Unbiased Analysis of Today's Healthcare Issues

Healthcare Economist on Vacation (+ Links)

Written By: Jason Shafrin - Mar• 15•18

The Healthcare Economist will be on vacation with blog posts resuming March 26.  I will be in Peru.  To learn more about the Peruvian health care system, read this post.

For those of you in Healthcare Economist withdrawal, below are some end of the week links to tide you over until I get back.

Open-Source Publishing

Written By: Jason Shafrin - Mar• 15•18

An interesting new approach to academic article publishing as described by Josh Cohen from Tufts University:

Open-peer review journals preserve scientific review by conducting reviews after the article’s initial release. Review takes place in the open, with comments and the peer reviewer’s name published online, along with the article authors’ responses and revised manuscript, and the reviewers’ final decision to “approve” the article, or not. Gates Open Research gathers three reviews for each article and reports how many of the reviewers ultimately approve of the science in the revised article. Pubmed indexes Gates Open Research articles after a majority of the three reviewers ultimately approve.

This approach makes a lot of sense.  By publishing before peer review, research findings get out faster.  On the other hand, by requiring 2 of 3 reviewers to approve the article before PubMed indexing, quality review is maintained.  Further, because peer review comments are public and unblended, one would expect peer reviewers to provide higher quality comments since their reputations are on the line.

F1000Research, uses a similar approach as Gates Open Research and it has published nearly 2,000 articles.

Dr. Cohen also describes the publication experience with Gates Open Research here.

Why does the U.S. spend more on health care than other countries?

Written By: Jason Shafrin - Mar• 13•18

A paper in JAMA by Papanicolas, Woskie and Jha (2018) try to answer the question.  One reason could be that Americans are less healthy than people in other countries.  On the one hand, Americans do have the highest rate of obesity in the world; on the other hand, smoking rates are among the lowest.

Another explanation could be that we use more medical goods and services.  This turns out not to be the case.

The US did not differ substantially from the other countries in physician workforce (2.6 physicians per 1000; 43% primary care physicians), or nursing workforce (11.1 nurses per 1000). The US had comparable numbers of hospital beds (2.8 per 1000) but higher utilization of magnetic resonance imaging (118 per 1000) and computed tomography (245 per 1000) vs other countries. The US had similar rates of utilization (US discharges per 100 000 were 192 for acute myocardial infarction, 365 for pneumonia, 230 for chronic obstructive pulmonary disease; procedures per 100 000 were 204 for hip replacement, 226 for knee replacement, and 79 for coronary artery bypass graft surgery).

A third option is for that the prices of the health care goods and services we use may be higher than those of other countries.  This does indeed turn out to be the case.  In particular, administrative costs in the U.S. are 8% of health care spending whereas most other countries have administrative costs of 1%-3%.  Administrative costs could represent waste, but they also could be a symptom of more competition across health plans and potentially more effective treatment targeting.  In addition, costs for providers and pharmaceuticals are higher in the U.S. than elsewhere.

For pharmaceutical costs, spending per capita was $1443 in the US vs a range of $466 to $939 in other countries. Salaries of physicians and nurses were higher in the US; for example, generalist physicians salaries were $218 173 in the US compared with a range of $86 607 to $154 126 in the other countries.

One solution to this ‘problem’ would be to cut prices of pharmaceuticals as well as physician salaries.  However, higher pharmaceutical prices have incentivized more innovation.  As the Council of Economic Advisors writes, in fact other countries may be free-riding on American generosity and the solution may be a mix of (i) faster approval of generics after patent expiration and (ii) making other developed countries pay their fair share of pharmaceutical prices.  Additionally, lowering physician wages would save cost, but physician quality would also fall as the most highly intelligent individuals may leave for careers in technology, finance, or other areas.  In addition to potentially lowering quality, reducing physician compensation could lead to a physician shortage if physicians exit the market.

While the results of this study ultimately depend on the reliability of the cross-country data used, it is interesting to decompose how health care spending differs across countries.



Quotation of the Day

Written By: Jason Shafrin - Mar• 12•18

We do not watch artists to see what they do, but watch what persons do to see the artistry in it.

James P. Carse, Finite and Infinite Games

The costs of quality reporting

Written By: Jason Shafrin - Mar• 11•18

Provider pay-for-performance initiatives aim to increase reimbursement to physicians and others who provide high-quality, low-cost care to patients. Medicare has two main programs for physicians to ahcieve these goals: (i) the Merit-Based Incentive Payment System (MIPS) and (ii) the Alternative Payment Models (APM).  MIPS measures cost and quality for smaller physicians groups whereas APM requires physicians to participate in accountable care organizations, bundled payment, or other alternatives to traditional fee-for-service payment.

In his Health Affairs blog post, however, Matt Fielder argue that MIPS is not likely to improve quality.  Physicians are able to choose their own quality measures which leads to (i) physicians choosing ‘easier’ measures–often screening measures, or (ii) physicians choosing measures they already know they are good at.   The article mentions that a number of observers–including MedPAC–have argued that MIPS is unlikely to improve quality while the administrative burden on physicians is likely to be large.

How large?

Notably, CMS estimates that providers will spend $694 million complying with MIPS reporting requirements for the 2018 performance year. External estimates of the administrative costs of prior quality reporting programs suggest that burdens could be even larger.

The authors also report a number of strategies to improve quality.  They are bullish on the benefits of APMs and ACOs–whereas I am a bit more skeptical that these approaches will truly improve quality of care.  I do agree with the authors that it is a good ideas to have clinician reporting to clinical data registries as it “…can generate benefits for the health care system as a whole by creating a knowledge base that can be used to identify strategies to improve patient care and that allows clinicians to compare themselves to their peers.”

Weekend Links

Written By: Jason Shafrin - Mar• 09•18

Cigna-Express Scripts merger

Written By: Jason Shafrin - Mar• 09•18

Today, Cigna purchased Express Scripts for $52 billion.  This follows another mega-deal where CVS bought Aetna.  The integration of pharmacy benefit managers (PBMs) and insurers is nothing new.  Previously, many insurers managed their own pharmacy benefit.  However, as PBMs grew in size and were able to get larger discounts and rebates, in-house PBMs became less competitive.

The key question on everyone’s mind is, is this deal a good thing?  On the one hand, it could be a good thing.  Many pharmaceuticals improve patients health and reduce the risk of hospitalizations.  By bringing Express Scripts in house, Cigna may be able to better internalize these cost savings.  In addition, this deal will help with value-based contracts.  Under value-based or performance-based contracts, life sciences firms must provide discounts if their products do not show the health benefits or savings expected.  By better integrating pharmacy and medical benefits, these contracts are much more feasible.  Further, the Cigna-Express Scripts deal may increase the purchasing power of this entity, which could drive down prices.

However, there are also reasons to be pessimistic.  Driving down prices may be good in the short-run, but–as I mention in my interview with NBC News–oftentimes these discounts are not passed on to consumers.  This could be changing, however, after UnitedHealth Group announced a few days ago that it would be passing drug rebates on to consumers.  Although value-based contracting could is a promising area for PBMs to ensure that new treatment’s value is worth the cost, there is some worry that the contracts would largely be structured to control cost and access to new medications would be restricted.  For instance, CVS’s new Transform Rheumatoid Arthritis Care program appears to have some cost and outcomes guarantees it would provide to employers.  Cost guaranttes are only possible, however, if PBMs can restrict access to innovative–but perhaps more expensive–new therapies that come on the market.  Further, if access to new medicines becomes more restrictive, life sciences firms may reduce their R&D investments in response, leading to the development of fewer innovative medications.  Finally, with increasing consolidation, there is a risk for price increases to consumers.  With fewer insurer and PBM choices, there is less competition and health insurance premiums could rise.

They key question is, how will patients and consumers be affected by this deal in the short, medium and long-runs.  That question, is still yet to be answered.

Pharmacy Spending Trends in Workers Comp

Written By: Jason Shafrin - Mar• 07•18

According the Centers for Medicare and Medicaid Services’ Office of the Actuary (OACT), in 2016 the U.S. spent $328.6 billion on prescription drugs, or 10% of all health care spending.   We also see that prescription drug spending increased 1.3% to $328.6 billion in 2016, slower than the 8.9% growth in 2015.

These trends towards more spending on prescription drugs, however, is not homogenous throughout the economy.  Take a look at the graph below looking at pharmacy spending growth among workers compensation plans.  As detailed in a report by Joe Paduda of CompPharma, we see that prescription drug spending is actually falling among those covered by workers compensation plans.

Joe gives some highlights in his Managed Care Matters blog as well:

2017 drug spend dropped 13.4 percent from 2016 – the biggest decrease in the 15 years we’ve been doing the survey

Opioid spend decreased twice as much – over 26 percent.

Note that the huge drop in opioid spend occurred BEFORE adoption of formularies and other controls in big states like Pennsylvania, New York and California.Note also that this is the sixth drop in drug spend since 2010.

In short, while drug spending is increasing, but perhaps decelerating in the economy as a whole, workers comp actually has seen a large drop in prescription drug spending, particularly for opioids.

The downside of medical homes

Written By: Jason Shafrin - Mar• 05•18

Integrated delivery networks (IDNs) and medical homes are all the rage among health wonks.  The ability for patients to receive holistic are from multispecialty practice teams seems like it would be beneficial.  While quality of care may (or may not) improve with more integrated care, provider consolidation may have one downside: higher prices.  An NBER working paper by Baker, Bundorf and Kessler finds exactly this.

we find that generalist physicians charge higher prices when they are integrated with specialist physicians, and that the effect of integration is larger in uncompetitive specialist markets. We find the same thing in the reciprocal setting — specialist prices are higher when they are integrated with generalists, and the effect is stronger in uncompetitive generalist markets. Our results suggest that multispecialty practice has anticompetitive effects.


Does episode-based payment reduce cost?

Written By: Jason Shafrin - Mar• 04•18

That is the question that Carroll and co-authors try to answer in their latest NBER working paper (WP #23926).  They examine the Arkansas Health Care Payment Improvement Initiative (APII), which is a state-wide, multi-payer episode-based program.  Unlike most episode-based payment (EBP) models, provider participation  in the program was mandatory (as of 2013).  NBER summarizes the program as follows:

The APII initially covered five types of health care episodes, including perinatal care. Like many modern EBP programs, the APII employs a retrospective payment model, where providers are paid FFS while they oversee episodes, but face reconciliation payments at the end of the year. The provider’s annual average spending per episode (adjusted for patient risk factors) is calculated based on episodes for which they served as Principal Accountable Provider (PAP). Each PAP’s average episode spending is then deemed to be either commendable, acceptable, or unacceptable based on pre-determined thresholds. PAPs with unacceptable ratings are responsible for half of the spending beyond the acceptable level, while those with commendable ratings can share in half of the savings.

The authors use a difference-in-difference approach comparing cost in Arkansas before and after the APII implementation to changes in spending for neighboring states for whom no EBP was implemented.  Costs were measured for episodes constructed from claims data for perinatal episodes.  The authors found that:

…in the first full year of EBP implementation, spending per episode declined by 3.8 percent, or $403, in Arkansas relative to the control states. The savings were driven by slower spending growth in Arkansas after EBP implementation, while spending growth continued on a similar trajectory in the control states.

Over 80 percent of these savings stem from a large (6.6 percent) reduction in spending on inpatient facility care. The researchers find that this decline was largely driven by changes in the price of inpatient care rather than in the quantity of care. While unable to test directly for a mechanism underlying this effect, they suggest that a change in referral patterns is a likely cause. Outside of inpatient facility care, the implementation of EBP led to few changes in perinatal care. Declines in physician spending and outpatient spending were small and statistically insignificant, as were changes in utilization, including caesarean section rates and the length of inpatient stays. In terms of quality measures, EBP implementation was associated with improvements in chlamydia screening rates but no other changes.

I would guess that most policy wonks and academics (yourself included) would have assumed that EBP would have little effect on price, but would incentivize providers to reduce health care utilization.  In the case of perinatal care, one may hypothesize that the number of cesareans would go down.  Perhaps it is easier for provider’s managers to dictate to physicians which providers they should use (i.e., lower cost ones) rather than to try to mandate to physicians that they need to change their practice patterns.   This is just a hypothesis, but it will be interesting to see if the results from Arkansas are also found in other EBP initiatives.