• AcademyHealth: The economics of premium tax credits

    As we await the case to be heard by the Supreme Court as to whether premium tax credits can be provided to consumers purchasing plans on the federal exchange, in a new AcademyHealth post, I revisit the role of those tax credits. Go read it!



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  • To __ a mockingbird

    By Dav Yendler:

    mock1 mock2


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  • Another view of changes to Harvard’s health insurance plan

    Contrasting it with coverage typically available elsewhere, Adrianna summarized Harvard’s plan — controversial among its employees — to increase cost sharing for the health insurance coverage it offers. The bottom line is that it could be read as a means of getting out ahead of the “Cadillac” tax, to be imposed beginning in 2018, as the Affordable Care Act dictates.*

    This rhetorically connects Harvard’s move to the ACA, tempting some to suggest that the controversy is a bit of an embarrassment since Harvard faculty were among the advisers on health reform.

    What’s interesting, however, is not how much the ACA has shaped Harvard’s evolving plan design, but how little it does so. Though the ACA’s Cadillac tax is viewed (perhaps incorrectly) by many as doing the heavy lifting at Harvard, the needle on cost sharing is not moving very far toward what others elsewhere typically pay.

    More interestingly, in my view, is that Harvard is not implementing a wellness program, which is also encouraged by the ACA. This, I think, is wise, since such programs are usually of little value and can attract a fair amount of controversy themselves. (See Penn State.)

    Nor is Harvard signing up with an ACO-like insurance arrangement, such as that implemented by Blue Cross Blue Shield of Massachusetts and other private payers. If any new health care financing arrangement is most closely associated with the ACA, it’s ACOs.

    Tellingly, some Harvard employees admitted to welcoming exchanging less cost sharing for tighter networks, another plan design feature now closely linked with insurance available through ACA exchanges.

    If you go down the list of programs and payment structures most closely associated with the ACA, Harvard is prominently adopting only one: higher cost sharing. This could reflect the fact that it’s the one, private plan innovation with the longest, proven track record of reducing spending, going back at least to the RAND health insurance experiment. It’s also the approach most closely associated with conservative reform principles, by the way.

    That Harvard is pursuing only a small subset of reform ideas built into the ACA is almost guaranteed. For cost control, the law is a kitchen sink approach, with more ideas in it than can be implemented by one organization or that are likely to work. That’s because we don’t really know what will work, long term. And, of those ideas, only one could potentially hit Harvard’s bottom line (or that of its employees, really), and that’s the Cadillac tax.

    For all that, Harvard could have pursued some of the many, more liberal-leaning and experimental, paths toward cost control that the ACA recognizes. Maybe the source of the controversy on Harvard’s campus can be attributed not to the fact that the new health plans closely resemble the designs of Obamacare, but that they don’t resemble them enough.

    * It could also be read as just a way to bring Harvard slightly closer to typical employer-plan norms, having little to do with the Cadillac tax.


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  • The separate bargaining units remedy

    Imagine you want to buy ten pieces of the thousands of pieces of Halloween candy your two kids have collected, but you don’t care from which kid you buy what amount of candy. Being a shrewd, candy-loving economist who studied physics and engineering, you figure you can get your kids to bargain down the candy price. Both being flush with candy (more than they can eat before you throw it away at Christmas time anyway), you figure each one will undercut the other to get a little cash. You’ll have your candy fix cheap!

    But, suppose unbeknownst to you, they’ve agreed in advance to split whatever money they can extract from you in exchange for their candy. All of a sudden, what appeared to be two units (kids are “units” to physicist-engineer-economists) bargaining separately isn’t so much. Neither kid has an incentive to cut her price. If kid A loses the sale to kid B, what’s it to A? She still gets half the money. This is a cartel, despite seemingly separate bargaining units.

    This is analogous to the story told in a new paper by Gautam Gowrisankaran, Aviv Nevo, and Robert Town. They explain why forcing hospitals within a hospital system to bargain with insurers separately does not fully address antitrust concerns.

    In the Evanston Northwestern hospital merger case [summarized here], the FTC imposed a remedy requiring the Evanston Northwestern system to negotiate separately with MCOs (with firewalls in place) from the newly acquired hospital, Highland Park Hospital.

    What could go wrong?

    Even though the negotiations are separate, [one hospital] bargainer might internalize the incentives of the system, namely that if a high price discouraged patients from seeking care at [that hospital], some of them would still divert instead to other [system] hospitals which is beneficial for the parent organization. [… Under this theory,] [w]e find that the [separate bargaining units] remedy performs similarly to the base merger outcomes.

    In other words, with the threat of patients going to competitors reduced, it’s no remedy at all.

    The FTC in its Evanston decision hoped that this conduct remedy would re-inject competition into the market by reducing the leverage of the hospital that bargains separately […]. However, this remedy also reduces the leverage of the MCO since if it offers an unacceptable contract to [one hospital], some of its [] patients would certainly go to other [system] hospitals. […] Empirically, separate negotiations do not appear to solve the problem of bargaining leverage by hospitals.

    The moral of the story is to buy your candy at the supermarket. You’d have known this if you’d actually studied economics in school.


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  • How health reform might cause harm

    The following originally appeared on The Upshot (copyright 2015, The New York Times Company).

    The Affordable Care Act made changes to government payments for Medicare services that are expected to save tens to hundreds of billions of dollars per year. This sounds like a good thing — and it very well may be — but only if those spending cuts don’t cause harm. Research suggests they just might.

    As any business would, hospitals often respond to reduced revenue by cutting costs. They especially tend to cut back on staff, according to a number of researchers.

    Reductions in Medicare payments to hospitals between 1996 and 2009 were nearly entirely offset by cuts to operating expenses, and predominantly to personnel, Chapin White and Vivian Wu reported in Health Services Research in 2013. In other work, also published in Health Services Research, Ms. Wu and Yu-Chu Shen found that hospitals responded to lower Medicare payments in part by reducing staff and length of stays.

    On the other hand, a study by health economists from Northwestern University’s Kellogg School of Management found that hospitals responded to the market collapse in 2008, which reduced revenue through depressed returns on investments, not by cutting staff but by trimming back in other specific areas, including advanced medical records and less profitable services like those for substance use treatment or those provided in trauma centers.

    Such cuts by hospitals may harm quality of care. For example, recent work suggests that cutting length of stays increases mortality for heart attack patients and those with pneumonia. Other work, published recently in the journal Medical Care, suggests that an 11.5 percent decrease in nursing staff per 1,000 inpatient days (a standardized measure of staffing levels) could increase adverse events — such as deaths, infections and surgical complications — by 1.2 percent. In their study, Drs. Wu and Shen found higher heart attack mortality rates in hospitals that had experienced larger Medicare payment cuts and had cut spending, “particularly among registered nurses,” in response. For each 1 percent payment cut, heart attack mortality was 0.4 percent higher.

    Similarly, a study by Richard Lindrooth and colleagues found higher mortality rates among those using hospital services with lower profits from Medicare payments. Yet another study found that hospitals in the most financial stress experienced higher mortality for some types of patients.

    In short, history suggests that hospitals may respond to payment cuts and financial stress in ways that are detrimental to patients, though that is certainly not their intent.

    The Affordable Care Act’s cut to Medicare is large. The main component is an estimated 1.1 percent cut each year in what it pays hospitals for the services they provide to Medicare beneficiaries. In 2010, the Medicare actuaries estimated that this cut alone would trim $113 billion from the program from 2010 to 2019, representing 20 percent of the net savings from Medicare included in the Affordable Care Act. By 2040, Medicare is predicted to pay hospitals half of what a private insurer would for the same services.

    To provide the same level and quality of care for less, hospitals will have to become more productive in converting dollars into care. Specifically, they’ll need to become at least 1.1 percent more productive per year. Is this likely? There are two schools of thought — one forward-looking and one that considers the lessons of the past.

    Looking back, history provides a guide of what we might expect. Though hospital productivity grew from 1990 to 2005, it never came close to growing at 1.1 percent per year. Some years it was negative: Hospitals did less with more. Other years it was positive, but never above about 0.5 percent per year.

    Looking forward, the great hope for new hospital payment models included in the Affordable Care Act and promoted by some private insurers is that they will encourage cheaper care that is also better care: doing more with less.

    The most prominent new payment model is the Accountable Care Organization, or A.C.O., which sets cost and quality targets for hospitals and other provider groups, and offers bonus payments if they meet them or threatens financial penalties if they don’t.

    Other trends, like the increasing use of electronic medical records, could also help organizations maintain or improve quality. Prominent economists, including Peter Orszag, former director of the Office of Management and Budget under President Obama, and the Harvard health economist David Cutler are optimistic that new models of payment, new uses of information systems and new emphasis on quality will help organizations become more productive, improving care while reducing costs.

    There are some encouraging, though limited, signs that they’re right. For example, analysis by Zirui Song in The New England Journal of Medicine of an A.C.O.-like initiative by Blue Cross Blue Shield of Massachusetts — its “Alternative Quality Contract” — found that it was associated with spending reductions and improvements in quality after four years. Recently released evidence on cost savings and quality improvement among some Medicare A.C.O.s is also encouraging, though more rigorous analysis is still needed to draw strong conclusions. In an op-ed in The Times, Bob Kocher and Farzad Mostashari explained how the A.C.O. model may have helped providers in the high-cost city of McAllen, Tex., save money and improve care.

    It’s also relevant that other aspects of the law increase hospital revenue. For instance, because of the expansion in health insurance, hospitals no longer have to provide as much free care to uninsured people, which helps their bottom lines.

    As optimistic as some may be about the A.C.O. model and other changes that could enhance hospital productivity, it’s too soon to declare victory. We don’t know if new payment models will help hospitals become more productive in the long run. One thing we can say with some confidence, however, is that Congress is likely to return to Medicare as a source of fiscal savings. As Robert Reischauer, former director of the Congressional Budget Office, once said, Medicare is Congress’s “cash cow,” its go-to source for deficit reduction. This isn’t necessarily because Congress hates Medicare. But Medicare is a large and growing share of the budget and the main cause of projected deficits, so it’s naturally a target.

    There’s no question that the Affordable Care Act is milking that cow. What remains to be seen is if patients pay a price.


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  • If only there were some other way academics could communicate their ideas

    Hoag Levins reports on a symposium that took place at the University of Pennsylvania’s Leonard Davis Institute of Health Economics:

    Academic researchers who are compiling large amounts of new knowledge about how behavioral economics principles can be applied to workplace health initiatives aren’t making those insights available to company managers in a meaningfully useful manner, according to a panel of high-level corporate wellness executives. […]

    The overall response from the panel made up of the former Chief Medical Officer of General Electric, former CEO of Weight Watchers International, and former PepsiCo Senior Vice President for Global Health Policy, was that corporate managers can’t make sense of the large, widely scattered and rapidly changing body of academic literature on the subject. […]

    He and the others noted there are thousands of journal papers on the subject but no effort beyond those separate, isolated publishings to synthesize or index the findings in a way that makes their knowledge accessible to industrial managers charged with designing and implementing behavioral economics-based wellness programs.

    What the executives want is a how-to guide that just gives them the final answers, without going through the sundry, conflicting literature. I’m sympathetic to this idea, and am a big fan of literature reviews and syntheses for this reason. If they’re done well, they include both a succinct executive summary as well as enough of the details to appreciate any key nuances in the evidence. However, the evidence base always changes, in part because the environment changes and in part because new methods and data are applied.

    So, what else can researchers do to keep managers and policymakers informed? There must be something — some kind of an electronic, updatable, web-based thingamabob where one can report on new evidence and put it in context and in relatively simple terms. I can’t quite make out the details, but there’s a free idea out there for someone who can dream up such a thing.

    More on that symposium is here.


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  • Health organization mergers improve quality? The FTC Chair says to show her the evidence.

    In December, Edith Ramirez, Chairwoman of the Federal Trade Commission, wrote a NEJM Perspective on antitrust enforcement in health care. Below are some quotes with my emphasis added to highlight a few important points.

    The FTC intervenes when there is strong evidence that a merger between health care providers is likely to result in market power that will lead to an increase in prices — through higher insurance premiums and copayments — without corresponding quality improvements.

    This is why merging organizations usually argue they’ll increase quality. Whether they actually do so is an empirical matter. Evidence to date is not encouraging.

    For quality-related claims to succeed, however, they must be backed by evidence that quality improvements are both likely and attainable only by means of a merger.


    The FTC also showed that there are different ways, short of a merger, for hospitals to achieve the benefits of clinical integration, including through the use of clinical practice protocols to ensure consistent treatment and financial incentives for meeting quality-of-care goals.

    In JAMA, Thomas Tsai and Ashish Jha also made this point.


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  • Which 2014 TIE post/theme do you like best?

    I’d like you to vote for the TIE post or theme by me from 2014 that you think was most influential, informative, and/or stimulating. You can do so using the embedded survey form at the end of this post or at this link.

    (My cobloggers have done terrific work. The only reason I’ve limited this to my posts is because it took a ton of work to go through them all and to curate them into themes. I can’t do that work for all of TIE’s posts.)

    For simplicity, I’ve narrowed things down to the four choices described below, but you could well prefer something else. So, the survey tool asks you to rank these four in order and then has an open-ended, free-text response question where you can write in anything else you liked. If you need more space than the text field allows, you can leave a comment to this post. (Comments close in one week.) But it’s far better for me if you use the survey tool if you can.

    Four Choices and More

    I’ve written many posts on each of the following four themes in 2014. Below, I list the themes, in no particular order, each with a brief description, links to one or two key posts, and a link to a bunch more. You can judge each theme holistically or you can consider the key post or two to which I link as the precise thing to judge. Your call.

    Consolidation. Consolidation in health care is a bread-and-butter issue in health economics. Insurer market concentration, hospital mergers, acquisition of physician groups by hospitals, or integration between providers and insurers all play important roles in shaping the health care landscape. At the heart of the debate is how growing consolidation will affect prices and quality. This post addresses these issues directly. Many other posts from 2014 on this theme are here.

    Medicare Advantage. The “right” way to deliver the Medicare benefit is an old debate. In 2014 we learned some new things about whether private plans that participate in Medicare Advantage deliver a better deal than traditional Medicare. Here’s a post on Medicare Advantage cost and efficiency. Here’s a post on Medicare Advantage quality. Many other posts from 2014 on this theme are here.

    Innovation. Under the surface of much of health policy debate is how to manage innovation in health care delivery and insurance. Technological innovation is among the top drivers of health spending and quality. Innovation in plan design also relates directly to cost and choice. How we manage health care technology (e.g., the development of new drugs and devices or the populations to which they’re applied) and innovation in plan design (e.g., benefits) are, therefore, crucial areas of research and policy. Issues pertaining to health care technology management are, perhaps, best discussed in this post. Issues pertaining to consumer choice and protection are, perhaps, best discussed here. Many other posts from 2014 on this theme are here.

    Opioids. America is in the midst of its third opioid epidemic in about a century. This time, it’s driven in large part by narcotic painkillers. Addressing this problem is complex because opioids are addictive and can be misused, but are also can address pain in some patients and, in some formulations, can treat addiction. Such addiction treatment is highly cost effective, as discussed here. My history of opioid use and policy is here. Many other posts from 2014 on this theme are here.

    More. Again, feel free to weigh in using open-ended question to tell me if there’s another post or theme you think deserves top billing. Just to jog your memory, I’ve also written quite a bit this year on placebos (as has Aaron), big data, methods/causal inference, wellness programs (with Aaron), challenges of health plan choice, Medicaid access, Obamacare labor market effects (job lock), and more.

    Survey Technology Details

    You should know that there are some ways in which this survey technology works over which I have no control. For example, with exceptions for some devices (see below), the way you have to rank these is by dragging and dropping them in order, not with the drop down menu next to each choice. If you’re trying to use the drop down menus and they’re auto-filling incorrectly, drag and drop the choices instead. I’ve been told by email that this may not work on an iPad, but others say it does. Also, on Android devices, I’m told the drop down menus work, but not dragging choices.

    (Results as of January 15, 2015 are here. I will use the results to help me make my selections for NIHCM award entries.)

    Respond below or at this link.


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  • Shakespeare’s legacy

    Received by email, unsourced. Google the title and you’ll find many, similar images.



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  • Racism and the drug war

    With one exception, I received nothing but praise for my recent piece on U.S. opioid history and policy. But that does not mean the exception has no merit! It came from Matthew Holt who conveyed that it lacked acknowledgement of “the role of Anslinger & later drug warriors, and the racism involved in opium bans.”

    He’s right. Likely Matthew is a greater expert on these matters than I am, and he pointed me to one of his earlier pieces that touches on the subject.* It’s about the, apparently nearly completely groundless, prosecution of Dr. Frank Fisher who prescribed opioid medications to poor patients in a rural California county.

    Meanwhile, what do you think happened to the patients at his clinic, which was destroyed by this action? Go read the full interview with Fisher at DRCNet, but this is an extract about what happened to the people he was serving. As you might have guessed their transition from his care to that of others in that rural underserved area was not exactly smooth.

    In the extract, Fisher is quoted,

    The availability of pain management for poor people is even worse than for the rest of us. And it’s not good for the rest of us. Everyone who develops chronic pain is likely to be killed by it because of medical neglect. It’s a malignancy in the sense that if it is not controlled, it will spread and progress. My patients were effectively tossed out on the street to fend for themselves. The local medical clinic saw them as drug addicts who needed to be detoxed.

    As for Anslinger, his Wikipedia entry includes that he “has been accused [source] of being responsible for racial themes in articles against marijuana in the 1930s.”

    Had I done more research in this area and folded these themes into my piece, I’d have drawn a fairly similar conclusion. Narcotic painkillers remain both problematic (addictive, subject to diversion) yet opioids have some worthwhile uses (for pain and addiction treatment). These alone present substantial policy challenges. If the implementation of policy (whether good or bad) also has an implicit or explicit racial bias, that’s no less worthy of our attention.

    * He also pointed me to this other one, but the link didn’t work as of the time I wrote this post. It does now. You can click through and read it for yourself. It’s short.

    UPDATE: I removed Matthew’s full tweet and made some edits to accommodate that removal, as it included some criticism he later retracted.


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