Unbiased Analysis of Today's Healthcare Issues

The End of the Obamacare Exchanges

Written By: Jason Shafrin - Aug• 25•16

Princeton economist Uwe Reinhardt things so.  In an interview with Vox he states:

The natural business model of a private commercial insurer is to price on health status and have the flexibility to raise prices year after year. What we’ve tried to do, instead, is do community rating [where insurers can’t price on how sick or healthy an enrollee is] and couple it with a mandate.

When you do this as the Swiss or Germans do, you brutally enforce the mandate. You make young people sign up and pay. But we are too chicken to do that, so we allow people to stay out by doing two things: We give them a mandate penalty that is lower than the premium. And we tell them, If you’re really sick, we’ll take care of you anyhow. [A federal law called EMTALA requires hospitals to treat all patients with life-threatening conditions regardless of their ability to pay.]…

Liberals think this will settle itself. Eventually, though, we all know about the death spiral that actuaries worry about, and I think what you’re seeing now is a mild version of that. These things accelerate, as premiums keep rising.

With insurers such as Aetna announcing that they will drop 80% of their Obamacare policies, these concerns are more than hypothetical.

Thursday Links

Written By: Jason Shafrin - Aug• 25•16

AA and selection bias

Written By: Jason Shafrin - Aug• 24•16

This video that discusses whether alcoholics anonymous actually improves the outcomes of alcoholics who attend the meeting.  More broadly, the video the AA treatment effect discussion serves as an example for expounding on some fundamental statistical issues such as selection bias, randomization, intention to treat, marginal effect, instrumental variables, and others.

Does adherence information affect physician decisions?

Written By: Jason Shafrin - Aug• 22•16

According to a recent study of patients with hypertension, the answer is yes.

The study by Kronish et al. (2016) used a cluster randomized trial design made up of 24 providers and 100 patients.  Half of the providers were randomized to receive received a report summarizing electronically measured patient adherence to their blood pressure regimen as well as and recommended clinical to address potential non-adherence and non-response issues.  The other half of providers just treated patients as they normally would (i.e., usual care) as they did not receive any report.

How did access to the adherence report affect provider decisionmaking?

The proportion of visits with appropriate clinical management was higher in the intervention group than the control group (45 out of 65; 69 %) versus (12 out of 35; 34 %; p = 0.001). A higher proportion of adherent patients in the intervention group had their regimen intensified (p = 0.01), and a higher proportion of nonadherent patients in the intervention group received adherence counseling (p = 0.005). Patients in the intervention group were more likely to give their clinician high ratings on quality of care (p = 0.05), and on measures of patient-centered (p = 0.001) and collaborative communication (p=0.02).

Although one should be cautious of the external validity of extrapolating these results to other clinical settings, as more and more adherence data becomes available to physicians due to information collected from wearables, digital medicine and other sources, this study says that physicians will take this information into account when making treatment recommendations.


Another VBP fail?

Written By: Jason Shafrin - Aug• 21•16

Value-based purchasing is supposed to tie reimbursement to quality of care and costs.  Providers that are high quality and low cost are supposed to get higher reimbursement, those that are low quality and high cost the reverse.  The key question is: does this reimbursement approach work in practice?

According to a recent study by Grabowski et al. (2016), the answer is probably not. Using data between 2008 and 2012 for skilled nursing facilities (SNF) in Arizona, New York and Wisconsin, the authors examine the impact of Medicares SNF value based purchasing (VBP) program and find:

Medicare savings were observed in Arizona in the first year only and Wisconsin for the first 2 years; no savings were observed in New York. The demonstration did not systematically impact any of the quality measures. Discussions with nursing home administrators suggested that facilities made few, if any, changes in response to the demonstration, leading us to conclude that the observed savings likely reflected regression to the mean rather than true savings.

In short:

The Federal nursing home pay-for-performance demonstration had little impact on quality or Medicare spending.

This evidence is disconcerting as CMS continues to push for value-based provider payments.


Weekend Links

Written By: Jason Shafrin - Aug• 20•16

Health Wonk Review: Short and Sweet Edition

Written By: Jason Shafrin - Aug• 18•16

If you want the best health care articles on the web, then you came to the right place. This week the Healthcare Economist is hosting the world-renowned Health Wonk Review. I’ve divided the articles into 6 categories: health insurance, mental health, pharmaceuticals, physician pay, regulation, and value measurement.  No fancy themes, just high-quality content.

Without further ado, here are the best healthcare articles of the past 2 weeks,

Health Insurance

Mental Health


Physician pay


Value measurement

Useful mental models

Written By: Jason Shafrin - Aug• 16•16

Gabriel Weinberg, CEO of DuckDuckGo, has a list of mental models that he believes “come up repeatedly in day-to-day decision making, problem solving, and truth seeking.”   Many are from the world of economics, but I focus on non-economic models as well.  I organzie them into categories based on how Weinberg did in his post. I have highlighted a 2-3 in each category that I think are most interesting/novel.


  • Hanlon’s Razor — “Never attribute to malice that which is adequately explained by carelessness.”
  • Arguing from First Principles — “A first principle is a basic, foundational, self-evident proposition or assumption that cannot be deduced from any other proposition or assumption.”
  • Proximate vs Root Cause — “A proximate cause is an event which is closest to, or immediately responsible for causing, some observed result. This exists in contrast to a higher-level ultimate cause (or distal cause) which is usually thought of as the ‘real’ reason something occurred.” (related: 5 whys — “to determine the root cause of a defect or problem by repeating the question ‘Why?’)


  • Power-law — “A functional relationship between two quantities, where a relative change in one quantity results in a proportional relative change in the other quantity, independent of the initial size of those quantities: one quantity varies as a power of another.” (related: Pareto distribution;Pareto principle — “for many events, roughly 80% of the effects come from 20% of the causes.”
  • Pareto Efficiency — “A state of allocation of resources in which it is impossible to make any one individual better off without making at least one individual worse off…A Pareto improvement is defined to be a change to a different allocation that makes at least one individual better off without making any other individual worse off, given a certain initial allocation of goods among a set of individuals.”


  • Critical Mass — “The smallest amount of fissile material needed for a sustained nuclear chain reaction.” “In social dynamics, critical mass is a sufficient number of adopters of an innovation in a social system so that the rate of adoption becomes self-sustaining and creates further growth.”
  • The Structure of Scientific Revolutions — “An episodic model in which periods of such conceptual continuity in normal science were interrupted by periods of revolutionary science. The discovery of “anomalies” during revolutions in science leads to new paradigms. New paradigms then ask new questions of old data, move beyond the mere “puzzle-solving” of the previous paradigm, change the rules of the game and the “map” directing new research.”  [See also this excellent book]


  • Selection Bias — “The selection of individuals, groups or data for analysis in such a way that proper randomization is not achieved, thereby ensuring that the sample obtained is not representative of the population intended to be analyzed.” (related: sampling bias)
  • Response Bias — “A wide range of cognitive biases that influence the responses of participants away from an accurate or truthful response.”
  • Observer Effect — “Changes that the act of observation will make on a phenomenon being observed.” (related: Schrödinger’s cat)
  • Survivorship Bias — “The logical error of concentrating on the people or things that ‘survived’ some process and inadvertently overlooking those that did not because of their lack of visibility.”


  • False Positives and False Negatives — “A false positive error, or in short false positive, commonly called a ‘false alarm’, is a result that indicates a given condition has been fulfilled, when it actually has not been fulfilled…A false negative error, or in short false negative, is where a test result indicates that a condition failed, while it actually was successful, i.e. erroneously no effect has been assumed.”
  • Bayes’ Theorem — “Describes the probability of an event, based on conditions that might be related to the event. For example, suppose one is interested in whether a person has cancer, and knows the person’s age. If cancer is related to age, then, using Bayes’ theorem, information about the person’s age can be used to more accurately assess the probability that they have cancer.” (related: base rate fallacy)
  • Regression to the Mean — “The phenomenon that if a variable is extreme on its first measurement, it will tend to be closer to the average on its second measurement.”
  • Simpson’s Paradox — “A paradox in probability and statistics, in which a trend appears in different groups of data but disappears or reverses when these groups are combined.”


  • Local vs Global Optimum — “A local optimum of an optimization problem is a solution that is optimal (either maximal or minimal) within a neighboring set of candidate solutions. This is in contrast to a global optimum, which is the optimal solution among all possible solutions, not just those in a particular neighborhood of values.”
  • Confirmation Bias — “The tendency to search for, interpret, favor, and recall information in a way that confirms one’s preexisting beliefs or hypotheses, while giving disproportionately less consideration to alternative possibilities.” (related: cognitive dissonance).
  • Availability Bias — “People tend to heavily weigh their judgments toward more recent information, making new opinions biased toward that latest news.”


  • False Cause — “Presuming that a real or perceived relationship between things means that one is the cause of the other.” (related: correlation does not imply causation, or in xkcd form)
  • Straw Man — “Giving the impression of refuting an opponent’s argument, while actually refuting an argument that was not advanced by that opponent.”
  • Appeal to Emotion — “Manipulating an emotional response in place of a valid or compelling argument.”
  • Ad Hominem — “Attacking your opponent’s character or personal traits in an attempt to undermine their argument.”
  • Bandwagon — “Appealing to popularity or the fact that many people do something as an attempted form of validation.”


  • The Third Story — “The Third Story is one an impartial observer, such as a mediator, would tell; it’s a version of events both sides can agree on.”
  • Active Listening — “Requires that the listener fully concentrates, understands, responds and then remembers what is being said.”
  • Best Alternative to a Negotiated Agreement (BATNA) — “The most advantageous alternative course of action a party can take if negotiations fail and an agreement cannot be reached.”


  • Weekly 1–1s — “1–1’s can add a whole new level of speed and agility to your company.”
  • Pygmalion Effect — “The phenomenon whereby higher expectations lead to an increase in performance.” (related: market pull technology policy — where the government sets future standards beyond what the current market can deliver, and the market pulls that technology into existence.)
  • Consequence vs Conviction — “Where there is low consequence and you have very low confidence in your own opinion, you should absolutely delegate. And delegate completely, let people make mistakes and learn. On the other side, obviously where the consequences are dramatic and you have extremely high conviction that you are right, you actually can’t let your junior colleague make a mistake.”
  • Peter Principle — “The selection of a candidate for a position is based on the candidate’s performance in their current role, rather than on abilities relevant to the intended role. Thus, employees only stop being promoted once they can no longer perform effectively, and ‘managers rise to the level of their incompetence.’


  • Metcalfe’s Law — “The value of a telecommunications network is proportional to the square of the number of connected users of the system…Within the context of social networks, many, including Metcalfe himself, have proposed modified models using (n × log n) proportionality rather than n^2 proportionality.”
  • Clarke’s Third Law — “Any sufficiently advanced technology is indistinguishable from magic.”


  • Cialdini’s Six Principles of Influence — Reciprocity (“People tend to return a favor.”), Commitment (“If people commit…they are more likely to honor that commitment.”), Social Proof (“People will do things they see other people are doing.”), Authority (“People will tend to obey authority figures.”), Liking (“People are easily persuaded by other people they like.”), and Scarcity (“Perceived scarcity will generate demand”). (related:foot-in-the-door technique)
  • Coda — “A term used in music primarily to designated a passage that brings a piece to an end.” (related: CTA.) People psychologically expect codas, and so they can be used for influence.


  • Strategy vs Tactics — Sun Tzu: “Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.”
  • Unknown Unknowns — “Known unknowns refers to ‘risks you are aware of, such as cancelled flights….’ Unknown unknowns are risks that ‘come from situations that are so out of this world that they never occur to you.’


  • Fighting the Last War — Using strategies and tactics that worked successfully in the past, but are no longer as useful.
  • Rumsfeld’s Rule — “You go to war with the Army you have. They’re not the Army you might want or wish to have at a later time.” (related: Joy’s law — “no matter who you are, most of the smartest people work for someone else.”)

Political Failure

  • Regulatory Capture — “When a regulatory agency, created to act in the public interest, instead advances the commercial or political concerns of special interest groups that dominate the industry or sector it is charged with regulating.” (related: Shirky principle — “Institutions will try to preserve the problem to which they are the solution.”)
  • Arrow’s Impossibility Theorem — “When voters have three or more distinct alternatives (options), no ranked order voting system can convert the ranked preferences of individuals into a community-wide (complete and transitive) ranking while also meeting a pre-specified set of criteria.” (related: approval voting)


  • Deliberate Practice — “How expert one becomes at a skill has more to do with how one practices than with merely performing a skill a large number of times.”
  • Dunning-Kruger Effect — “Relatively unskilled persons suffer illusory superiority, mistakenly assessing their ability to be much higher than it really is…[and] highly skilled individuals may underestimate their relative competence and may erroneously assume that tasks which are easy for them are also easy for others.” (related: overconfidence effect)


  • Focus on High-leverage Activities — “Leverage should be the central, guiding metric that helps you determine where to focus your time.” (related: Eisenhower decision matrix — “what is important is seldom urgent, and what is urgent is seldom important.”, “The best time to plant a tree was 20 years ago. The second best time is now.”, law of triviality — “members of an organisation give disproportionate weight to trivial issues.”)
  • Parkinson’s Law — “Work expands so as to fill the time available for its completion.”
  • Gate’s Law — “Most people overestimate what they can do in one year and underestimate what they can do in ten years.”
  • Makers vs Manager’s Schedule — “When you’re operating on the maker’s schedule, meetings are a disaster.” (related: Deep Work)


  • Consequentialism — “Holding that the consequences of one’s conduct are the ultimate basis for any judgment about the rightness or wrongness of that conduct.” (related: “ends justify the means”)
  • Distributive Justice vs Procedural Justice — “Procedural justice concerns the fairness and the transparency of the processes by which decisions are made, and may be contrasted with distributive justice (fairness in the distribution of rights or resources), and retributive justice (fairness in the punishment of wrongs).”
  • Agnosticism — “The view that the truth values of certain claims — especially metaphysical and religious claims such as whether God, the divine, or the supernatural exist — are unknown and perhaps unknowable.”

The coming U.S. debt crisis

Written By: Jason Shafrin - Aug• 15•16

The Congressional Budget Office provides some gloomy news on the fiscal health of the federal government in their recent 2016 Long Term Budget Outlook.  They state:

If current laws governing taxes and spending did not change, the United States would face steadily increasing federal budget deficits and debt over the next 30 years, according to projections by the Congressional Budget Office. Federal debt held by the public, which was equal to 39 percent of gross domestic product (GDP) at the end of fiscal year 2008, has already risen to 75 percent of GDP in the wake of a financial crisis and a recession. In CBO’s projections, that debt rises to 86 percent of GDP in 2026 and to 141 percent in 2046—exceeding the historical peak of 106 percent that occurred just after World War II.

CBO projects that there are three key factors affecting future debt burdens and the first two relate to the impending retirement of baby boomers.  The aging of baby boomers will hit the federal government in both paying for their retirement (Social Security) and their health care (Medicare).  Interest on the current debt is the third component expected to drive increases in long run federal debt.

Let’s take a look at the CBO’s health care expenditure projections.  Note that excess cost growth is the change in per capita health spending above and beyond economic growth.  For instance, if excess cost growth was 1%, this would mean that average per capita health spending would grow by 1 percentage point more than increases in GDP per capita over this time period.

net federal spending for those programs[i.e., Medicare, Medicaid, CHIP and ACA subsidies] grows from an estimated 5.5 percent of GDP in 2016 to 8.9 percent in 2046: Net spending for Medicare amounts to 5.7 percent of GDP that year, and spending on Medicaid and CHIP, combined with outlays for subsidies for insurance purchased through the marketplaces and related spending, equals 3.1 percent….Aging accounts for….roughly 60 percent of the…[increase in federal health spending]. Excess cost growth accounts for the rest…

How does CBO come up with these projections?  First they look to demographers and actuaries to see how the age composition will shift over the coming decades.  Next, the predict changes in spending per capita, using the excess cost growth approach.  Specifically, CBO assumes:

For Medicare, that average [excess cost growth] rate is 0.9 percent; for Medicaid, it is 0.7 percent; and for private health insurance premiums, it is about 2 percent. After 2027, the excess cost growth rate of each of those three categories moves linearly, by the same fraction of a percentage point each year, from that category-specific rate to a rate of 1.0 percent in 2046


How does CBO recommend controlling cost in Medicare?  They make the following suggestions:

  • Increased cost sharing
  • Decrease reimbursement rates to providers
  • Provide incentives to reduce readmissions, hospital acquired infections, and other downstream costs
  • Innovative pricing models (likely bundled payments, value-based payments, etc.)
  • Independent Payment Advisory Board (IPAB) could implement reforms if Medicare spending exceeds certain thresholds.




VBID comes to Medicare Advantage

Written By: Jason Shafrin - Aug• 14•16

CMS announced last week that they are extending their value-based insurance design (VBID) program to more states and more patients.  I describe VBID and the proposed changes below.

What is VBID?

Value-Based Insurance Design (VBID) generally refers to health insurers’ efforts to structure enrollee cost sharing and other health plan design elements to encourage enrollees to use high-value clinical services – those that have the greatest potential to positively impact enrollee health.

How will VBID be implemented for Medicare Advantage plans?

Eligible MA plans in these states, upon CMS approval, may offer varied plan benefit designs for enrollees who fall into certain clinical categories identified and defined by CMS.  Benefit design changes made through this model may reduce cost sharing and/or offer additional services to targeted enrollees; however, targeted enrollees can never receive fewer benefits or be charged higher cost sharing than other MA enrollees in their plan as a result of the model.

What is changing ?

In its first year, CMS is testing the VBID model in seven states: Arizona, Indiana, Iowa, Massachusetts, Oregon, Pennsylvania, and Tennessee.  CMS announced last week that beginning on January 1, 2018, CMS will also test the model in Alabama, Michigan, and Texas.  The current list of conditions eligible for VBID are diabetes, chronic obstructive pulmonary disease (COPD), congestive heart failure (CHF), patients with past stroke, hypertension, coronary artery disease and mood disorders.  Starting in 2018, rheumatoid arthritis and dementia will be included in the VBID model.

In addition to developing interventions targeted at all enrollees in one or more of the above categories, participating MA plans will have the flexibility to identify specific combinations of the listed chronic conditions for one or more “multiple co-morbidities” groups and establish tailored VBID interventions for each group.  Participating MA plans are required to provide VBID benefits to all VBID-eligible enrollees in the selected group.  Participating MA plans selecting the Mood Disorders group will also have additional flexibility to focus on specific conditions within that group.

What changes can plans make as part of VBID?

Plans have four options:

  1. Reduce cost sharing for high-value services
  2. Reduced cost sharing for high-value providers
  3. Reduced cost sharing for enrollees participating in disease management or related programs
  4. Coverage of additional supplemental benefits

Whereas many Medicare initiatives (such as ACOs) focus on Part A and B spending, the VBID program allows for different cost sharing levels for Part D drugs as well.

For example, plans could eliminate co-pays for eye exams for patients with diabetes.  In another example, they could reduce copays for high quality or low cost hospitals.

Typically plans must have 2000 members to participate in the program.