcare jobs in the U.S., ¾ of which were in the ambulatory care sector and ¼ of which were in hospitals. Healthcare jobs represented 10% of all new jobs created this month.

The June growth in healthcare jobs matches up to the average 19,000 new healthcare jobs we have seen created in each of the prior months of 2013 and the 12% job growth we have seen over the last five years. In a country where new jobs are viewed as even better than baseball, apple pie and mom herself, these new jobs should elicit a huge round of applause, or at least a stadium style wave, right?

Or should they?

Change the channel and a different set of policy makers, employers and industry experts will tell you that the only way to save our economy from ruin is to cut healthcare costs. Cutting healthcare costs means making the people who work within the system vastly more efficient, eliminating unnecessary medical care (and thus reducing the labor that goes along with it), and helping empower consumers to do things for themselves, including taking a more active role in reducing their own demand for healthcare services and, in some cases, doing at home what they might previously have used the healthcare system to do (e.g., diagnostics, home care, etc).

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Would We Be Better Off If Employers Stopped Paying for Health Insurance?

In his “Are Employers to Blame for Our High Medical Prices?,” David Dranove takes issue with my statement in a New York Times blog post:

“One reason for the employers’ passivity in paying health care bills may be that they know, or should know, that the fringe benefits they purchase for their employees ultimately come out of the employees’ total pay package. In a sense, employers behave like pickpockets who take from their employees’ wallets and with the money lifted purchase goodies for their employees.”

He writes:

“The correct economic argument is a bit more nuanced. Employees do not care about the cost of their benefits; they care about the benefits. If an employer can procure the same benefits at a lower cost, the employer need not increase wages one iota. In this regard, there is nothing special about health benefits. Suppose an employer offers employees the use of company cars. Workers don’t care what the employer paid for the cars, and if the employer can purchase cars at a deep discount, it will pocket the savings.”

So far I can buy the nuance. It is something we could theorize about.

But then David he notes that:

“Employers may have an incentive to reduce benefits costs yet they are passive purchasers. With a few exceptions, nearly every American corporation outsources its healthcare benefits to insurers and ASO providers and then looks the other was as the medical bills pile up. Sure, they complain about the high cost of medical care, but they don’t take direct action by aggressively shopping for lower provider prices. Doesn’t this passivity demonstrate a lack of interest? No more so than the fact that auto makers do not aggressively shop the lowest rubber or silica prices implies that they are disinterested in the costs of tires and windows. Auto makers outsource the production of tires and windows (and most other inputs) and let the Michelins and PPGs of the world worry about rubber and silica prices. By the same token, American companies outsource the production of insurance and let the Blues and Uniteds of the world worry about provider prices. This is entirely appropriate.”

Forgive me if by now I am lost. Do we really believe that modern corporations, whose management and board of directors agonize even over an extra penny of earnings per share (EPS) – believe me, I know whereof I speak – simply outsource the procurement of major inputs and then look the other way?

They do seem to do it in health care – which is the puzzle – but they surely do not in connection with other important inputs where smart buying can add pennies to EPS.

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Yes. Employers Really Are to Blame For Our High Medical Prices

I welcome Leah Binder’s earlier post on this blog, written in  response to my blog post in The New York Times. To be thus acknowledged is an honor.

As an economist, I am not trained to respond to Ms. Binder’s deep insights into my psyche, dubious though it may be. Nor, alas, can I delve into hers, fascinating though that might be. Let me therefore concentrate instead just on substance.

First of all, I do not recall calling employers “stupid,” nor did I question their IQ. I do confess to having once called employee benefits managers, when addressing them at some of their usually mournful meetings, “kind-hearted social workers dressed to look like tough Republicans.” At that meeting I contrasted how carefully their company’s tough-minded VP for Procurement, Murgatroid de B. Coverly III, Princeton ’74, purchased paper clips for the company with the much more mellow approach taken by their V.P. of Human Resources to purchase health care for their company’s employees.

Benefit managers – I hate to call them BMs — really are the nicest folks. They care deeply about their employees’ well being (until, of course, the latter lose their job with the company). They worry incessantly about their company’s ever rising outlays for health insurance. And, after a cocktail or two, they regularly lament how rarely they get the attention of top management and of the board of directors – the very folks I once told to go look into a mirror in their search for the culprit behind rising health care costs.

No, when I say “employers” I really mean top management and boards of directors who make the rules. And  I did not even call those mighty ones stupid, but merely “passive payers” as did, by the way, David Dranove on this blog in his critical response to my New York Times piece. Why these usually tough and smart people have behaved so passively in buying health care for themselves and their employees remains a puzzle at the level of economic theory.

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Three Reasons Uwe Reinhardt Blames Purchasers for Everything

Uwe Reinhardt is one of the nation’s most respected health care economists, professor at the prestigious Woodrow Wilson School at Princeton, fellow of the Institute of Medicine, and one of the shining lights in health policymaking circles.

But alas, even the best and the brightest are wrong sometimes. Case in point: Reinhardt’s recent comments in the New York Times on the role of the American business community in fueling our nation’s health care problems. To paraphrase, Reinhardt believes that employer purchasers of health care are 1) dim bulbs and 2) responsible for the escalating costs of care.

This seemed puzzling coming from Reinhardt, whose views are widely respected by purchasers.  But I was able to diagnose the problem by drawing on insights from social psychology.

Social psychology investigates “attribution,” our mind’s process for inferring the causes of events or behaviors. It’s how we describe why things happen — to us or to someone else. It turns out, we humans aren’t very accurate in our attribution processes because all of us suffer from at least one of the following problems. In his New York Times piece, poor Professor Reinhardt appears afflicted by all three at the same time. Let’s take a closer look at each:

1. Actor-Observer Bias: This is the notion that when it comes to explaining our own behavior, we tend to blame external forces more often than our own personal characteristics.

Reinhardt is rightfully troubled by a decade of escalating health care cost growth under employment-based health insurance. But seized by Actor-Observer Bias, Reinhardt blames this problem not on the world of health care that he played such an influential role in over the past few decades, but on external forces, the employers who purchase health care.

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