• Common ground on health care policy

      08/29/2012
      Austin Frakt

    Below are my highlights of and notes on the commentary “Slowing Medicare spending growth: Reaching for common ground,” by Michael Chernew, Richard Frank, and Stephen Parente (AJMC, 2012). The whole thing is short, ungated, and worth a full read. All block quotes below are from the paper.

    Some stakeholders would like to limit total Medicare spending growth to the rate of GDP growth, thereby stabilizing the share of GDP consumed by Medicare. During a period of rapidly rising Medicare enrollment due to the aging of baby boomers, such a target would require per-beneficiary spending to grow at a rate below GDP growth. For example, holding Medicare growth to GDP growth rates would require an update in the per-beneficiary payment rate of GDP minus about 1.25 percentage points (the subtraction of 1.25 is required to offset demographic trends). Enacting such real cuts for older and disabled adults is viewed by many as undesirable. This issue highlights the fact that stabilizing the share of GDP devoted to Medicare is very challenging.

    Previously, I explored various interpretations of the GDP+1% growth cap in the Wyden-Ryan plan. The interaction of federal health care spending growth and other areas of government spending is illustrated beautifully in Charles Roehig’s “triangle of painful choices.”

    Yet because payment is bundled—at least in the global-payment model, and maybe in the premium-support model—introduction of new technology may not be as adversely affected as some fear. If there is considerable waste in the system, the clinical and administrative flexibility in the bundledpayment arrangements gives providers incentive to capture savings from increased practice efficiencies and elimination of low-value care. A new approach to payment may shift medical innovation toward cost-reducing technologies and processes. Such savings could help finance high-value medical innovation.

    I keep putting off my post on the extent to which technology drives health care costs and spending. I’ll try to work it in next week.

    Most voucher schemes assign new risk bearing to a mix of insurers and beneficiaries. Global payment places the new risks largely on providers. There are advantages and disadvantages to each strategy. […]

    [T]he track record of insurers in this realm is poor. Therefore, failure to control costs means that beneficiaries will be liable for an increasing share of program spending over time. […]

    Providers need to perform better than they did in their last largely failed experiments in managing shared finances within 1970s and 1980s demonstration health maintenance organizations.

    I will have much more to say about those past, failed experiments next week.

    [S]ome innovative insurers in the commercial sector already accept a fixed premium and pay provider groups a global payment. Medicare could allow both approaches to coexist.

    You would not get this impression from the political debate, which frames the two approaches as being at odds. At TIE, I have explored this false choice.

    [W]e must recognize that even under ideal conditions, increasing the level of consumer risk and responsibility will likely result in access becoming more related to income than it already is. How to harness the power of consumers while minimizing market imperfections and income disparities is perhaps the central challenge facing reform. […]

    The distinction between assigning responsibility to plans or providers is less important than deciding the extent to which beneficiaries should bear risk and responsibility.

    Once again, that this is (perhaps) the central challenge does not come through in the political or even wonkier, technocratic debate. What tends to dominate is a focus on spending and on insurers and providers. That’s not to say there aren’t many people writing about more “skin in the game.” There are. But, even there, the focus does not seem to be on the question of how to make that work “while minimizing market imperfections and income disparities.” Yes, we have a FAQ on the consequences of increased cost sharing.

    Many alternatives, including the PPACA, are just variations on the theme. Recognizing the commonalities may help us focus on, and resolve, the differences.

    Agreed.

    @afrakt

     
      Health Policy
      health reform
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  • Compensation under profit maximization

      08/29/2012
      Austin Frakt

    Consider a profit-maximizing firm (with non-negative profits) that offers its employees compensation in the form of an annual salary ($50,000) and health insurance (annual $15,000 premium). The annual, per employee compensation cost is therefore $65,000. (I’m ignoring all taxes.)

    Now imagine a law is passed that outlaws employee-sponsored health insurance. Maybe health insurance is provided in a Medicare-for-all type program or some other way. That’s not important. What’s important is now the firm does not offer the $15,000 premium coverage. But, it still may offer a salary. Assume nothing else changes.

    If the firm is still profit maximizing, what salary does it offer under the new law?

    (A) $0

    (B) $50,000

    (C) $65,000

    (D) 6 chickens

    Think it over before reading the answer below.

    Since the firm was profit maximizing before the law, it means that the total, per employee compensation of $65,000 was optimal (with respect to profits). Had it offered more — either higher salary or more in health insurance premiums — it’d have reduced its profits by overpaying for labor. Had it offered less, it also would have reduced its profits. This is by definition that it was profit maximizing at $65,000 total compensation (i.e., this is the unique value of compensation that maximizes profit).

    But how would it have lost profit by paying less? One way is that it would not have retained the same personnel it was able to hire at $65,000. At lower compensation it would have only been able to hire less productive workers. The workers it could have had at $65,000 would have gone to another firm that offered a better deal or they could have taken more leisure. The story doesn’t really matter. The point is that the profit maximization assumption is doing some work. It is pinning down the cost of labor at its optimum. It is telling us the price at which labor market supply and demand meet.

    If the firm is still to maximize profit after the law is passed, it certainly cannot offer more than $65,000. If it required more than $65,000 in compensation to retain the profit-maximizing labor force after the law passed, then it would have required more than that sum before hand. Remember, nothing else changed except the outlawing of compensation in the form of health insurance. On the other hand, if it maximized profit to provide less than $65,000 in compensation after the law passed, then the firm was not profit maximizing before hand. If its (presumed profit maximizing) labor force were willing to work for less, then it’d have accepted a lower salary before hand. But that violates the assumption that the firm was profit maximizing before passage of the law.

    An alternative argument is that if the firm doesn’t offer at least $65,000 in compensation, some other firm will set up shop next door with identical structure. This new firm will compete for labor and the competition will bring the market rate of compensation back up to $65,000. (We assumed a firm of this type can afford $65,000 in compensation and still make a profit. That’s what occurred before the law passed.)

    (A) and (D) are clearly wrong. I bet some readers were tempted to choose (B), figuring that workers were satisfied with $50,000 in salary before, so should be afterwards. But if that was all a worker wanted from the job, then the employer shouldn’t have offered to pay for health insurance. In other words, (B) violates profit maximization. The worker was not satisfied with just $50,000 in salary. She demanded another $15,000, taken in the form of a health insurance policy, and the employer obviously found it optimal to provide it.

    By now you know that (C) is the correct answer. Now, this was all fairly theoretical. But it has real-world applications. I’ll leave it as an exercise for the reader to apply it to this post by Sarah Kliff. Note that many empirical studies support the idea that when employer-paid health insurance premiums go up (down) wages go down (up) by the same amount. Now you know why.

    @afrakt

     
      Economics
      premiums, wages
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  • Why can’t we get some simple answers on health care?

      08/28/2012
      Aaron Carroll

    I’m so tempted to just repost this piece from last year, but suffice it to say – this campaign ain’t the last one. Say what you will about it, but it was chock full of details on Democratic plans for health care reform.

    This time around, we’ve got a ton of proposals that contradict each other. There’s Paul Ryan’s 2012 budget (now abandoned). There’s Ryan-Wyden. There’s Paul Ryan’s 2013 budget (which Wyden doesn’t support). There’s Mitt Romney’s “plan“. And now there’s the Republican party platform.

    So Medicare will both stay a defined benefit program and be saved by no longer being a defined benefit program. We will eliminate the $700+ billion in savings to the trust fund, yet extend its life. We will not cut any benefits, but will reduce Medicare spending dramatically. We will increase Medicare spending, but somehow not seniors’ premiums.

    All of this could, of course, be explained by a few questions and some direct answers. In this election, though, I suspect neither are forthcoming.

    P.S. Don’t even get me started on the utter lack of interest by the press in Medicaid at all.

    @aaronecarroll

     
      Health Policy
      campaign, Medicare, politics
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  • Is the recession killing granny?

      08/28/2012
      Austin Frakt

    One of the points I made as a discussant at the ASHEcon conference this year is that the factors driving health care utilization and spending among Medicare beneficiaries are likely different from those for the non-elderly. Yet few analysts of health care trends comment on or exploit those differences. (For one thing, prices are a likely driver of spending growth in the commercial market, but not for the more-price-regulated Medicare.)

    Related to this, I was prepared to blog on the new paper “Recessions and seniors’ health, health behaviors, and healthcare use: Analysis of the Medicare Current Beneficiary Survey,” by Melissa McInerney, Jennifer M. Mellor (JHE, 2012). However, why reinvent the wheel? Jason Shafrin posted on it yesterday, so go read him. The upshot is that recessions affect mortality of and utilization by the non-elderly and the elderly differently. They’re good for health of the non-elderly but bad for the elderly. Why?

    Nobody knows for sure, but we can speculate. The authors point to a shift by providers to caring for more Medicare patients when non-Medicare patients pull back on their care. That actually makes a lot of sense, and it can happen without much intention. If a doctor can only see so many patients in a year (e.g., only offer so many appointments), then as one class of patients demands fewer appointments (working-age individuals with less income or more income uncertainty in a recession), another class that has almost insatiable demand (Medicare beneficiaries) will have an easier time finding an appointment. On average, they’ll see more doctors and have more procedures than they otherwise would. Instead of waiting four weeks between visits, they’ll wait three. Every time they want to see a doctor or are amenable to getting a recommended test, they have an easier time of it. Visit density for them goes up, and maybe that extra care isn’t doing them any favors.

    We can probably speculate more, but I’ll stop here.

    @afrakt

     
      Explaining Research
      Medicare, mortality, recession
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  • Quality of life and the PSA test

      08/28/2012
      Austin Frakt

    The 16 August 2012 issue of NEJM included a study and an editorial on the quality of life effects of PSA testing. Both are ungated.

    For better or worse, treatment for prostate cancer is more common than it otherwise would be in the absence of widespread PSA testing. Those treatments are, of course, designed to address cancer present in the prostate (few of which would actually kill the patient), but they do other things as well, including increasing the risk of incontinence and impotence.

    Two specific studies on quality of life after prostate-cancer treatment have been performed for men participating in Rotterdam and Sweden. Preoperatively, 1 to 2% of the men were incontinent and 31 to 40% were impotent. At 18 to 52 months after treatment, incontinence was reported in 6 to 16% of the men undergoing radical prostatectomy and in 3% of those undergoing radiation therapy. At 6 to 52 months after treatment, impotence among men who were potent preoperatively was reported in 83 to 88% of those undergoing radical prostatectomy and in 42 to 66% of those undergoing radiation therapy.

    The study authors designed a simulation that incorporates these effects to estimate in quality-adjusted life years (QALYs) associated with PSA testing. Harold Sox, in the accompanying editorial, explains the simulation as follows:

    The authors used a form of modeling that simulates a patient’s passage through a sequence of health states to death. Each state is characterized by the annual probability of transitioning to other states and by a quality weight (called a utility), which reflects patients’ feelings about being in that state. The model calculates the years spent in each health state weighted by the utility of that state. The sum of these quality-adjusted years over the health states experienced in the patient’s pathway to death is the quality-adjusted length of life. By repeating this process many times, the model simulates the experience of a population of patients.

    The study found:

    Per 1000 men of all ages who were followed for their entire life span, we predicted that annual screening of men between the ages of 55 and 69 years would result in nine fewer deaths from prostate cancer (28% reduction), 14 fewer men receiving palliative therapy (35% reduction), and a total of 73 life-years gained (average, 8.4 years per prostate-cancer death avoided). The number of QALYs that were gained was 56 (range, −21 to 97), a reduction of 23% from unadjusted life-years gained. To prevent one prostate-cancer death, 98 men would need to be screened and 5 cancers would need to be detected. Screening of all men between the ages of 55 and 74 would result in more life-years gained (82) but the same number of QALYs (56). […]

    [B]ecause of a long lead time until clinical symptoms would develop from screen-detected tumors (estimated at 5 to 12 years), men would have an increased number of years of living with these adverse effects [incontinence, impotence]. […]

    A substantial part of the predicted difference between life-years and QALYs gained is caused by overdiagnosed cancers.

    The editorial offers some caution:

    What does this result tell us? It says that the net effect of prostate-cancer screening can be a loss or a gain, depending on patients’ utilities for their potential future health states. It is tempting to speculate that most patients will gain, since the range of net benefit is larger for gains (0 to 97.1 life-years) than for losses (0 to −20.7 years). These data do not support that conclusion, because we do not know the number of patients with low utilities for the health states, as compared with the number with higher utilities. If we knew that all patients have utilities consistent with a gain in quality-adjusted life-years, we could recommend universal screening.

    But, we don’t know that all patients have utilities consistent with a gain in QALYs. Sox recommends a shared decision making approach, which is not what the USPSTF suggested.

    @afrakt

     
      Health Policy
      prostate cancer
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  • A century of health care reform

      08/28/2012
      Austin Frakt

    Jon Oberlander’s latest in NEJM is a handy guide to the history of U.S. health reform. It includes a nice timeline in chart form. (All ungated.) Here are a few bits I highlighted as I read:

    • “If we had a parliamentary system, the United States probably would have adopted universal insurance decades ago.”
    • “The United States has moved through fads at a dizzying pace in recent decades — from managed to consumer-driven to accountable care — but they have thus far failed to produce reliable cost control.”
    • “U.S. health policy has also been an abject failure, having produced an inequitable, inefficient system that is the most expensive in the world and that leaves 20% of the nonelderly population uninsured. Health insurance should be a source of security and reassurance. The U.S. insurance system is too often a source of suffering, anxiety, economic insecurity, and frustration.”
    • “That these and other indignities have persisted so long is an indictment of U.S. health policy and its moral quality. If there is one thing we should learn from the experiences of other countries that have universal coverage, it is that it doesn’t have to be this way. None of these problems are natural or inevitable — they are all the result of policy choices that the United States has made.”

    @afrakt

     
      Health Policy
      history
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  • The taxes in Lake Wobegon must be very high

      08/28/2012
      Austin Frakt

    I was kicking back with the June 2012 MedPAC report last night (you know, relaxing) and this, about the Medicare Advantage (MA) quality bonus demo, caught my eye:

    While the statutory provisions would have given bonuses to plans with about 25 percent of the projected MA enrollment for 2012, under CMS’s MA quality bonus demonstration, as we have noted, plan projections show that 93 percent of enrollees are expected to be in plans receiving bonuses, resulting in additional program costs estimated to be $2.8 billion for 2012, compared with the $200 million that would have been expended in bonus payments under the statute.

    That’s nearly a four-fold increase in the number of enrollees in plans getting quality bonuses and a fourteen-fold increase in cost.

    It is expensive to get everyone to be above average. The taxes in Lake Wobegon must be very high.

    @afrakt

     
      Health Policy
      Medicare Advantage, plan quality
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  • Doctors don’t vote so much

      08/28/2012
      Aaron Carroll

    Don’t even know who thought to study this, but here you go:

    In 2001, the American Medical Association identified the need for physicians to become more involved as “advocate(s) for social, economic, educational, and political changes that ameliorate suffering and contribute to human well-being.”  Recognizing the process of voting as an elementary step of community involvement, the authors of this article sought to examine the voting pattern of physicians in previous federal elections.

    This study compared voter participation rates of U.S. physicians compared to lawyers and the general population in congressional and presidential elections between 1996 and 2002. The sample included 85,000 U.S. adult citizens, including 1,274 physicians and 1,886 lawyers using the U.S. Bureau of Census Current Population Survey (CPS) November Voter Supplements for elections between the years of 1996 to 2002.  The sample was adjusted for the variation in demographics between physicians and lawyers compared to the general population.  Physician voter participation rates were also compared between the years of 1976 to 1982 and 1996 to 2002.  There were 2,033 health professionals over the period of 1976 to 1982 identified (physicians were not identified separately from other health professionals until later years in the CPS).  Multivariate logistic regression models were used to compare adjusted physician voting rates with those of lawyers and the general population in the 1996–2002 congressional and presidential elections.

    The results? Doctors don’t vote as often as other people do:

    What you’re looking at are the adjusted probabilities of doctors voting, compared both to the general public and to lawyers. In 1998, 2000, 2002, and overall from 1996-2002, doctors voted significantly less often than the general population. Lawyers, on the other hand, vote significantly more often than both doctors and the general population. From 1996-2002, about 22% more lawyers voted than physicians. In 2002, less than a third of physicians voted.

    Doctors like to complain about how government keeps mucking around in their profession. Maybe they should take a stronger hand in how that government is selected.

    @aaronecarroll

     
      Health Policy, Politics
      lawyers, physicians, politics, voting
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  • Medicare access – ctd.

      08/28/2012
      Austin Frakt

    A sharp reader wrote me, “If you cut FFS reimbursements *and* you cut Medicare Advantage (MA) reimbursements, which Obamacare does, I think your argument loses some force.” (Follow the link if you haven’t read my prior Medicare access post.)

    I was ready for that one. The reader is correct, but the follow-up arguments are:

    1. The vast majority of Medicare beneficiaries (and maybe still all of them) will have access to an MA plan even with payment rates cut substantially. Nobody is talking about cutting all of them below FFS cost when you factor in the bloated quality bonus program.
    2. Sure, as FFS cost falls, so will MA payments. But, encouraged by insurers, Congress has long had the ambition to find ways of providing MA access to all beneficiaries. I expect they’ll keep doing that. This is, in part, why the bonus program has become bloated.
    3. If FFS access becomes bad enough, beneficiaries who can will want to pay more for better access. That’s a profit opportunity for a premium-charging MA plan. Under the “utility maximizing, savvy shopper” assumption, we must expect the market to meet beneficiary demand.
    4. Under premium support, the hypothesis has been that plans in many areas are cheaper than FFS because they pay providers less. Seems like there must be some room for payment cuts in that case.
    5. Having said all that, you can’t cut to zero. There is some lower bound where things become untenable. Do we know where that is? No. Is it worth finding out? You bet. And with MA plans in the wings, it seems like beneficiaries have some options. So what’s the big deal?

     

     
      Health Policy
      access, Medicare
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  • Medicare and access

      08/27/2012
      Austin Frakt

    Something has been bothering me lately about the claims that FFS Medicare cuts to provider payments will lead to access problems for beneficiaries. It’s not that I think they won’t lead to access problems. In fact, I’ve written many times that if FFS Medicare payments diverge too far from payments by private plans, beneficiaries will have some access issues.

    What bothers me is that discussions of access issues always ignore Medicare Advantage (MA). Every beneficiary has access to MA plans. Those plans are not required to pay providers FFS rates. They pay them whatever they can negotiate. Maybe it’s more. Maybe it’s less. That’s the way the market works. That’s they way it’d work under premium support proposals too. Do private plan payment rates bother anyone? If so, speak up. If not, it is inconsistent to go after FFS Medicare on that issue.

    If FFS Medicare cuts too much and beneficiaries can’t find doctors, why won’t they just enroll in MA plans? Plan switching by savvy consumers is precisely what is supposed to drive the market under premium support. If it is to work under such a plan, it ought to work under current Medicare too. Sure, the price signal is not as clean since plan payments aren’t closely tied to bids. But consumers still know when they are getting a lousy product because they don’t have access to enough of the doctors they want to see, right?

    Well, I’m skeptical beneficiaries can be savvy insurance product shoppers. But those that are attacking Medicare for its access-threatening payment cuts tend to be the same ones who are not skeptical about grandma’s ability to find a good deal.

    But, I don’t mean to turn this into a snarky political point. I really just want to ask a basic question: if FFS Medicare commits suicide by pricing its way to access problems, don’t we have MA as a backstop? Isn’t that good enough? If not, why not?

    @afrakt

     
      Health Policy
      access, Medicare
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