Here are a few of this week’s most interesting articles to take you into the weekend:
Tags: Economics Links
Suppose you look at health care spending in two different regions and observe a significant difference. You may want to know what the cause of this difference is. Is it because one region has a mix of people who are sicker; or is because the reason treat patients with a given disease more intensively?
One way to answer this question is to use the Oaxaca decomposition. This approach was originally formulated by Ronald Oaxaca. This document provides a nice overview of how to use the Oaxaca Decomposition and I apply that framework to the health spending case.
Assume that there are two regions: Region A and Region B. The spending for the two regions can be modeled using a linear regression framework:
The Y term represents spending and the variable X represents the patient’s health status. Health status could be measured as a vector of factors or as a single indicator (e.g., healthy or sick). The term β describes much an area spending on medical resources to treat a patient with a health status of X. Thus, average difference in spending per person the two regions is:
where XA is the average case mix in the area.
Now the question is whether case mix or spending practices conditional on case mix is the key driver of the differences in spending between regions A and B. One can differentiate these two components using the following Oaxaca Decomposition:
In the first equation, the differences in health status (X‘s)are weighted by the coefficients for region B and the differences in the coefficients are weighted by the X’s from region A, whereas in the second, the differences in the X‘s are weighted by the coefficients of from region A and the differences in the coefficients are weighted by the X‘s of from region B.
There are basically three factors that effect health spending in the region: i) differences in health status across regions ii) differences in treatment patterns conditional on health status, and iii) the interaction of health status and conditional treatment effects. One can see this clearly below:
The equations above show the health status effect (H), the treatment effect (T) and the interaction (HT).
The specification chosen for the Oaxaca decomposition determines whether the interaction effect is placed with the health status effect or the treatment effect. More precisely:
In effect, the first decomposition specification incorporates the interaction term with the treatment effect whereas the second specification places the interaction term together with the health status effect.
Sources:
Tags: Econometrics, Labor Economics, Oaxaca Decomposition, Regional Variation
The latest edition of the Cavalcade of Risk is up at The Notwithstanding Blog. The creative format will test your intelligence.
Tags: CoR
The full text of the State of the Union is here. Lots of blogs are analyzing at the State of the Union address, but the Healthcare Economist will examine the President’s health-related remarks.
Medical R&D:“We’ll invest in biomedical research, information technology, and especially clean energy technology -– (applause) — an investment that will strengthen our security, protect our planet, and create countless new jobs for our people.”
Health Reform: “And it’s why we passed reform that finally prevents the health insurance industry from exploiting patients. (Applause.)
Now, I have heard rumors that a few of you still have concerns about our new health care law. (Laughter.) So let me be the first to say that anything can be improved. If you have ideas about how to improve this law by making care better or more affordable, I am eager to work with you. We can start right now by correcting a flaw in the legislation that has placed an unnecessary bookkeeping burden on small businesses. (Applause.)
What I’m not willing to do — what I’m not willing to do is go back to the days when insurance companies could deny someone coverage because of a preexisting condition. (Applause.)
I’m not willing to tell James Howard, a brain cancer patient from Texas, that his treatment might not be covered. I’m not willing to tell Jim Houser, a small business man from Oregon, that he has to go back to paying $5,000 more to cover his employees. As we speak, this law is making prescription drugs cheaper for seniors and giving uninsured students a chance to stay on their patients’ — parents’ coverage. (Applause.)
So I say to this chamber tonight, instead of re-fighting the battles of the last two years, let’s fix what needs fixing and let’s move forward. (Applause.)”
Cuts to Medicare and Medicaid: “And their conclusion is that the only way to tackle our deficit is to cut excessive spending wherever we find it –- in domestic spending, defense spending, health care spending, and spending through tax breaks and loopholes. (Applause.)
This means further reducing health care costs, including programs like Medicare and Medicaid, which are the single biggest contributor to our long-term deficit. The health insurance law we passed last year will slow these rising costs, which is part of the reason that nonpartisan economists have said that repealing the health care law would add a quarter of a trillion dollars to our deficit. Still, I’m willing to look at other ideas to bring down costs, including one that Republicans suggested last year — medical malpractice reform to rein in frivolous lawsuits. ”
Health IT:“Veterans can now download their electronic medical records with a click of the mouse.”
Your response to these comments are likely, ‘that’s it?!?!’ If you look at the State of the Union address from 2010, you’ll notice that health care reform played a large role in the President’s State of the Union address. In this address, the President largely avoided the topic. This is not a huge surprise since the President’s Health Reform package (the ACA) is proving unpopular.
Tellingly, the phase “health reform” is never once mentioned in the speech.
He did mention reducing paperwork for small businesses and maintaining the provision to forbid insurers to adjust health insurance premiums based on the patients’ pre-existing conditions. A policy that prohibits rating policyholders based on pre-existing conditions is only tenable with an individual mandate; otherwise healthy people will have no incentive to buy insurance until they are sick. Obama does not mention the individual mandate at all in his speech, however.
The President also says that we need to cut spending for Medicare and Medicaid. He does not, however, offer specifics. In 2010, the President established the bipartisan Fiscal Commission to reduce the cost of Medicare, Medicaid and Social Security. Those efforts largely failed. With so little effort directed towards these cuts in his speech, there is little chance that these cuts materialize or if they do they will be large in magnitude.
In short, on the health care front there is no new news…this would of course change significantly if a Republican takes office in 2013.
Tags: President, State of the Union
“A problem clearly stated is a problem half solved.”
For more tips on getting answers to the questions you need, see this Lifehacker article.
Tags: Productivity
Each year, the California Health Care Foundation (CHCF) examines trends in employer health benefits in the state of California. Last year, I reported on the 2010 CHCF report and now I will examine the 2011 report.
Between 2010 and 2011, some things have remained the same. Healthcare premiums are far outpacing inflation over the medium run and California premiums remain higher than average. Workers at small California firms have to cover a large share of premiums and receive less generous insurance coverage (i.e., deductibles more than $1000).
High-wage firms (66% vs. 42%), firms with few part-time workers (70% vs. 41%) and firms with at least some unionized staff (84% vs. 61%) are more likely to offer health insurance to their workers.
Growth in California health insurance premiums (9.1%) in 2011 fell below the growth rate of the U.S. overall (9.5%). In 2010, the opposite was true. California health insurance premiums rose by 7.5%, but overall U.S. premium growth rose by only 3.0%.
The stereotype that California is the land of managed care holds true. Whereas the national proportion of covered workers enrolled in an HMO declined from 20% to 17% between 2009 and 2011, in California the proportion of covered workers enrolled in an HMO held steady at 54%. Also, although the U.S. overall has seen significant growth in high-deductible health plans (HDHPs) so that 17% of covered workers are enrolled in these plans, in California, only 6% of workers have enrolled in this plan type.
Is the ACA working? The answer is probably no. “Just 32% of small California firms not currently offering health benefits were aware of the small firm tax credit that is part of the Affordable Care Act.”
Tags: California, CHCF, Employer Benefits, Health Insurance
One of the goals of Medicare is to provide its beneficiaries access to quality care regardless of where they live. Thus, the Medicare program provides financial incentives to providers located in these remote areas.
Whereas most Medicare pays most hospitals through the inpatient prospective payment system (IPPS), it pays certain rural hospitals based on their reported costs. Medicare pays Critical Access Hospitals (CAH), for instance, 101 percent of its report cost for inpatient, outpatient, laboratory, and therapy services. It also pays this providers 101 percent of their cost for post-acute care for CAH beds are “swing beds” (which are beds that can be used for either acute or post-acute care).
However, how should Medicare define ‘critical’? The simplest definition is just whether a hospital is in a rural (i.e., non-metropolitan) area. However, there are various gradations of ‘rural’. A rural hospital on the outskirts of a big city would be far less ‘critical’ then one very far from distant areas. One could define ‘critical’ based on facility volume. If the low volume is due to poor quality, however, defining these hospitals as critical could just reward poor hospitals. Third, could define a hospital as isolated based on its distance from other facilities who could provide comparable care. Alternatively, one could identify critical hospitals based on demographic factors such as population density in the surrounding areas.
Below, I provide more information on other types of types of rural hospital designations in Medicare.
Read the rest of this entry »
Tags: CAH, Critical Access Hospitals, Hospitals, Medicare, Rural, Rural Hospitals
Some informative reading to take you into the weekend.
Tags: Links
Julie Ferguson’s Workers’ Comp Insider hosts a Health Wonk Review edition that examines the key health policy issues for the upcoming year.
Tags: HWR
For many years, fee for service payment was the status quo. FFS model encourages hospitals to adopt the following strategies to maximize market share and profits:
Specific examples of this growth are abundant. In Indianapolis, all four of their hospital systems built coronary surgery centers at a combined cost of $210 million. A community hospital 15 miles north of the city opened a smaller, open-heart surgery program. In Cincinnati, nine hospitals performed open heart surgery. Eight Boston Hospitals Have da Vinci System, which may indicate that robotic surgery may be used for marketing purposes.
However, health reform has started to change these trends. Medicare is instituting more bundled payment (e.g., dialysis payments) rather than pure fee-for-service. Further, Medicare’s Shared Savings Program (MSSP) aims to use Accountable Care Organizations (ACOs) to coordinate patient care improve quality and reduce the rate of growth in health care spending.
How will hospitals respond to the changing market landscape? One way hospitals can improve their margins is to only treat healthier patients to improve their performance in the case where risk adjustment methods are imprecise. Also, provider mergers may be a trend. Access larger populations will lessen risk providers must bear under new payment models. Larger size also means that hospitals can negotiate better rates with suppliers. Hospitals will likely sell redundant or non-core assets.
Hospitals will also adopt new technology to better manage care. For instance, Henry Ford Health System in Detroit uses an embedded specialized software called RadPort in its electronic physician order entry system that prompts physicians to enter specific information when ordering radiology tests. The pilot, funded with a CMS grant, will see whether these prompts will reduce utilization levels.
Tags: Bundled Payment, Hospitals, Productivity, Value-Based Purchasing
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