April 2006

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Health ‘breakthrough’ anxieties

April 23, 2006 in Medical Studies | Permalink

Nearly every day one reads about a revolutionary new pharmaceutical or medical procedure.  Years later, however, we often learn that this ‘breakthrough’ was only a marginal improvement, had serious side effects or simply did not work.  Ellen Goodman discusses in “Health ‘breakthrough’ anxieties” how a new breast cancer drug (raloxifene) seemed to offer a better choice to post-menopausal women at risk of breast cancer than the previous alternative (tamoxifen).  Although raloxifene did seem to outperform tamoxifen, Cynthia Pearson of the National Women’s Health Network figures that only 30 out of the 10,000 who too raloxifene for up to five years actually benefited.  The oncologist Jerome Groopman puts forth an appropriate newspaper headline:

“There’s a Small Difference in a Larger Group of Women That Has Side Effects and It’s Not Clear What’s Best for Any Individual“

The point is to be skeptical of what you read in the newspapers.  If you believe you need some sort of medication, it is your responsibility to yourself to the necessary research to find out which drugs (or medical procedures, etc.) are best for your particular situation.

HealthCare Direct LLC

April 21, 2006 in Health Insurance | Permalink

“One of the quirks of the health care system is that health plans individually negotiate different prices with hospitals and doctors. The result is that two health plans can pay different prices for the same procedure at the same hospital. The contracts typically prevent a health plan from saying that it charges a certain amount for a procedure, though a health plan can show the discounted charges on patients’ bills.

Many economists contend that the practice contributes to the inefficiency of the health care system and lessens hospitals’ incentive to become more efficient. It also makes it impossible for consumers to shop for hospitals with the best prices.”

- Milwaukee Journal Sentinal, “Health plan lifts the veil on charges“) Feb 23, 2006

One major impediemnt to adequate functioning of medical markets is that consumers often do not know what prices each hospital charges them (or their insurance). HealthCare Direct LLC is trying to change this using the philsophy that “Sunlight is the best disinfectant.” The aim is to steer self-insured employers towards more cost efficient solutions, by compelling providers to release their pricing schedules.

Kellogg Business School at Northwestern University cites a Journal Sentinal article which states that:

“HealthCare Direct LLC has persuaded ProHealth Care and Columbia St. Mary’s, two health care systems in the Milwaukee area, to accept a flat rate for 26 common hospital procedures and to disclose the price of each.

The goal is to help make health care a bit more like other markets, in which buyers have an easier time determining which companies have the lowest prices and, theoretically, are the most efficient.”

Number of U.S. Deaths Drop 2% in 2004

April 21, 2006 in HC Statistics | Permalink

After a large number of posts criticizing the American healthcare system on this very blog, it is now time to sing its praise. The San Diego Union Tribune reports today (“U.S. deaths dropped 2% during ’04, report finds“) that the number of deaths decreased by 50,000 between 2003 and 2004. This is surprising. Despite medical advances, one would expect the number of deaths to increase due to: 1) population increase, 2) the higher proportion of elderly individuals in society and 3) the trend towards higher obesity rates.

The top three killers of Americans are heart disease, cancer, and strokes; the age adjusted death rate for each of these illnesses dropped in 2004. The heart disease rate declined more than 6 percent, the cancer rate about 3 percent and the stroke rate about 6.5 percent.

Congratulations to all those involved in improving the health care of Americans today!

Nurse-Staffing Levels and the Quality of Care in Hospitals

April 20, 2006 in Medical Studies, Nonphysician Clinicians | Permalink

Most people intuitively believe that having more nurses on staff at a hospital improves health outcomes. After reading Money Magazine‘s report that an average RN earns approximately $70,000 per year, relying on ‘intuition’ may not be the most appropriate manner to judge a nurse’s cost effectiveness. Do health outcomes really improve to justify this cost?

Needleman, Buerhaus, Mattke, Stewart, and Zelevinsky (2002) provide convincing evidence that nurses do improve health outcomes in hospitals. The study examines 799 hospitals in eleven states and tests to see how variation in nurse staffing or nurses hours worked changes health care outcomes. The first stage of their analysis runs a logistic regression. The health outcome for each patient was regressed on patient diagnosis related group (DRG), age, sex, primary insurer, state of residence, a dummy for emergency admission and the presence of any chronic diseases. These factors were added up and each hospital was assigned a risk factor. The second stage uses an ordinary least squares (OLS) regression to calculate the difference between the expected health outcome and the actual outcome using hospital dummies, nurse staffing and hours, the number of beds, etc.

Below is a table of their results. All coefficients less then 1.00 indicate that health outcomes improved. Outcomes statistically different from 1 at the 5% level receive a star (*).

Proportion of RN hours No. of RN hours/patient day
Length of Stay -1.12* -0.09*
Urinary Tract Infection 0.48* 0.99*
Upper gastrointestinal bleeding 0.66* 0.98*
Hospital-acquired pneumonia 0.59* 0.99*
Cardiac Arrest 0.46* 0.98
Failure to Rescue 0.81* 1.00
In-Hospital Death 0.90 1.00

Since outcomes improve in all six of the seven categories under the first model and in four of seven categories under the second model, it seems that nurses do have a positive effect on health.

I find two possible problems with the study:

  1. Nurses may be a proxy for quality. Good hospitals may have better technology, more qualified doctors, and more nurses. The superior health outcomes may not be due to the nurse staffing at all but to other factors which are correlated with the number of RN work hours.

  2. The first stage logistic regression may have omitted variables. For instance, if rich people have better health outcomes—due to lifestyle choices—and are able to afford hospitals with more nurses, we would find a spurious correlation between health and nurse staffing, since nurse staffing level is simply a proxy for inherently healthier patients.

Despite these two problems, the evidence does seem convincing. As standard economic theory would predict, increasing inputs (nurses) will lead to increased outputs (health) ceteris paribus.  Future research needs to determine more precisely what is a nurse’s cost benefit ratio in order for hospitals to ascertain the appropriate RN staffing.

Needleman, J; Buerhaus, P; Mattke, S; Stewart, M; Zelevinsky, K (2002); “Nurse Staffing Levels and the Quality of Care in Hospitals,” New England Journal of Medicine, Vol 346 (22).

Nata, Botswana

April 19, 2006 in Health Care in Developing Nations | Permalink

Nata, in Botswana, is a village of 5000 people located on the edge of the Makgadikgadi Pans. Unfortunately, HIV/AIDS is having a devastating effect on the people of this small village. Botswana has the second highest HIV infection rate in Africa. The current rate of infection is 37% nationally and Nata’s rate of infection is even higher. The pandemic has left Nata with over 400 orphans.

Still, these people live half-way around the world. How can we help them? Much of foreign aid is stolen by dictators or bureaucrats. What can be done?

Fortunately, the village of Nata, Botswana has a blog (“The Nata Village blog“). Jon Rawlinson set up the site and Melody Jenkins, a U.S. peace corps volunteer, writes the posts. You can learn a great deal about the village and also donate if you so choose.

For instance, patients in Nata are not adhering to their anti-retroviral treatment at the same rate as those that live nearer to the clinic in Gweta; this is due to a lack of transportation to the nearest clinic to pick up the medicine. Also, the site has a brief biography of an inspirational villager named Reggie.

Another reason to love the Internet.

Medicaid and Immigration

April 19, 2006 in Medicaid/Medicare | Permalink

DB’s Medical Rants cites an interesting New York Times article (“Medicaid Hurdle for Immigrants May Hurt Others“) regarding the administrative burden created by a new law requiring all Medicaid recipients to prove their citizenship in order to receive the public insurance.

Physician Assistant Timeline

April 18, 2006 in Nonphysician Clinicians | Permalink

Economists typically believe that there is too much regulation in the medical field. Due to problems of asymetric information in determining doctor quality, economists believe there is a role for certification and licensure, but these requirements are currently too strict. For instance, many routine procedures could be preformed by a Nonphysician Clinician (NPC) such as a Physician Assitant (PA) or a Nurse Practioner (NP) at a lower cost with a small reduction in quality.
According to the American Academy of Physician Assistants (AAPA), there were 66,111 physician assistants practicing in the United states in 2005. Physician’s Assistants have varying levels of autonomy and prescription permission (see the DEA website) depending on the state legislation.

Below I will briefly outline the development of the position of the physician assistant.  There is a more complete timeline located at the Physician Assistant History Center.

Timeline

  • 1964: Dr. Eugene Stead, Jr., disillusioned by organized nursing rejection of the nurse clinician program, decides that ex-military corpsmen with their previous training and experience would be suitable candidates for his two-year experimental program.
  • 1966: Allied Health Professions Personnel Act (PL-751) promotes the development of programs to train new types of primary care providers.
  • 1968: Health Manpower Act (PL-490) funds the training of a variety of health providers; American Association of Physician’s Assistants (AAPA) is incorporated
  • 1970: Kaiser Permanente becomes first HMO to employ PA.
  • 1972: National Board of Medical Examiners begins developing a certification examination for accredited PA educational program.
  • 1976: Federal support of PA education continues under grants from Health Professions Assistance Act (PL94-484).
  • 1977: Rural Health Clinic Services Act (PL95-210) provides Medicare reimbursement of PA and nurse practitioner (NP) services in rural clinics.
  • 1986: Omnibus Budget Reconciliation Act PL 99-210 allows Medicare Part B to pay for PA services in hospitals and nursing homes
  • 1987: Additional Medicare coverage of PA services in rural and underserved areas approved by Congress
  • 1997: Balanced Budget Act of 1997- Congress increases PAs reimbursement rate to 85% of physician cost (previously 75% in hospitals, 65% for assisting at surgery, and 85% in nursing facilities)
  • 2000: Mississippi is last state to enact legislation authorizing PAs to practice

Using Physician Assistants: A Wise Tradeoff?

April 17, 2006 in Nonphysician Clinicians | Permalink

The use nonphysician clinicians (NPCs) in the provision of medical care has grown over the years. Although physicians still dominate the medical field, there were over 66,000 Physician Assistants in the United States in 2005. Before Physician Assistants (PAs) and
Nurse Practitioners (NPs) were licensed, physicians were the only individuals permitted by law to perform a variety of medical procedures. Most people would agree that the use of PAs and NPs can reduce medical costs. The more important question is how much quality (if any) is sacrificed when NPCs are used instead of MDs. It is my hypothesis that certain more ‘routine’ procedure could be done more cost effectively using NPCs, and the change in health outcomes would be negligible.

[See full paper proposal below]
Paper Proposal: Physician Assistants

Tax Credits, the Distribution of Subsidized Health Insurance Premiums, and the Uninsured

April 17, 2006 in Public Policy, Taxes | Permalink

The popular press has been decrying the existence of large numbers of Americans without medical insurance. From Indiana to Wisconsin to California, politicians are looking for a means–such as government provided health insurance–to give more residents medical insurance. Economists, however, generally speak out against the provision of private goods by the government.

An interesting solution was proposed by Pauly Herring and Song (2002) in which individuals would receive a $1000 refundable tax credit if they (or their employers) purchased health insurance. The study focuses on single individuals using the 1996-97 Community Tracking Survey (CTS). Using the eHealthInsurance.com website, they were able to calculate the premiums each individual in the CTS survey would pay if they were currently applying for insurance. The authors assumed participants would choose the lower priced options and thus calculated the premiums owed at the 10th and 25th quartiles for a variety of deductible amounts.

Results

  • They found that using this credit, approximately 20% of all individuals who had previously purchased individual insurance would pay zero net premiums after applying the credit.
  • Assuming an Arrow-Pratt absolute risk aversion coefficient of 0.00095, Pauly, et al. are able to calculate a reservation price for each person, using an expected utility framework. They find that of all the currently uninsured individuals in the sample, 77%-85% would take up the insurance.
  • The 85% number, may be overly optimistic. The calculated reservation price is actually greater than the absolute premium for 23% of the sample, and thus the authors settle on 60%-65% as a more conservative estimate. The lower take-up rate may be due to the fact that most poor individuals are able to receive charity care at no cost, and thus have less of an incentive to purchase insurance at some non-zero cost.
  • According to Health Affairs, maintaining the tax-exempt status of employer-provided group insurance cost taxpayers $188.5 billion in foregone revenue in 2004. If we implemented the voucher system where single households received a $1000 credit and family households received a $2000 credit, the cost to taxpayers would be only $142.9 billion assuming all individuals received the credit (calculations made using US Census population projections p. 18). This does not even take into account the cost reductions from decreased Medicaid and/or Medicare usage.
  • One issue to worry about with this proposal is fraud. Will people falsely report that they have insurance in order to receive the credit? I would assume this wold occur, but the prevalence can not be predicted.

Pauly, Herring, and Song (2002) “Tax Credits, the Distribution of Subsidized Health Insurance Premiums and the Uninsured” Forum for Health Economics and Policy, Vol 5(5).

PPS Economic Model

April 16, 2006 in HC Economist Models | Permalink

In an attempt to reduce costs, Medicare enacted a Prospective Payment System (PPS) in 1983. Medicare aimed to pay hospitals a fixed rate based on the Diagnosis Related Group (DRG) plus/minus an adjustment for location and local wage. Although this system gives hospitals the incentive to misclassify patients into high profit DRG, I will assume for simplicity that the hospital diagnose the patient’s illness with perfect accuracy. I briefly outline a model in order to analyze how PPS effects hospital (or providers) incentives.

The Model

The hospital makes a profit on each patient of: P-C(s)-c(q(s))

  • P is the reimbursement rate from Medicare based on the DRG; C(s) is a cost function depending on sickness, c(q(s)) is the additional cost incured by the hospital for additional quality of care. C’,C”,c’,c”,D’,D” are all strictly positive.

Total profits for the hospital are: D(q)*[P-C(s)-c(q)]; where D(q) is the consumer’s demand function. Firms maximize profits by choosing the quality level for each sickness type. The first order condition for the firm is:

  • D’[P-C(s)-c(q)]=D*c’(q)

If we totally differentiate the above equation (remember q is a function of s), we have:

  • d(q(s))/d(s)=[D''(P-C-c)-2D'c'-Dc'']/[D'C'] <0

Discussion
What does all this math mean? Well since dq(s)/ds<0, this means that discretionary quality falls with severity for all profitable patients and is set to zero for unprofitable patients. Since the PPS payment system does not reimburse providers for additional quality of their work with patients, these providers have an incentive to decrease quality. On the other hand, if we construct a 'cost-plus' system where hospitals are reimbursed at (1+x%) of cost, hospitals have an incentive to treat the most severe illnesses since they are the most profitable.

Models as developed in: Meltzer and Chung (2002) “Effects of Competition Under Prospective Payment on Hospital Costs Among High- and Low-Cost Admissions: Evidence from California in 1983 and 1993″ Forum for Health Economics and Policy, Vol 5(4).

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