Unbiased Analysis of Today's Healthcare Issues

How much should you bet?

Written By: Jason Shafrin - Apr• 20•14

This is an interesting question to ask.  If you are going to the casino, in most cases, the answer is $0.  The odds are stacked against you.  But what if the odds are in your favor, or you believe that your own predicted probability of winning differs from that of the bet?

The easy answer would be to bet all your money since your expected value is positive.  However, if this is a repeated game, the chances of you losing at some point will likely be high.  Thus, betting 100% is typically suboptimal.  Thus how much should you bet?

One popular criterion for making bets is the Kelly criterion.  It is calculated as the ratio of expected winnings to the winnings you would make if you actually won.  Formally this is:



  • b is the net odds received on the wager (“b to 1″); that is, you could win $b (and get a return of your $1 wagered) for a $1 bet
  • p is the probability of winning
  • q is the probability of losing [i.e., (1-p)]

One can simplify the expression as:

p(b+1) – 1

When the odds are fair [i.e., b = (1-p)/p], the numerator simplifies to 0 and you should not bet. If the odds are worse then the probability, then Kelly bet is negative indicating that you should take the other side of the bet.

Consider this example from Wikipedia:

  • b = 2. The odds are a 1:1 payout
  • p = 0.70. You have a 70% chance of winning the bet.

If b=2, then the odds believe that the likelihood of winning is 2:1, which indicates that the expected win probability is 66.67% as 66.67/33.33 = 2. However, the true probability is assumed to be 75%. In this case, one should bet:

0.70*(2+1) – 1

which is equal to 0.55 or 65%. In other words, if you are given a bet where the payout is 2:1 but your true odds of winning are 70%, you should spend 55% of your bankroll on this gamble.

End-of-week links

Written By: Jason Shafrin - Apr• 17•14

“The medical marketplace is broken”

Written By: Jason Shafrin - Apr• 16•14

This quote is from David Blumenthal, a physician and former Harvard Medical School professor, who was the national coordinator for health information technology between 2009-2011.  He describes in an interview for the Atlantic why adoption of electronic medical records has been so slow in the U.S.

From the patient’s perspective, this is a no-brainer. The benefits are substantial. But from the provider’s perspective, there are substantial costs in setting up and using the systems. Until now, providers haven’t recovered those costs, either in payment or in increased satisfaction, or in any other way. Ultimately, there are of course benefits to the professional as well. It’s beyond question that you become a better physician, a better nurse, a better manager when you have the digital data at your fingertips. But the costs are considerable, and they have fallen on people who have no economic incentive to make the transition. The benefits of a more efficient practice largely accrue to people paying the bills. The way economists would describe this is that the medical marketplace is broken.

Are we beyond hope? The answer is no.

When the benefits of using better technology are “internalized,” as the economists would say, there has been much more rapid, complete, and effective adoption of electronic medical records. So, the VA: the benefits are internalized, because the VA has to live within a budget. In private health-care organizations like Kaiser or the Geisinger plan in Pennsylvania, or the Group Health Cooperative in Puget Sound, electronic medical records were adopted decades ago, and are widely used and highly effective. You don’t need a thought experiment to find living, breathing examples of what happens when the incentives work right.

ACOs can help in this area. By increasing provider size, providers will be able to internalize more benefits and also benefit from economies of scale. On the other hand, ACOs may decrease competition. Large providers–with EMRs–may dominate the market and work to increase pricing power. Higher prices are passed on to consumers in the form of higher premiums. Thus, ACOs may offer higher quality care, EMRs, and integrated services, but it remains to be seen if they can–or will want to–hold down prices.

The role of coaches and student-athletes

Written By: Jason Shafrin - Apr• 16•14

Today I take a break from my traditional blogging on healthcare and briefly discuss two issues related to student-athletes.  These questions include:

  • Are coaches employers or educators?
  • Should students get unlimited meal plans?

I discuss each below. Much of the content is drawn largely from one of my favorite non-healthcare blogs, Wages of Wins.

Are coaches employers or educators?

Pat Fitzgerald, the coach of Northwestern University’s football team, says the answer is yes.  The Northwestern players have the option to unionize and Fitzgerald does not see himself as an employer.  Although Fitzgerald’s self-perception may have some validity, he does not appear like most traditional educators.  David Berri, professor of economics at Southern Utah University gives 5 points of comparison.

1) that salary [$2 million/year]– it’s the equivalent of 10-40 years of pay for the range of educators I know personally. No one I know is in the ballpark, the parking lot or the highway on the way to that playing space.

2) Fitzgerald’s charges, according to the NLRB ruling, are required to secure his approval before they are allowed to seek outside employment. I have zero say over what my students do outside the confines of whatever course they are taking with me. Again, I speak confidently for all my other educator friends in this regard.

3) Northwestern football players are also required to provide detailed information about what kind of car they drive. This would be extraordinarily unusual in the typical teacher-student relationship, unless the teacher happened to be the parent of the student in question.

4) when the players, I mean students, maintain social media accounts, they are prohibited from denying a friend request from their coaches, so that they can have their activities on those sites monitored. See above, under “except for parents.”

5) NW football players are required, in their first two years, to live on campus. According to the NLRB ruling, “Only upperclassmen are permitted to live off campus and even then they are required to to submit their lease to Fitzgerald for his approval before they can enter into it.”

In short, even if Fitzgerald seems himself as an educator, he certainly does play the role of most educators.

Should students get unlimited meal plans?

According to Wages of Wins, the NCAA’s Legislative Council approved a rule change today that will allow Division I athletes “unlimited meals and snacks in conjunction with their participation.”

Should students more generous meal plans? Yes. Should students get unlimited meal plans? No. In a world of scarce resources, giving anyone unlimited amounts of anything is generally a bad idea.  Why is this?

Here is what will happen.  Student athletes who have “unlimited” plans will get as much food as they can and “give” it to their friends in exchanges for cash, goods or services.  The students receiving the food will benefit because the price of the food will be below market and the student-athletes selling the food will benefit as the marginal cost to them is 0.

However, if the NCAA wants to direct additional funds to students, it should just pay them directly.  The NCAA of course does not want to pay their student-athletes (i.e., increase wages), but only is doing this to address the bad press it received from Shabazz Napier’s comments that he had a lot of “hungry nights” going to bed “starving” while playing for UConn.

Who is health care’s Amazon.com?

Written By: Jason Shafrin - Apr• 14•14

That is the quesition PwC’s Health Research Institute (HRI) asks in it’s latest report.  Although the report does not make any specific predictions, there are some interesting case studies it presents.  Some of these case studies include:

  • Earlier this year, Samsung unveiled its new Galaxy S5 smartphone, complete with a built-in heart rate monitor. In 2013, Apple also was issued a US patent for a “seamlessly embedded heart rate monitor” for devices such as its iPhone. .
  • CVS Caremark announced it would stop selling tobacco products in its 7,600 stores as part of a strategy to expand its role as a healthcare company.
  • AT&T opened its mHealth platform to developers in 2012, aiming to become the essential ingredient in healthcare’s future game-changing apps.
  • Time Warner Cable Business Class announced a “virtual visit” experiment with Cleveland Clinic in 2013. Cleveland Clinic caregivers will be able to interact with patients through televisions using secure video technology.
  • In 2013, Google announced the birth of Calico, a company focused on aging and associated illnesses. Its chief has experience in both healthcare and consumer-oriented technology.

At a time when venture capital investment in life sciences is down, money is pouring into startups targeting digital health, price transparency, workflow and electronic medical records systems and population health management.

As the population ages and mobile health continues to grow, more and more firms will be looking towards getting into the business of health.

The uselessness of volume-based hospital analysis

Written By: Jason Shafrin - Apr• 13•14

Do hospitals with higher volumes have better outcomes? If hospitals specialize or providers learn-by-doing, hospitals with more admissions or more procedures may have higher quality. A paper by Hentschker and Mennicke (2014) examine just this question and find:

We define hypothetical minimum volume standards in both conditions and assess consequences for access to hospital services in Germany. The results show clearly that patients treated in hospitals with a higher case volume have on average a significant lower probability of death in both conditions [aortic aneurysm and hip fracture]. Furthermore, we show that the hypothetical minimum volume standards do not compromise overall access measured with changes in travel times.

The bigger question is, is this an important finding? I would say the answer is ‘no’. Even if it is the case that bigger hospitals perform better, requiring patients to go to high-volume hospitals is likely only optimal in a short-run equilibrium. In the long-run, prohibiting small hospitals from doing certain procedures in essence will give large hospitals increased market share and perhaps even a pseudo-monopoly. Thus, in the long-run quality will likely suffer. Further, new entrants with innovative surgical techniques would be barred from the market since they do not have sufficient volume.

Even if volume is highly correlated with quality, a preferred alternative would be to distribute this quality information more widely to patients. Even if policymakers wished to restrict access only to the highest quality hospitals, it would make more sense to prohibit patients from going to low-quality hospitals directly rather than using a proxy.

In some cases, quality measures may be incomplete. In this case, volume may serve as a good proxy for quality. However, without good quality measures, it is difficult to verify if this the case.

In summary, knowing whether high volume hospitals have better quality outcomes is an interesting academic finding, but has little practical application.


Friday Links

Written By: Jason Shafrin - Apr• 11•14

HWR goes to the Lighthouse

Written By: Jason Shafrin - Apr• 10•14

Billy Wynne has posted a great  Health Wonk Review – The April Fools’ Edition at Healthcare Lighthouse. Billy’s is a first-timer and gives a fresh perspective on the HWR. Check-it out!

Why rich woman don’t get fat

Written By: Jason Shafrin - Apr• 09•14

This is the title of an Atlantic article that finds the that although more woman than men are obese, this gap narrows for high-income women.

One reason for this difference could be that women are more penalized than men for being fat. In fact, the Atlantic finds that the annual cost of obesity is $4,879 for woman and $2,646 for men. The difference is almost entirely due to the fact that men’s wages do not decrease if they are obese, but woman’s wages do.

Without any wage penalty, it is unclear whether one would expect rich people to be fat. Healthy food is often more expensive than unhealthy food. For instance, creating a salad yourself is typically more expensive than buying a McDonalds hamburger. Thus, one would expect rich people to eat healthier.

It is unclear whether rich people would exercise more than poor people. Although rich people have more money to pay for trainers and gym membership, their time (measured in wages) is more valuable. Thus, the opportunity cost of exercise for rich individuals is higher than for poor people.

What the Atlantic article seems to find, however, is that being rich or poor is not independent of your body weight. For women, being thin is almost a precondition for being rich. For men, on the other hand, this is not the case.

The cost of obesity for women is even higher when one takes into account non-economic factors. “Obese women in the U.S. are less likely to get married than their normal-weight peers, and about half as likely to attend college. They’re also twice as likely to become ill or depressed as obese men.”

What’s the conclusion? I agree with the author who says: “Given these incentives, is it any wonder that women with more resources tend to use them to avoid the fate of being fat and female in America?”

Quotations on Big Data

Written By: Jason Shafrin - Apr• 07•14

“There are a lot of small data problems that occur in big data.  They don’t disappear because you’ve got lots of the stuff. They get worse.”

  • David Spiegelhalter, Winton Professor of the Public Understanding of Risk at Cambridge university

Via FT.