November 2006

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Physician licensure and quality: Part I

November 20, 2006 in Licensure, Supply of Medical Services | Permalink

In most markets, quality regulation is not used.  If you buy a pair of pants that is lower quality than you had anticipated, you simply will not frequent the store again.  If the firm continues to offer low quality pants (at insufficiently low prices), few consumers will patronize the store and the firm will go out of business. The creation of a “fashion police” which would insure an adequate level of quality is unnecessary in a capitalistic society.  The market will act as the quality arbitrator.  Having a pants quality oversight board would be costly and would bestow political powers to those who where placed in charge of this fashion police. 

In the medical field, however, conventional wisdom holds that believe that quality assurance is needed.  Physicians must be licensed (graduate from medical school) in order to provide services.  One rationale for this regulation is that a poor outcome from a medical provider can so adversely affect the lives of the consumer that regulation is imperative in order to prohibit physicians on the lower end of the quality distribution from practicing.  A second rationale for the regulation is that consumers are not experts in the medical field and can not properly evaluate the quality of care they are receiving. An outside board is needed to evaluate quality for them.

Lee Benham describes the way physicians control quality in “Licensure and competition in medical markets” a chapter in the book Regulating Doctors’ Fees.  There are three main mechanisms of quality control and Benham analyzes each in tern.

  1. Ethical Standards: Physicians are inculcated throughout medical school with a rigorous education in medical ethics.  Yet even if all physicians abided by the ideal ethical standards, the quality of medical care may not improve greatly.  The physicians are not trained in management, auditing, or decision analysis and thus directing the appropriate amount of resources to each patient may not occur even in the presence of a completely ethical physician.
  2. Medical Training – Medical School provides a rigorous education to all physicians.  It is very difficult to gain entry into medical school–in 1988 only 10% of applicants with a GPA below 3.0 were admitted.  Thus doctors are the cream of the undergraduate crop.  Once the physicians arrive in medical school, however, the total attrition rate is less than 3%.  Further, physicians have a disincentive from taking any difficult classes not required for medical school (such as mathematics or statistics) since these classes are generally difficult and receiving a poor grade in a class not required for medical school can lessen the chance one will gain entry into medical school.  Yet statistics training is often needed to evaluate the efficacy of a medical procedure.
  3. State Licensing Boards: These are the weakest link of the quality control scheme.  Benham reports that Florida spent only $41.70 per doctor in monitoring costs in 1983.  Further, since these boards are made up of physicians, state licensing boards are self-policed.  Of 270 allegations of physician misconduct brought to the attention of the Wisconsin Medical Board in 1982, only 1 was raised by the state medical society and the defendant in the case was a chiropractor. 

Is licensing succeeding?  I am not sure.  It is likely that physician quality has improved as a result of licensing, but licensing likely has also increased the cost of medical care.  Also, even if average physician quality has improved, there are still many incompetent doctors practicing.  California’s Board of Medical Quality Assurance director Robert Rowland stated that “10 percent of the physicians who are practicing now should not be practicing without some kind of restraints–either a rehabilitation program, limits on surgery, or some other oversight practice.”  The New York state commissioner of health, David Axelrod, said “As many as ten percent of the state’s 45,000 practicing physicians are either mentally or physically impaired or incompetent at some point in their careers.

Nobel prize winner Milton Friedman dies at 94

November 17, 2006 in Current Events, Economics - General | Permalink

Milton Friedman is one of the 20th century’s most renowned economists.  The International Herald Tribune has an informative obituary (“Milton Friedman…“) in yesterday’s paper.  Below are some selected excerpts from the article.

  • Friedman’s most famous book is Capitalism and Freedom.  One of the major tenets of the book is that “you have to have economic freedom in order to have political freedom.”
  • “One finding of the book [Income from Independent Professional Practice by Friedman and Kuznets] was that the American Medical Association exerted monopolistic pressure on the incomes of doctors; as a result, the authors said, patients were unable to reap the benefits of lower fees from any real price competition among doctors. The A.M.A., after obtaining a galley copy of the book, challenged that conclusion and forced the publisher to delay publication. But the authors did not budge. The book was eventually published, unchanged.”
  • In 1962, Mr. Friedman took on President John F. Kennedy’s popular inaugural exhortation: “Ask not what your country can do for you. Ask what you can do for your country.” In an introduction to “Capitalism and Freedom,” a collection of his writings and lectures, he said President Kennedy had got it wrong: You should ask neither.

    “What your country can do for you,” Mr. Friedman said, implies that the government is the patron, the citizen the ward; and “what you can do for your country” assumes that the government is the master, the citizen the servant. Rather, he said, you should ask, “What I and my compatriots can do through government to help discharge our individual responsibilities, to achieve our several goals and purposes, and above all protect our freedom.”

There is also a more concise obituary on NPR’s Marketplace website.

Nagase Effect

November 17, 2006 in Academic Articles, International Health Care Systems | Permalink

How do medical care costs respond to different coinsurance rates? The RAND Health Insurance Experiment (Manning, et al. AER 1987) demonstrated that moral hazard is problem; individuals with lower coinsurance rates tend to use more medical services.

In 1935, Kozo Nagase formulated a mathematical heuristic to describe how coinsurance rates affected medical expenditures in Japan. The formula is as follows:

  • y= 1 – 1.6*x + 0.8*x2

Here y is the amount of medical expenditures and x is the coinsurance rate. This formula produces the following values

Coins Rate Relative Med. Exp
0% 1
25% 0.65
50% 0.4
75% 0.25
100% 0.2

A recent paper by Bessho and Ohkusa however claims that medical expenses and coinsurance rates are not related, at least not in the case of acute light illness (i.e.: cold, flu, hay fever, menstrual cramps, sprains, constipation, etc.). The authors use Record Card data in which individuals between 20 and 69 years of age keep logs of household members’ illness related behavior between May and November 2001. The analysis looks at the duration between the first onset of sickness and the decision to visit the doctor.

The econometric specification creates the function λ(k,x) which is equal to the probability of visiting a hospital or physician on the k-th day since they feel sick conditional on exogenous variables, x, and conditional on that they did not consult a doctor during the preceding k-1 days. The problem then becomes a recursive binary choice model where one can use maximum likelihood estimation to find the correct parameters for the following equation:

  • P(k|x)=λ(k,x) Π_{j=1 to k-1} [1-λ(j,x)]

The authors also take into account the fact that some observations are censored by the length of time the individuals were observed. Bessho and Ohkusa find that there is no statistically significant correlation between coinsurance rates and the probability of a physician or hospital visit. Since public insurance covers the majority of acute light illnesses, adverse selection is not a problem. Also, since the patient is the one deciding when to see the physician, supplier-induced demand should not be present.  One issue could be the wait times a patient experiences between calling a physician to make an appointment and the actual date of the appointment.  There is also the problem of whether or not the self-reported record cards are accurate.

Manning; Newhouse; Duan; Keeler; Leibowitz; Marquis; (1987) “Health Insurance and the demand for medical care: Evidence from a randomized experiment” American Economic Review, vol 77(3), pp. 251-277.

Nagase, Kozo (1935) Disease Statistics, Tokyo, Kenho Hoken Ihosha (In Japanese).

Bessho; Ohkusa (2006) “When do people visit a doctor” Health Care Management Science, vol 9, pp 5-18.

Schumpeter, Hayek and the Learning Economy

November 17, 2006 in Economics - General | Permalink

As I well know, technical command of high-level calculus and mathematical modeling are prerequisites to success in 21st century graduate schools of economics. Economists generally create a mathematical model of how they believe the world functions and solve the equations to find the optimum (i.e.: quantity, price, tax rate, etc.). Perfect information is often assumed.
An enlightening essay (“Entrepreneurship“) by Mark Casson describes how Learning Economics–a branch of Economics which lends itself to models which generally can not be solved mathematically–may provide a superior description for the roots of economic growth than neoclassical theory.

“In their mathematical models of economic activity and behavior, economists began to use the simplifying assumption that all people in an economy have perfect information (see information). That leaves no role for the entrepreneur. Although different economists have emphasized different facets of entrepreneurship, all economists who have written about it agree that at its core entrepreneurship involves judgment. But if people have perfect information, there is no need for judgment. Fortunately, economists have increasingly dropped the assumption of perfect information in recent years. As this trend continues, economists are likely to allow in their models for the role of the entrepreneur. When they do, they can learn from past economists, who took entrepreneurship more seriously.“

This is not an entirely new concept in the field of economics. Schumpeter stated that entrepreneurs work through a process of “creative destruction” whereby old technologies are rendered obsolete. Hayek (Friedrich, not Salma) believed that the market process was a essentially a “discovery process” through which innovative ideas were accepted and poor concepts discarded. One can clearly see how innovative ideas in communication (e.g.: the internet, cell phones), health care (e.g.: pharmaceuticals, surgical procedures using lasers or robots), and other fields has influenced the quality of contemporary life.

Health Wonk Review posted

November 16, 2006 in Carnivals | Permalink

The latest edition of the Health Wonk Review has been posted at David Williams’ Health Business Blog website.

The Cost of Inconvenience and Discomfort

November 16, 2006 in Economics - General | Permalink

In his book Crisis of Abundance: Rethinking how we pay for health care, Arnold Kling gives an example of how economists view non-monetary costs in medical care setting.

“Most people do not like to go to a doctor, undergo medical procedures, or stay in a hospital.  However, economists do not see this as offsetting the tendency for people to overconsume medical services that are paid for by third parties, such as insurers, employers, or government.

To an economist, if medical services are time-consuming, inconvenient, and uncomfortable to patients, then those are real costs, and they should be factored into the decision of whether the service is worthwhile.  Those costs, which might collectively be termed nonmonetary costs, should not be ignored.  They belong in the equation that determines whether or not a service ought to be performed.

Suppose that the fee for a procedure is $500, and nonmonetary costs amount to the equivalent of another $1000.  If the health benefits from the service are only $750, then the servie is a bad deal for the patient.  The fact that the health benefits exceed the fee is interesting, but it does not justify having the patient suffer through the service.”

Later in this section of his book, Kling wisely states that the costs of missing work in order to receive medical services should also be included in the cost of care.  For instance, would you rather have a procedure which cost $1000 but caused you to miss 3 days of work or a procedure which costs $1050, but did not require an overnight stay or any absence from work.  While the former has a cheaper monetary cost, it is likely that most people would consider the latter surgery a better deal.

Sick optimistic Americans vs. healthy pessimistic English

November 15, 2006 in Academic Articles, International Health Care Systems | Permalink

A recent NBER working paper by Banks, Marmot, Oldfield and Smith looks at the health outcomes and Socio-Economic Status (SES) of white males between the ages of 55 and 64 in the U.S. and in England. The authors use data from the American Health and Retirement Study (HRS), Assets and Health Dynamics of the Oldest Old (AHEAD), the National Health and Nutrition Examination Survey (NHANES), the Children of the Depression Age (CODA) and the War-Babies Cohort. In the UK, the data used are the English Longitudinal Survey of Aging (ELSA)–which is similar to the HRS–and the Health Survey for England (HSE).

The authors find the following conclusions:

  1. SES is highly correlated with disease incidence. This finding is robust to when SES is measured both by income and education categorizations.
  2. The English are healthier than the Americans when one looks at nearly all disease incidence rates.
  3. Despite the fact that Americans are less healthy than the British, self-reported health status is superior for Americans than the British. This is true in aggregate as well as when the researchers conditioned on actual health status.

Below are some statistics demonstrating the differences in disease incidence rates:

England U.S.
Diabetes 7.1% 14.4%
Hypertension 34.4% 46.8%
All Heart Disease 12.6% 17.9%
Heart Attack 6.3% 8.0%
Stroke 3.0% 4.0%
Lung Disease 5.8% 6.8%
Cancer 3.6% 7.3%

The prevalence of important risk factors in the U.S. and England are similar. Smoking rates in both countries are about 20%. Heavy drinking is more common in England, but obesity is more prevalent in the U.S.

One problem with the study is that it assumes that mortality rates for each disease are similar across countries. If the U.S. was able to keep alive more individuals with serious diseases, while the same people would be less likely to survive in England, this phenomenon could explain the results shown above. However, the health outcome differentials are so large that this one issue is unlikely to explain the entire difference between the two countries.

It has been widely noted that the U.S. spends a higher percentage of its GDP than any other country in the world, yet does not have superior health outcomes compared to other OECD countries. According to Reinhardt, et al. (Health Affairs 2004), in 2001 the U.S. spent 13.9% of GDP on medical care while the UK spent only 7.6% of GDP.

Banks; Marmot; Oldfield; Smith (2006) “The SES health gradient on both sides of the Atlantic” NBER Working Paper No. 12674.

Reinhardt; Hussey; Anderson; (2004) “U.S. health care spending in an international context” Health Affairs, vol 23(3) pp. 10-25.

The Office: You don’t need health insurance if you’re a Schrute

November 14, 2006 in Miscellaneous | Permalink

On a lighter note…

If you are a fan of NBC’s “The Office” and need a laugh, please take a look at the following clip on YouTube. In this video from season one, Dwight Schrute (played by Rainn Wilson) is put in charge of choosing a health insurance plan for his co-workers.

China and AIDS

November 14, 2006 in Current Events, Health Care in Developing Nations | Permalink

The New York Times has an interesting article (“China’s Muslims…“) of how AIDS is affecting Muslims in western China. The newspaper reports that there is a “sea change by the Chinese public health establishment” in which intravenous drug users are now being sent to treatment instead of jail. The major impetus for this change was the Chinese government’s desire to stem the spread of AIDS.

Mass immunizations

November 13, 2006 in Medical Studies, Supply of Medical Services | Permalink

What is the most efficient procedure to immunize large groups of people? This is an interesting question, especially considering the potential need to distribute vast amounts of medicine in the case of a terrorist attack. Since the CDC’s Vaccinations for Children (VFC) program recommended flu shots for that all children age six months and to 5 years, and many children between ages 5 and 18, we can see how best to vaccinate a large group of people in this setting. Influenza vaccinations are only effective for one year, so there will be a recurring demand each fall.

On Saturday I observed a mass immunization at a suburban San Diego health care facility. Without question, these mass immunizations were significantly more efficient than flu shots distributed via a walk-in clinic setting or a typical well-child visit. The entire procedure (i.e.: taking the patient’s temperature, performing basic paperwork and having the nurse administer the shot) only took about 10-15 minutes. No physicians were needed to supervise the process and thus this system was much less expensive. Well-child visits typically take at least 45 minutes when you take into account the time spent in the waiting room, time spent with a nurse in the pre-exam room, and the time spent with the physician.

Pharmacies also offer a cost-effective setting for immunizations. Most pharmacies are conveniently located for consumers and the cost to administer the shots in this setting are lower than the costs in a physician’s office. Further, firms such as Long’s, CVS, and others believe that flu shots are an effective means to create foot traffic and customer loyalty.

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