Healthcare Economist

Tests play an important role in modern medical care.  Is my leg broken?  Check the X-ray.  Do I have HIV?  Look at the blood tests.

But when are tests appropriate?  In some cases, tests will not alter treatment.  For instance, let assume that a person is either healthy or has Disease X.  Disease X is untreatable or does not require treatment.  This illness could represent a life-threatening disease for which there is no treatment, or it could also represent a minor ailment which would heal on its own.  Since we know that if a patient has Disease X it won’t be treated, should insurance cover the cost of the test?

In our example, the value of information to providers is $0.  If the physician finds out the patient does not have Disease X, they will not treat them.  If they do have Disease X, they will still not treat them since because this particular type of disease.  From the clinical point of view, the test is worthless.

However, if Disease X was a life threatening disease, most patients would want to know their prognosis.  In the absence of health insurance, individuals who wanted to find out if they had Disease X could pay for the test out of pocket.  Those who preferred to save their money and deal with extra uncertainty would not have the test done.

The question is, should insurance cover the test for Disease X?  If insurance does decide to cover the test, this will increase insurance premiums.  However, if everyone who potentially would have Disease X would always have the test, this would simply be a transfer of funds from all enrollees to those who potentially had Disease X.  If some individuals would forego the test in the absence of insurance, moral hazard would mean that more of these individuals would have the test done if it were covered by insurance.  

From an insurance company point of view, what is the correct evaluation tool?  As mentioned earlier, the test has no clinical value, but patients likely would value this information highly if Disease X were life-threatening.  Should insurance companies incorporate enrollee willingness-to-pay in their benefit packages or should they rely on a strictly clinical evaluation?  I would lean towards the clinical definition, since it is very difficult to model individual willingness-to-pay.  If the test is so valuable, the patients can pay for it themselves.

In this blog, I have frequently discussed the merits of Canadian and American health care systems (see Health Care Grudge Match).  One thing most people can agree with is that mental health care is subpar in both countries.  

The Vancouver Sun reports of a man committing suicide by jumping off the Granville Street Bridge.  
[In British Columbia]…family members of persons with severe mental health problems complain about the difficulty of getting loved ones committed. They cite restrictive confidentiality rules that isolate the family member in need, or the difficulty of getting doctors to agree to a commital or the system’s unwillingness to commit a patient until it is too late.

“In the 20-month period from December, 2006 through to Mr. Kwapiszewski’s suicide in 2008, Ms. Haboosheh — either directly or through her husband, Mr. Kwapiszewski’s GP, a lawyer, and a North Shore mental health worker — contacted Vancouver mental health services 16 times, desperately trying to get them to intervene as her brother showed more and more troubling behavioural symptoms. Three letters were also filed as part of, or in conjunction with, those contacts, and some meetings were also involved. Ms. Haboosheh also called the Vancouver Police Department on three different occasions to report him missing. Of the 16 calls and other contacts, 10 were with Mental Health Emergency Services and six with the Midtown Mental Health Team. They consistently, however, declined to commit Mr. Kwapiszewski for treatment, insisting he was non-committable. There was no mistaking his deterioration, however.”

There are fewer quantitative tests associated with mental health evaluations.  Also, there is also more of a stigma associated with mental compared to physician illness.  For both of these reasons, mental health problems too frequently take a back seat to physical health illnesses.

The Disease Management Care Blog hosts this week’s edition of the Cavalcade of Risk.

This week I’ll be in Vancouver for the Western Economic Association International Conference.  

I’ll be presenting my paper on “Why Does Getting Married Make You Fat? Incentives and Appearance Maintenance.”

The cover story of this week’s Economist examings healthcare reform in America (”This is going to hurt“).  The story recounts some of the many ills of the U.S. healthcare system: too many uninsured, too expensive, and low quality outcomes.  This is not news.  What does The Economist propose to fix the American healthcare system?  

• Pay doctors a salary.  In general, I support this idea, but it only works if doctors are employees.  Medicare would never pay doctors a salary; they could never track how many patients they saw or how much work they did.  The only way Medicare physicians would be paid a salary was: 1) if they were direct employees of Medicare or 2) they worked for employers who decided to pay them a salary.  For instance, if large, centralized healthcare systems (e.g., Kaiser Permanente, Mayo Clinic) took payments from Medicare directly, it could pay their own physicians a salary.  Salaried remuneration decreases physician incentives to work hard compared to fee-for-service payment, but since overtreatment rather than undertreatment is one of the main problems in the U.S., the salary system could work.  See my own research on how physician compensation affects surgery rates.
• Get NICE.  The Economist believes that America could use a cost-effectiveness agency like the UK’s NICE.  I agree.
• Align incentives.  Will pay-for-performance improve health care?  The Economist thinks so but I am skeptical that it will have a large impact.  Medical care is so complicated that paying for better outcomes on one dimension will distract providers from focusing on less measurable, but perhaps more important dimensions.  For instance, the Economist advocates that paying bonuses in Sweden lead to shorter wait times.  However, in the UK, setting the goal that all patients should be treated within four hours of arriving at the emergency room, lead to some perverse incentives.  ”Thousands of people a year are having to wait outside accident and emergency departments because trusts will not let them in until they can treat them within four hours, in line with a Labour pledge.”

Overall, The Economist has some valid ideas of how to improve health care.  However, broad pronouncements will not get the job done.  We need a systems approach in order to decrease the amount of unnecessary medical services and increase the quality of the important medical services that are given.  Like any reform, this is easier said than done.

What are hospitals like in the Netherlands?  A paper by Blank and Van Hulst (2009) give some insight.  The paper studies Dutch general hospitals.  These hospitals make up 80% of beds on 70% of hospital costs.  Non-general hospitals include academic hospitals and specialty hospitals (e.g., eye clinics and rehabilitation clinics).

Hospitals in the Netherlands

“Hospitals, like other health-related institutions in The Netherlands, are owned and operated predominantly by locally controlled, private not-for-profit foundations (stichtingen).” [Saltman and de Roo (1989)]  The hospital sector in general is highly regulated.  Provider wages are regulated.  The central government regulates capacity and provides prospective payment budget.

“Budgets consist of a fixed component related to capacity and a variable component related to production. The fixed component is based on the so-called adherence (the number of patients potentially using the hospital), the number of beds, and the number of associated physicians. The production related component is based on regional agreements on the numbers of first-time visits, inpatient days, daycare patient days, and the number of discharges.”

Severity of cases and the type of specialists on staff can also affect budgets as well.  This budget, however, is a legal and not a monetary measure.  Insurance companies pay the hospital through prices set by the Central Tariffs Health Care agency.  Hospitals can not make a profit, but surplus revenue can go towards capital improvements.

“Another important feature of the Dutch hospital sector is that hospitals cannot choose their patients.Patients are referred to a hospital by general practitioners. They choose a hospital with a convenient location compared with other hospitals and based on availability of the appropriate specialties.Hospitals are obliged to treat any patient presented to them, provided that they have the medical knowledge required for the treatment. In practice, hospitals can attract patients by supplying particular specialties or a high quality of care. This implies that expansion of high-tech medical treatments may be another goal.”

Statistics and Trends

Statistics on the Dutch hospital industry can be found in this table.  We see that the number of general hospitals decreased from 109 in 1995 to 89 2002.  This was due to both closures and mergers.  First-time hospital visits increased at an annual rate of 4% per year, but the number of inpatient days decrease by about 4% per year.  This indicates a trend towards fewer overnight hospital stays.  Overall, costs rose by more than 6% per year in nominal terms or about 4% in real terms.

• Blank JLT, Van Hulst BL (2009) “Productive innovations in hospitals: an empirical research on the relation between technology and productivity in the Dutch hospital industry” Health Economics, Volume 18 Issue 6, Pages 665 – 679
• Saltman RB, de Roo AA (1989) “Hospital Policy in The Netherlands: The Parameters of Structural Stalemate” Journal of Health Politics, Policy and Law, Vol. 14, No. 4, Winter 1989

The L.A. Times reports on Frank Lucero, a man arrested for drug use, petty theft.  Mr. Lucero had glaucoma and while he was in prison, his eye ailment went untreated.  

Lucero hadn’t been able to see much since being diagnosed with glaucoma while at Soledad State Prison in 2005. Still, with medication, he was able to work jobs moving furniture in between time served for drug use, petty theft and skipped meetings with his parole agent.

…three months into a yearlong sentence, with dozens of appeals to see an eye doctor unheeded and the pain growing unbearable, Lucero said, he still had neither the anti-inflammatory medication nor a prescription for glasses.

He had headaches and dizziness.  His equilibrium and speech were affected.

“Some days I couldn’t put together a sentence without yammering and stuttering,” he said.

On May 23, 2008, Lucero was sitting on his bunk, his head cradled in his hands, when his throbbing eyeball “just exploded.”

Should Prisoners get health insurance?
With state budgets reeling, how much of a priority should health care be for prison inmates?  Many people will argue that it should be very low on the list.  Why should prisoners get ‘free’ health care when there are 45 million employed Americans?

On the other hand, even employed Americans have the right to purchase medical using their own savings or through taking out debt.  Prisoners do not have this option.  Further, since the state is the custodian of these prisoners, it has a fiduciary right to give them at least a minimal level of health care.  

Giving Frank Lucero glaucoma drops would have been much cheaper than paying for an ambulance to after his eye burst from the pressure.

On Wednesday, the U.S. men’s national soccer team upset Spain, the #1 team in the world (see video highlights).  They will play in the Confederations Cup Final on June 28th against either Brazil or host South Africa.

In honor of the surprising U.S. victory, this edition of the Health Wonk Review will examine some equally surprising findings in the world of health care from the web’s best and brightest bloggers.

LEADOFF

Atul Gawande’s New Yorker article on cost differences between similar Texas cities has garnered a lot of attention.  Daniel Gilden of The Health Care Blog investigates Gawande’s claimsof supplier-induced demand in McAllen: The Tale of Three Counties. 

Health Care Renewal: Pharmacy benefit managers (PBMs) are offering to market particular drugs…for a fee.

HEALTH REFORM IDEAS

• A MANIFESTO:
  • What be included in any health reform proposals?  The Healthcare Economist weighs in with his Healthcare Economist Manifesto.
• Senate HELP Committee’s health overhaul bill:  
  • Kaiser Health News reviews CBO estimates that “The plan will cost $1 trillion and insure only an additional 16 million people.”   
  • The New America Blog gives some shortcomings of this “preliminary” CBO estimate.
  • Joe Paduda believes “The Finance Committee’s effort is a path to financial ruin; without cost controls we’re looking at a deficit creator that will make Part D’s eight trillion dollar ultimate liability look paltry in comparison.”
• PUBLIC PLAN:   
  • Budd’s Blog reviews opinions on the public health insurance plan from three experts: Jacob Hacker, Mark Pauly, and Victor Fuchs. 
  • Is this reform inevitable? It Takes Work Blog believes “We’ll get a public health insurance agency of some type. And we’ll be paying through the nose for it.”  
  • In a post titled “A Health Reform Agenda for Black America,” JudyLubin.com supports a public health plan.
  • InsureBlog: “Advocates of government-run health care should be embarassed – indeed, appalled – that their arguments are so weak that they can’t stand to be questioned.”
• AMERICA’s AGENDA:
  • David Harlow’s Health Care Law Blog talks with Dick Gephardt and Mark Blum about America’s Agenda health reform efforts and whether or not more preventive care will actually save money.
• WYDEN’s HEALTHY AMERICANS ACT:
  • Health Access Blog reviews a few reasons why Senator Wyden’s health reform plan won’t be adopted.
• BUNDLING PAYMENTS:  
  • BNET Healthcare reports on replacing Medicare fee-for-service reimbursement with bundled payments tied to outcomes, comprehensive services, and shared risk. 
• RESCISSION: 
  • Patients can have their health insurance rescinded if they lie about their pre-existing conditions. Colorado Health Insurance Insider believes that if health insurers had access to patients electronic medical records, rescissions would greatly decrease.  
  • Dr. Rich of The Covert Rationing Blog gives his take on the rescission debate and finds “UnitedHealth Group and Assurant Inc. had retrospecively canceled the policies of 20,000 sick subscribers over the past 5 years“

HEALTH CARE in CANADA

• Can you rely on a government contract?  Canadian Medicine reports that the New Brunswick government broke a deal with doctors over wage increases in light of the latest recession. 
• The Ismological writes that “Canadian Health Care Doesn’t Suck“

PUBLIC HEALTH and WORKERS’ COMP

• What was life like without women workers and health & safety standards?  Workers’ Comp Insider finds some intriguing videos. 
• The Gormley Files: Opportunistic Peddlers of phony anti-Swine Flu products. 
• Health Business Blog: Are old drivers unsafe drivers?  Elderly drivers do get in more accidents per mile driven, but because elderly drivers drive less than younger drivers, accident rates per person are comparable for those under and over 65.
• Boston Health News has a video on health issues in the gay community.

TECHNOLOGY

• According to Healthcare Technology News, the Certification Commission for Health Information Technology (CCHIT) is extending its certification options for electronic medical records (EMR) developers.

The Boston Globe reports that “Overseers of Massachusetts’ trailblazing healthcare program made their first cuts yesterday, trimming $115 million, or 12 percent, from Commonwealth Care, which subsidizes premiums for needy residents and is the centerpiece of the 2006 law.”  The reduction in the Commonwealth Care was caused by the bad economy.  Not only does a bad economy mean fewer tax revenues as earnings are cut, but demand for government health insurance grows as laid off employees lose employer provided care.

Opponents of government health plan may use this as evidence that government-run health care can’t work.  This is not the case however.  In a bad economy with private insurance, workers lose coverage when they lose their jobs.  If they do decide to purchase a nongroup health insurance plan, they will likely choose a less expensive plan.  Thus a bad economy effects individuals similarly with and without government provided health insurance; with fewer resources to go around everyone must cut medical expenditures irrespective of whether there is a government-provided health plan.  

The difference between the less generous insurance benefits is who decides on the cuts.  In a free market plan, individuals decide for themselves how much insurance to buy.  However, for some individuals who lose their jobs, health insurance will be unaffordable.  On the other hand, bureaucrats determine what will be cut in a government health plan.  

Democrats will argue that mediocre insurance for all is better than great insurance for some and none for others.  Republicans will claim that a government-run healthcare system will necessarily lead to mediocre insurance coverage in any bad economy. Further, legal immigrants may not be eligible for Commonwealth Care in order to save money.  Thus, there will still be individuals without insurance.

Who perspective do you think is right?

Southern California is in the midst of a drought.  What is the city doing to conserve water?  They are resorting to new rules and ‘water cops‘.

• Apartments, Condos and Businesses can water: Monday, Wednesday & Friday
• Homes with odd-numbered addresses can water: Sunday, Tuesday & Thursday
• Homes with even-numbered addresses can water: Saturday, Monday & Wednesday
• Apartments, Condos and Businesses can water: Monday, Wednesday & Friday
• On your watering day, you may only water before 10 a.m. or after 6 p.m.
• Landscape irrigation using sprinklers is limited to no more than ten minutes maximum per watering station per assigned day.

Isn’t there an easier way?  Of course.  The answer is to raise the price of using water.  I’ve broached this idea in two previous posts.   Charging more for water (especially during a drought) will accomplish the same goal as these arcane rules set out to do: reduce water demand.

Watering at night or early in the morning saves water because less water evaporates at this time of day. If water is more expensive, people will voluntarily water early or late in the day to save water.  Further, a higher price of water compel people to 1) water less and 2) plant vegetation that requires less water such as succulents.  This way people will water when they please, but will water less often and with less water.

Economists believe that getting prices right will lead to efficient market allocation; in the case of water conservation, economists are almost certainly correct.