- Economics isn’t everything.
- Do airline classes reduce prices?
- Tiered pharmacies in California?
- More drug pricing transparancy.
- Cure for sepsis.
- Narrow networks.
An interesting paper from some of my colleagues at Precision Health Economics:
Approval of new drugs is increasingly reliant on “surrogate endpoints,” which correlate with but imperfectly predict clinical benefits. Proponents argue surrogate endpoints allow for faster approval, but critics charge they provide inadequate evidence. We develop an economic framework that addresses the value of improvement in the predictive power, or “quality,” of surrogate endpoints, and clarifies how quality can influence decisions by regulators, payers, and manufacturers. For example, the framework shows how lower-quality surrogates lead to greater misalignment of incentives between payers and regulators, resulting in more drugs that are approved for use but not covered by payers. Efficient price-negotiation in the marketplace can help align payer incentives for granting access based on surrogates. Higher-quality surrogates increase manufacturer profits and social surplus from early access to new drugs. Since the return on better quality is shared between manufacturers and payers, private incentives to invest in higher-quality surrogates are inefficiently low.
Louise Norris has posted The AHCA: The Aye or Nay? Edition of the Health Wonk Review at Colorado Health Insurance Insider and it couldn’t be timelier. It’s not only the AHCA’s moment to shine (or stink depending on your perspective), but it is also the 7th anniversary of the enactment of the ACA, as Louise notes in her post.
On the positive side, the American Health Care Act (AHCA) will decrease the federal budget deficit due largely to reductions in Medicaid spending and subsidies for the Health Insurance Exchanges enacted by the Affordable Care Act (ACA). On the other hand, the AHCA will greatly increase the number of people without health insurance.
The Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) report on the impact of the AHCA on federal finances found that:
…enacting the legislation would reduce federal deficits by $337 billion over the 2017-2026 period.
They reach these conclusiosn using their microsimulation model (more details here).
The key provisions include a $880 of reduced Medicaid spending. The primary driver for reducing Medicaid spending is “…lower enrollment throughout the period, culminating in 14 million fewer Medicaid enrollees by 2026, a reduction of about 17 percent relative to the number under current law.” Some benefits would also likely decline due to the new block grant nature of the program under AHCA.
Also, the change in nongroup health insurance subsidies will save money. Eliminating the ACA subsidies for nongroup health insurance (refundable tax credits) would save $673 billion but the addition of the AHCA tax credit would add $361 billion to the budget, for a net savings of $312 billion. Whereas the ACA subsidies were largely based on income, the AHCA subsidies would be based largely on age. Additionally, whereas the ACA would advance eligible individuals funds for their insurance, under the AHCA people would only receive these funds later as a tax credit for participating in the exchange. Note that under the AHCA, “People would generally be eligible for the full amount of the tax credit if their adjusted gross income was below $75,000 for a single tax filer and below $150,000 for joint filers…”
On the cost side, the elimination of the penalties on uninsured individuals and employers that do not offer insurance will reduce federal revenues by $210 billion. Although the direct hit to federal revenues from removing the penalties is higher, the CBO estimates that removing the penalties will reduce the number of people who see insurance through the health insurance exchanges and thus the estimated subsidies to the nongroup market will likely fall.
By 2026, the CBO estimates that there would be 24 million additional uninsured nonelderly individuals under the AHCA compared to the ACA. This can be decomponsed into:
CBO and JCT estimate that 48 million people under age 65, or roughly 17 percent of the nonelderly population, would be uninsured in 2020 if the legislation was enacted. That figure would grow to 52 million, or roughly 19 percent of the nonelderly population, in 2026. (That figure is currently about 10 percent and is projected to remain at that level in each year through 2026 under current law.)
To summarize, the AHCA reduces costs to the federal government but is likely to increase the number of uninsured. To the extent that removing the individual mandate decreases health insurance, some may argue that if people do not want to buy insurance at the price given, these decreases in insurance may be a good thing as they free up funds for families to use these funds for other activities (e.g., education, housing, starting a new business). On the other hand, most people would prefer to have insurance if it were affordable. Reducing subsidies and funding for Medicaid mean that the poorest among us are likely to have difficulty access the care they need without some financial assistance. The degree to which you favor more redistribution to less likely will determine your opinion of the AHCA relative to the ACA.
Sarah Kliff and Ezra Klein and Ezra Klein of Vox have an interesting article on “The Lessons of Obamacare“. I list the lessons below from the article and discuss whether I agree or disagree with the statement and why.
Lesson 1: Everything in health care is a painful trade-off. Own it.
Agree. The authors provide a clear example of these tradeoffs.
Any government health coverage expansion involves a series of trade-offs, decisions that will inevitably anger one constituency or another. Provide robust health insurance plans, for example, and you need to spend more money — if you don’t, you must decide to cover fewer people. Provide skimpier coverage, and the price tag of a health insurance expansion goes down, but people get frustrated with their high deductibles and copays.
It should not be surprising, however, that an economist should agree with any statement that there are tradeoffs in life.
Lesson 2: Bipartisanship — can’t live with it, nearly impossible to do reform without it.
Sounds Reasonable. Politics is not my area of expertise. Clearly, having biparitsan support helps to have a bill pass, but creating a bill that actually would receive bi-partisan support, however, is not so easy.
Republicans…are trying to pass the entirety of the American Health Care Act through the filibuster-proof budget reconciliation process — a strategy that means they won’t need a single Democratic vote in the Senate, but that also means they are limited to policy changes that are directly budgetary in nature, so they can’t rewrite insurance regulations and reform the delivery system in ways that may be necessary to make their plan work.
Lesson 3: If you change the health care system, you own it
Agree. The health reform bill passed under Barack Obama was called the Affordable Care Act. Most people, however, know it simply as Obamacare
Lesson 4: Benefits might not get popular, but they are very hard to take away
Strongly agree. This fact is why some of the more conservative Republicans are against the American Health Care Act. Adding a new entitlement may benefit a number of people, but it is very difficult to take away (most people are loss averse in the technical, economic sense). Michael Cannon of the Cato Institute even wrote that he believes that the Republican plan to end the Medicaid expansion in 2020 is unlikely to ever happen because “constituency for preserving the Medicaid expansion would be much larger than it is now.”
Lesson 5: Partnering with the private sector, and private insurers, can be risky — in a way expanding government-run programs isn’t
Disagree. While technically I agree that the risk from the expansion of government run programs and those run by the private sector/private insurers differ, the Kliff and Klein article makes it seem as if the private sector is inherently fickle whereas the public sector is a modicum of stability. The authors compare the Medicaid expansion with those on Obamacare exchanges and mentions that ““many on the marketplaces would prefer to be on Medicaid. It was a pretty striking contrast.”
The reason that many people would prefer to be on Medicaid compared to private insurance is that Medicaid plans are much more highly subsidized. Most Medicaid programs have limited out-of-pocket cost and low if any premiums. Those on the Obamacare plans–although they receive a subsidy–have more cost sharing and higher premiums. However, the true cost of the Medicaid program is subsidized by the government. If the same subsidy levels were applied to the private market, likely more people would choose the Obamacare plans.
Consider the case of Medicare where 31% of people choose private health insurance (i.e., Medicare Advantage) despite the fact that standard Medicare fee-for-service benefits allow for 100% choice of any doctor.
It is true that creating markets from scratch is challenging. As the authors write, if insurers “…decide not to participate in an insurance expansion, there isn’t much the government can do except beg and plead.” Most insurers, however, will generally want to participate in profitable markets. The government can provide stability and coverage in the short run but in the long run coverage can decline as budgets decrease due to business cycles, due to overspending, and other risks. Medicare provides fairly good health insurance coverage to all elderly Americans only by running a large projected deficit.
Clearly, the private sector is not the solution for everything. The government should play a role in redistributing income to allow poor and sick individuals to afford insurance. However, I am very skeptical that having government-run health insurance would lead to significantly better outcomes than would be the case for private insurers.
Lesson 6: Affordability doesn’t mean what Washington thinks it means
Agree. Policymakers and politicians focus on reducing overall health care cost. This means the cost that patients and insurers pay. Patients themselves, however, only really care about out-of-pocket costs and premiums. They want affordable insurance, that provides good access to doctors with low copayments. The plans in the Obamacare exchanges are relatively low cost compared to the individual market, but high cost compared to employer provided plans, and have very high cost sharing.
The narrow networks and high deductibles are among Obamacare’s most-loathed features — a Kaiser Family Foundation poll found that 70 percent of Obamacare enrollees with high-deductible plans judged their insurance only a “fair” or “poor” value, while that number fell to 37 percent among enrollees with low-deductible plans.
More to the point:
When economists in Washington say they want to control health care costs, they mean something like this: People should buy less health care, or cheaper health care, so that total spending on health care falls.
When voters say they want to control health care costs, they mean something like this: Someone else should pay for my health care so I can purchase what I need without much financial strain.
Lesson 7: Prices are the fundamental challenge in American health care — and reform will remain an exasperating exercise until that changes
Disagree. I do agree that getting the right prices is vital to having a functioning health care market. Kliff and Klein’s proposal to “regulate American medical prices,” however, is not what I would call getting prices right.
Consider the case of regulated payments to physicians from Medicare. CMS enacted to Sustainable Growth Rate (SGR) to reduce Medicare payments to physicians over time. However, every year Congress would reverse the SGR in late December to move physician compensation back to standard levels for the upcoming year. By 2015, the SGR–if not repealed–would have cut physician payments by 25%. This is not a rational way of setting prices.
Medical cost in the U.S. are admittedly high relative to the rest of the world. Lowering prices coudl reduce premiums and reduce out-of-pocket costs in the short-run. However, these high prices do incentivize innovators to create new treatments and incentivize the brightest minds to choose a career in medicine. Further, there is some evidence to indicate that the U.S. is not so much a health care expenditure outlier as one might expect. Centralized control of prices almost always leads to either shortages and rationing when prices are too low and profiteering and rent collection when prices are two high.
What does CMS consider to be innovative oncology care? The following three programs won a CMS Health Care Innovation Award for their initiative.
Colligan et al. (2017) examine how these programs perform. They find the following:
Comparing participants in each model who died during the study period to matched comparators, we found that the oncology medical home and patient navigation models were associated with decreased costs in the last ninety days of life ($3,346 and $5,824 per person, respectively) and fewer hospitalizations in the last thirty days of life (fifty-seven and forty per 1,000 people, respectively). The patient navigation model was also associated with fewer emergency department visits in the last thirty days of life and increased hospice enrollment in the last two weeks of life.
Although these innovations may be worthwhile, it should not be surprising the CMS is focused on rewarding models that aim to reduce the cost of care. The reason for this bias is that CMS’s Oncology Care Model (OCM) relies on a payment model that targets chemotherapy and related care during a 6-month period that begins with receipt of chemotherapy treatment. Practices receive two types of payment: (i) the Monthly Enhanced Oncology Services (MEOS) Payment and the (ii) Performance-Based Payment (PBP). The formers is meant to cover general costs of paying for the patient and the latter aims to provide bonuses for practices that improve quality and reduce cost.
Practices that reduce cost and maintain a minimum level of quality receive bonuses. However, practices that provide excellent care but at higher cost receive not additional PBP. Thus, cost savings is a necessary condition for any bonus. Additionally, quality is measured through 12 broad measure. Although collecting separate measures for each tumor type is not feasible, it is clear that these 12 simple measures may do a poor job of capturing the real quality of care that patients care about.
Although measuring quality of care is a good thing, we should be cautious when administrators use quality of care to determine reimbursement rather than use it to to help inform patients and physicians surrounding what quality care means for each individual patient.
The answer appears to be yes according to an NBER working paper by Galasso and Luo:
We find that, on average, laws that limit the liability exposure of healthcare providers are associated with a significant reduction in medical device patenting and that the effect is predominantly driven by innovators located in the states passing the reforms. Tort laws have the strongest impact in medical fields in which the probability of facing a malpractice claim is the largest, and they do not seem to affect the amount of new technologies of the highest and lowest quality. Our results underscore the importance of considering dynamic effects in the economic analysis of tort laws.
Very interesting. Read the full paper here.
Are urban or rural physician practices more likely to adopt electronic medical records (EMR)? The answer is suprrising. A paper by Whitacre (2016) finds the following:
Overall practice-level EMR adoption rates generally increase with the degree of rurality and range from 47 percent in the most urban counties to over 60 percent in the most rural. Moving from the most urban county to the most rural corresponded to a 7 percent increase in the likelihood of EMR adoption (p < .01).