November 2007

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The Nanny State: Clean your room!

November 19, 2007 in Current Events, Public Policy | Permalink

Libertarians often complain that the government intrudes too much in our lives.  Nanny State, a book by Denver Post columnist David Harsanyi, claims that the government is regulating what we do to an extent that it is becoming a surrogate parent.  “Why are we allowing politicians, bureaucrats, and social activists to dictate what we eat, where we smoke, how much we drink or what we watch and read?” (source: Power Line).  If you believe the diatribes of these delusional government-haters, pretty soon the government will be monitoring how clean our room is!

Well, looks like the government is not going that far just yet.  Right now, Uncle Sam only cares about how neat our carry-on bags are.  According to in article (‘Holiday airline travelers urged to chuck carry-on clutter‘) in the USA Today,  “the Transportation Security Administration (TSA) today launches a campaign urging travelers to eliminate clutter in carry-on bags. Pack in layers. Keep items neat. Messy travelers could spend more time in line if their carry-ons are cluttered because such bags are more likely to be pulled aside and searched by hand, TSA spokeswoman Ellen Howe says.”

Are messy people more likely to be terrorists?  If so, any TSA officer who might have inspected my bedroom when I was 10 years old would have believed that I was Osama bin Laden himself.

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Rating the “demi-gods in white”

November 19, 2007 in Healthcare IT | Permalink

GigaOM reports on some new Health 2.0 developments in Germany in its article “Health 2.0 Gaining Traction in Germany.”  Websites such as Helpster and Imedo are among a number of website which are now rating German physicians.  In order to take into account established medical institutions, Imedo is including the physician certification status as part of its rating.  This certification status is decided by the German Kassenärztliche Vereinigung, “a public organization in charge of distributing the lion’s share of physicians’ income.”

Will German physicians even engage in price competition for patients?  Two German websites believe so:

In the transactional domain, 2te-Zahnarztmeinung and Arzt-Preisvergleich have gained significant traction by running reverse auctions — primarily for dentists’ treatments — which allow for a high degree of comparability. Navigating closely on the edge of what German law allows, a potential patient does not have to automatically contract with the cheapest offering. Instead, she can compare all anonymously quoted prices and take into account the ratings given by patients who have undergone a similar treatment. The physician she chooses then awards 15 to 20 percent of his fee back to the platform.

Is this the wave of the future?  The Healthcare Economist says yes and no.

Yes because for medical procedures which are 1) fairly routine, 2) of relatively low risk and 3) where the patient has a high quality of information regarding the cost and benefits of the procedure, the internet can provide an important means of disseminating information and driving down price.  Dentist visits are predictable and quality is relatively easy to measure.  Thus using these websites will be a boon to consumers.

No because for more complicated procedures these website’s information will likely not be helpful.  Using outcome measures for complicated procedures must make risk adjustments to take into account patient case mix.  Process measures may be to simple to take into account factors such as disease interactions.  And structural measures (e.g.: nurse-patient ratio, the use of electronic medical records) may only be peripherally related to the quality of care.  I doubt that cardiothorasic surgeons will start bidding for patients any time in the near future.  Patients, whose cost for these expensive procedures will generally be covered by insurance, will choose a doctor likely based on their primary care doc’s referral or the opinions of their peers.

Thus, the Health 2.0 movement is likely to be a significant development for the low-cost, predictable sector of medical care.  Specialist and hospital care is much more difficult to measure and price and I believe will likely be hardly affected by these new developments.

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Commentary on P4P

November 16, 2007 in Academic Articles, Physician Compensation | Permalink

I recently read a Health Affairs article analyzing a pay-for-performance (P4P) demonstration. The Local Initiative Rewarding Results (LIRR) demonstration in California involved seven Medicaid-focused health plans in California between 2003 and 2005. Here are some of my most recent thoughts on P4P:

  • The article seemed to show that P4P worked best when there was much consensus over how doctors should treat patients. The irony of P4P is the following: P4P programs with high levels of physician consensus work, but if everyone physician is already acting appropriately P4P does not make a major change in behavior; larger behavioral changes can occur when physicians are greatly deviating from the optimal practice, but in this case it is very difficult to implement P4P.
  • P4P plans are often implemented so those that do well gain income and those that preform poorly maintain their status quo income. When no one loses any money, P4P is supposed to gain more acceptance among physicians. In equilibrium, however, an economist would predict that those with low P4P scores will receive lower wages in the future (or wage increases below inflation) due to P4P.
  • Unsurprisingly, the authors of the Health Affairs paper found that meager financial incentives do not significantly change physician behavior, while larger financial incentives have a greater impact. Also, good communication with physicians helps to increase physician compliance with P4P mandates.
  • If P4P evaluates doctors on care levels which depend on patient compliance, health plans can help physicians to increase the quality of care. For instance in the above study, “many providers used the plan lists of members turning fifteen months old as the basis for outreach…”
  • When P4P financial incentives vary across plans, it is difficult for physicians to focus on specific quality indicators due to complex reimbursement schemes in each plan.
  • When HEDIS scores improve, some of this improvement is due to better quality while much of it may be attributed to better documentation in a patient’s medical records.

Suzanne Felt-Lisk, Gilbert Gimm and Stephanie Peterson (2007) “Making Pay-For-Performance Work In Medicaid” Health Affairs, v26(4) pp. w516-w527.

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The truth about the RAND HIE

November 15, 2007 in Academic Articles, Health Insurance | Permalink

Recently, there has been much controversy regarding whether or not the RAND Health Insurance Experiment (HIE) results are truly robust. Many blogs have been questioning the results (see here, here and here). One of the major conclusions of the HIE are that higher co-insurance rates lead to lower levels of medical utilization and lower medical cost, but do not have any adverse impact on health outcomes.

A paper by John Nyman (2007) in the Journal of Health Politics, Policy and Law calls these findings into question. He notes that there was differential attrition in the insurance plans with cost-sharing for the patients compared to those with no cost-sharing. If people who became sick in the cost sharing insurance plans elected to drop out of the experiment and seek care from their previous insurance plan, then an attrition bias would occur. This bias would incorrectly deflate the medical utilization of the cost sharing group and thus lead to the erroneous conclusion that more cost sharing causes lower medical utilization patterns.

Nyman’s paper also wisely notes that moral hazard is only a problem with individuals afflicted with a disease. For instance, no matter if one has insurance that would reduce the price of a mastectomy to zero, no one ever elect to have a mastectomy unless they had breast cancer. There are personal costs of the side effects of treatment and time costs which imply that moral hazard will generally only be a problem for those afflicted with a disease. There are exceptions. For cosmetic surgery procedures, individual do not need to be sick to suffer from the problem of moral hazard with insurance.

Nyman’s points are valid, but I believe that the RAND HIE results are robust. First, each RAND HIE participant receive a participation payment each month. Even if the individual had large medical expenses and had to pay a large deductible (capped at $1000, which $4000 in 2007 dollars), the monthly participation fees would add up to more than $1000 so it was in the individual’s best interest to stay in the experiment. Nyman argues that cash flow problems many have affected some participants. If I receive $100 per month for a year, but have $1000 in medical expenses today, I may decide to leave the experiment. Yet because of this participation fee, it seem that this would not be a major problem.

Also, the problem of attrition was recognized in the original RAND HIE. Nyman himself states on his website:”When the RAND data were re-analyzed to account for the differential utilization from attrition, the difference in hospitalizations between free care and all cost-sharing arms was about 19 percent, not 25 percent as has been reported (Manning, Duan, Keeler, 1993, p. 13).” While the magnitude of the cost sharing effect may be somewhat smaller once we take into account attrition, the general finding remains the same: more cost sharing leads to less utilization.

Finally, while RAND is the only large scale RCT that has been conducted, many other studies have shown that increased cost sharing leads to lower medical utilization. Newhouse states that “enormous number of observational studies over many years, in many settings, with many different methodologies, that find utilization of medical services responds to relatively modest cost sharing.” Nyman’s response is that:

“I do not dispute that cost sharing reduces utilization. I think it does and agree that the non-experimental studies that Newhouse et al. (2007) refer to are generally convincing. The issue that I am addressing, however, is whether cost-sharing in the RAND Experiment actually produced a 25 percent reduction in equally effective hospitalizations and whether such a reduction would actually have no effect on health.”

One question you may still have is how is it possible that lower medical utilization leads to the same health outcomes. One possibility is that the moral hazard may have resulted in only the excess use ineffective medicine. It could be the case that much of medicine has little impact in the overall health of the patient and too much treatment can actually harm the patient (see my post on Overtreated). It could be the case that health was measured poorly by the HIE, but Nyman concedes that a “broad spectrum of health status measures” where used in the RAND experiment.

Overall, I do believe Nyman brought up some reasonable points. No experiment is ever perfect…even the RAND HIE. Attrition was a problem and may affect the magnitude of the result. Nevertheless, the conclusions from the RAND HIE remain robust and I believe that the attrition issue was addressed previously.

Can we still conclude that more cost sharing reduces medical utilization? Is moral hazard a problem in health insurance markets? We can still confidently say: YES!

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China Health News

November 14, 2007 in Current Events | Permalink

Here is some of the latest health news concerning China:

  • The Gates Foundation donated $50m to fight HIV in China (Houston Chronicle).
  • Diabetes rates in China are increasing (ChinaView).
  • China’s use of coal plants is creating pollution problems in Japan, South Korea, and even the U.S. (CNN)

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Wednesday Reading

November 14, 2007 in Current Events | Permalink

Here’s some interesting reading to cure your mid-week blues:

  • Joe Paduda in “Dumber than a box of rocks” references a FierceHealthcare article which finds that HealthNet actually paid bonuses to staff based on how many claimant policies they could terminate. This cost-saving may backfire since one patient is suing HealthNet for $6 million.
  • The L.A. Times (“…dropping sick policyholders“) has more info on Healthnet’s ‘bonuses-for-cancellations’ scandal.
  • The Wall Street Journal (“…Organ Sales“) wonders whether or not the sale of organs is a good thing. Lifesharers has an idea, if you volunteer to donate your organs when you die, you can move to the front of the organ recipient list. If not, you’re at the back. [Thanks to Marginal Revolution for these links]
  • Cato-at-Liberty notes that “with just seven weeks left until [Massachusetts'] mandate for individual health insurance goes into effect, more than 100,000 residents have failed to buy the required insurance”
  • The Health Care Blog has a video interviews with Michael Cannon of the Cato Institute and Dr. Bridget Duffy of the Cleveland Clinic at the Consumer-Centric Healthcare Congress.

Is the FDA Safe and Effective?

November 13, 2007 in Pharmaceuticals, Public Policy | 1 comment

The Food and Drug Administration is one of the most important government agencies. The FDA has an interesting history and below I will review some important dates.

  • 1938 Federal Food, Drug and Cosmetic Act. This law was enacted after the drug Elixer Sulfanilamide killed over 100 people. Firms were required to submit new drugs to the FDA. “If the FDA was not convinced of a drug’s safety then it had 180 days from the receipt of the application to block the drug’s introduction into the market.” The law required that drugs have an appropriate label for safe use.
  • 1951 Durham-Humphrey Amendment. The amendment divided the drug world into prescription and over-the-counter drugs. Patients using over-the-counter drugs did not need a physicians prescription.
  • 1962 Kefauver Amendments. These amendments removed the 180 day limit. Further, the law required not only that new drugs be safe, but also that they are effective. The FDA also gained control of all drug testing in the U.S.
  • 1992 Prescription Drug User Fee Act. Due to lengthy approval times, this law allowed the FDA to charge drug companies user fees in order to receive guarantees on review times.

Presently, there are 4 phases that a drug must go through in order to gain FDA approval.

  • Phase I. These are smaller (20-80 participants), clinical trials which determine a drug’s safety and pharmacologic properties among healthy volunteers.
  • Phase II. This phase tests a drug’s efficacy and optimal dosage. Typically 100-300 individuals are enrolled and these volunteers have the disease which the drug is supposed to treat.
  • Phase III. The third phase is very similar to phase 2, except that the study is much larger. Often there are over 1000 participants in these trials. A drug can receive approval from the FDA if Phase III proves successful.
  • Phase IV. This is the least formal stage. It involves post-market surveillance. Often the FDA will request that the pharmaceutical company conducts a study to determine the long term safety of the drug.

A paper by Philipson and Sun (2007) looks at whether having the FDA and product liability is an efficient use of societal resources. If the FDA approves a drug as safe, then why would there be product liability? The chance of an enormous lawsuit will only lead to higher drug prices as companies have to find a way to fund lawyers and damage awarded during lawsuits. “For example, firms seldom do more clinical testing than what the FDA requires, which suggests that at least for this investment in safety, product liability may sometimes duplicate the role of the FDA.” If the drug companies will not preform more clinical trials, having a product liability system will only add the cost of drugs.

One issue not taken into account is one of fairness. If an individual is harmed by an unsafe drug, without a product liability system they will not be compensated. Further, if we believe that individuals harmed by the drug have more medical expenses (from drug complications) and thus lower income, it is possible that an efficiency argument could be made by which product liability redistributes income from those with lower marginal utility of income to those with higher marginal utilities of income. Since I am not in favor of having the courts decide cases based on issues of income inequality, I think the fairness is the most compelling argument for a product liability system.

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Resources for Health Economists

November 12, 2007 in Economics - General | Permalink

Where does an aspiring health economist look for journals relevant to the interdisciplinary field of health economics?  Which data sets are relevant for the empirical word a health economist would conduct?

If you’re looking for answers to these questions, check out the Resources page of my personal website.  The Resources page has a list of journals and data sets that health economists will find useful.

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EconLog on P4P

November 11, 2007 in Physician Compensation | Permalink

Arnold Kling of the EconLog site has some commentary on P4P when discussing Tim Hartford’s latest book (“The Logic of Life“).

I have a very different approach to compensation. I think that the key is to change compensation schemes frequently. The reason is that any scheme can be gamed, and the longer you wait to change any given scheme, the more effectively the participants will have gamed it. That is one reason I think that “Pay for Performance,” the newest miracle cure for health care costs, will fail miserably. The doctors will be able to run circles around the bureaucrats. In the U.K., they already have–all of a sudden, 91 percent of doctors were receiving bonuses for being above average.

I can’t verify this ’91%’ figure.  Using pre-P4P measure as the measuring stick will lead to many physicians reaching the ‘above average’ mark in the post P4P mark.  Much of this increase is due to better record keeping; some of it is due to better care.

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Does the American health care system give good value for the dollar?

November 9, 2007 in Current Events | Permalink

This is the question asked to undergraduate economics students a public health students by Atheendar of ‘Dar he Blogs.  One third of the economics student said yes, but all the MPH students said no.  Atheender concludes the following:

I think there are two things to take from this. First, there is a great deal of self-selection on the margin of political leanings in public health. Most MPH students tend to identify with democrats/liberals (or, on one of my more cynical days, “pink-os”), which probably is what induces them to pursue a service-oriented field like public health in the first place. (I’m not sure if the causality works the other way: does learning about public health shift people’s voting preferences to the left?).

Second, and most germane to this post, is that, despite what Michael Moore says, not everyone thinks the U.S. health care system is a complete disaster. Slowly but surely, some recent press and research work suggests that the American system isn’t really as bad as it seems when making general comparisons with systems in other OECD countries.

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