• Medical necessity & the law, round 2

    Austin blogged on this yesterday.  Go read his post first.

    1. Baicker and Chandra get one detail wrong. The culprit is contract law, not corporate law. Blame corporate law for many things, but not this.

    2. In cars, you can buy a Hyundai or a Lexus. In health care, people buy the Hyundai but expect a Lexus when they get cancer. So Einer is still generally right on consumer insurance contracts, but take a look at the list of clinical policy bulletins on your health insurance website (Aetna’s list is here). Companies have gotten better at defining the scope of coverage when they have negative evidence on a procedure, device or drug.

    3. Health plans are now offering tiered provider plans. In Boston, the Tufts Your Choice plan has a $1500 deductible for Mass General and a $500 deductible for BMC. This delegates the choice to the consumer in a way that should survive contract law.


    • Kevin
      Can you add more detail?

      While it may be contract as opposed to corporate law leading to this situation, its still a company (or sector) ethos creating the confusion, no? For non-legal types, the distinction may be less, “what company writes, and more what company do.” In other words, how does this translate to the care I receive and who is responsible for it.


      • Corporate law = how to organize and run corporations, issue stock, who has authority to act for the corporation, and when a shareholder can sue the board, etc.

        Contract law = when is a contract valid and binding on the parties; if the contract is unclear, how do you interpret it? Insurance companies v. consumers = contracts are almost always interpreted to give the benefit of the doubt to the consumer. Liberals say “as they should;” conservatives say “judicial meddling with the market.”

        Health insurance companies have responded with much more precision, with fairly transparent evidence-based standards. See the Aetna link in the post.

    • The mystery is that if the barriers to using evidence to craft lower cost insurance have fallen away, why isn’t there greater support from large employers and insurers for CER and implementation of best practice and guidelines, where known. Why don’t big employers demand that hospitals show evidence of high rates of following good practice?

      Yes, some insurers are (the alternative quality contract by BCBS in MA). Why did it take so long?

      Is it fear of cultural backlash? It’s just hard to understand why a big employer would leave so much money on the table for that reason alone. So, what’s the deal?

    • If most of the geographic spending variation in the 3X larger private insurance market is derived from differences in price rather than utilization then large private payers may be leaving less money on the table than is commonly imagined.

      • I believe those studies typically adjust for price variations. One can look directly at volume. Variation remains large.

        • Are there papers that arrive at a substantially different conclusions than the one below even after separating out price and volume in the private payer data?

          “We find that both service prices and utilization contribute to overall differences in health spending across geographic markets. Our …findings suggest that potential expenditure savings may be possible from more efficient utilization. However, the large variation in underlying service prices suggests that deviations in overall spending may persist, even if utilization differences across markets
          are diminished.”

          These measures show that a particular MSA may have high
          overall prices, but may actually have low medical-care spending per episode due to low utilization. Prices within an MSA appear to be quite homogeneous, implying that regional factors explain a large degree of price variation. However, within an MSA there is a large degree of heterogeneity in utilization patterns between disease categories. This implies that most MSAs do not have systematically high or low utilization for all disease categories. We …find evidence of a negative correlation between price and utilization across MSAs for many diseases, so it appears that the greater expenditures from higher prices are partly offset by lower utilization.”

          Seems like it’s at worth entertaining the possibility that private payers aren’t actually leaving all that much money on the table, and that real differences are driving enough of the practice variation to make sorting through warranted-vs-unwarranted deviations from EBM or statistical norms unprofitable or impracticable.

          • From http://web.archive.org/web/20160313144418/http://nihcr.org/geographic-variation.pdf:

            “For instance, the 1999 Dartmouth Atlas found that Medicare patient demographics, input prices and health status—using age, sex, race and limited health-status indicators—together accounted for only 18 percent of geographic spending variation”

            “Recent MedPAC studies, using even more comprehensive health measures, found that health status explained about 30 percent of the variation, and after accounting for price adjustments in Medicare payment methods, about 45 percent of spending variation across areas.”

            • If there’s a strong positive connection between Medicare payment variation and private payer variation in every geographic area, and there are no real factors that drive geographic variations that can’t be abstracted into a numerical value and plugged into a regression then structuring all of our reform efforts around eliminating the Medicaid variations that Dartmouth has chronicled makes perfect sense..

              Given the weak correlation between medicare and private spending in the same geographic area, and the fact that no one has been able to devise a statistical index that captures all of the real differences between delivering care in East LA and East Salt Lake City -I’d personally like to see all of our reform efforts focusing on how to treat particular diseases more effectively for less money. IMO that makes vastly more sense than focusing on statistical mirages derived from running regressions on regional practice/spending variations that may or may not be driven by real differences in patient population.

              At the very least, I’d think that the emphasis on clinical efficiency (clinical efficacy/price) is consistent with the idea that we should be emphasizing productive efficiency before worrying about allocative efficiency – which is what I think private payers are already doing.

              ” Surprisingly, researchers said, the hospitals that provide high-value care to Medicare and commercial payers share no specific characteristics that separate them from those that provide low-value care to either Medicare, commercial payers or both, said Bruce Pyenson, a New York-based principal and consulting actuary at Milliman, during the news conference.

              He said researchers found there is considerable variation among the hospitals studied in cost drivers including wages, payer and hospital competition, location, and ratio of primary care to specialist physicians.

              However, researchers found that certain hospitals that provide good value for Medicare and commercial payers generally have greater medical efficiency and lower admission rates, Mr. Pyenson said.”

              The city-by-city value-to-all-payer rankings in the Millman study are quite interesting, Ditto for the plots that show the contribution of medicare and private coverage to operating margins by city. Worth a look by anyone who is interested in this topic.

    • I’m not sure that the basic assumption here is correct. Insurers have been limiting the definition of what’s “medically necessary” for a long time (e.g., pre-surgical second-opinion requirements, restricted formularies, specialty benefit management limits on radiology testing, etc, etc). In fact, utilization and price are both substantially out of whack in the US compared with the OECD. This is particularly true in the Dartmouth Atlas “high cost” vs. “low cost” areas.

    • Great links. Particularly the NIHCR paper. Thanks.

    • From Austin’s first question about why this has taken so long and whether it’s cultural, my understanding from seminars with economists and insurance folks suggests that there’s a lot of push back from plan sponsors – particularly employers. They indicated employers seem to think their employees won’t put up with such restrictions.