February 2009

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Tell me something I don’t know…

February 11, 2009 in Economics - General | No comments

The Wall Street Journal reports that the tough economic times has lead to a decline in demand for new Economics Ph.D. students.  As someone who is ‘on the job market’ this year, I certainly agree that it has been a tough year.  Many universities who placed job advertisements to hire new Ph.D. Economists have since withdrawn the post due to budgetary considerations.  Just as the WSJ states, the experience of my peers at UCSD has been that “…even qualified candidates went through just a fraction of the usual number of interviews this year, and some schools have canceled flyouts.”

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CoR has been posted

February 11, 2009 in Carnivals | No comments

The 71st edition of the Cavalcade of Risk has been posted at Julie Ferguson’s Workers’ Comp Insider.

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Health Care Spending

February 11, 2009 in HC Statistics, International Health Care Systems | 2 comments

The California HealthCare Foundation has a great document summarizing many useful Health Care Cost Statistics (see full text or fact sheet).  Some of the highlights:

  • Health Care spending as a percentage of GDP is projected to grow 16.0% of GDP in 2006 to 19.5% of GDP in 2017.
  • Average health care spending per capita was $7026 in 2006 and will grow to $7868 in 2008.
  • In 1962, Defense spending made up half of the federal budget, Social Security about 15% and Medicare had not yet been enacted.  By 2007, Defense spending is only 20% of the budget while Social Security makes up 21% and Medicare 16% and rising.
  • The U.S. has by far the highest health care spending as a percentage of GDP.  This table compares health care spending across different countries.
  • Hospitalization and Physician Services make up over 50% of health care spending.  This table gives the distribution of health care spending in the U.S. by type of service.
  • What are the drivers of the cost increases?  Price inflation and a change in the volume and mix of services provided.

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Transportation Brokerage Services Lower Health Care Costs

February 10, 2009 in Medicaid/Medicare | No comments

Transportation issues can create significant barriers to accessing quality health care.  If you do not have a car, physically cannot drive, or do not have public transportation where you live, getting to the doctor’s office can be difficult.  Although the federal government mandates that state Medicaid programs provide nonemergency medical transportation services to vulnerable populations, providing this service has been costly and inefficient. 

Kim, Norton and Stearns (2009) examine 2 of the 21 states who have begun using transportation brokerage services to cut down on costs and improve quality.  The authors use a difference-in-difference estimation technique, identified through difference in the timing of the transportation brokerage implementation in Georgia and Kentucky.  The authors find the following results after the implementation of transportation brokerage services:

For asthmatic children and diabetic adults, “the increased use of any health care services accompanied with decreased expenditures conditional on any use led to a decrease in total expenditures by $18 per person per month. Compared with average monthly total health care expenditures by study populations, these results imply a 13 percent decrease in total health care expenditures for children with asthma and 4 percent decrease for adults with diabetes.”

Transportation brokerage services increased the probability patients would use outpatient care, but decreased the probability that they would be so sick that they had to be hospitalized. Although these findings are only for two subpopulations, transportation brokerage services may be an attractive means to reduce hospitalizations and health care costs.

  • Kim, Norton and Stearns (2009) ”Transportation Brokerage Services and Medicaid Beneficiaries’ Access to Care,” Health Services Research, v44(1):145-161.

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California Health Care Market

February 9, 2009 in HC Statistics, Health Insurance | No comments

In her California Healthcare Foundation report, Katherine Wilson does a nice job describing the health insurance market in California.  A little over health of individuals received health care from their employer or themselves (56%), a quarter of individuals receive health insurance through public programs, and 19% of Californians are uninsured (see chart). 

The private health insurance market cannot be portrayed as a monopoly nor one that is truly competitive in the neoclassical sense.  A handful of insurance carriers dominate the market.  Kaiser, Blue Cross, HealthNet, Blue Shield, Pacificare, and Aetna control 77% of the market (see chart).  

Of the premiums insurers receive, the percentage of revenues going to medical care varies widely.  Kaiser spends 93% of revenue on medical expenses, but Blue Shield and Pacificare’s traditional insurance plans spend only 70% of revenues on medical expenses.  Administrative expense ratios are also much lower for Kaiser (3.6%) than for providers such as Blue Shield’s tradiational Insurance plan (22.7%). More details about load factors are available here (see chart).

The full CHCF report can be viewed here.

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Medical Errors and Ninety-Day Cost and Outcomes

February 6, 2009 in Hospitals, Supply of Medical Services | 3 comments

A hospital is a place of healing.  It can also be a place of injury.  In the U.S., 2.9% of people who enter the hospital are actually harmed by the care they receive.  Yet what are the costs of these injuries?

A paper by Encinosa and Hellinger (HSR 2008) attempts to estimate the cost of hospitals failing to prevent advser medical outcomes.  The authors examine 14 patients safety indicators (PSIs) such as: anesthesia complication, accidental laceration, foreign body left in, iatrogenic pneumothorax, transfusion reaction,  infections due to medical care, sepsis, pulmonary embolism and deep vein thrombosis, acute respiratory failure, physiologic and metabolic derangements, hemorrhage/hematoma, wound dehiscence, postoperative hip fracture and decubitus ulcer. 

The authors found the following results:

“Excess 90-day expenditures likely attributable to PSIs ranged from $646 for technical problems (accidental laceration, pneumothorax, etc.) to $28,218 for acute respiratory failure, with up to 20 percent of these costs incurred postdischarge. With a third of all 90-day deaths occurring postdischarge, the excess death rate associated with PSIs ranged from 0 to 7 percent. The excess 90-day readmission rate associated with PSIs ranged from 0 to 8 percent. Overall, 11 percent of all deaths, 2 percent of readmissions, and 2 percent of expenditures were likely due to these 14 PSIs. ”

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The Health Wonk Review is up

February 4, 2009 in Carnivals | No comments

The latest edition of the Health Wonk Review has been posted at the always informative Health Business Blog.

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Value-Based Cost Sharing

February 4, 2009 in Asymmetric Information, Health Insurance, Optimal Ins (Theory) | No comments

Many policy experts have been proponents of value-based cost sharing.  Under value-based cost sharing, medical care that is seen to provide a higher marginal benefit to the patient will have lower coinsurance rates than medical care with lower marginal benefits.  If value-based cost sharing would be implemented, preventive care should have low coinsurance rates because of the subsequent health benefit.

This seems like a very attractive way to design health insurance benefits, but a paper by Pauly and Blavin (JHE 2008) asks if value-based cost sharing is truly a novel concept.

First, under perfect information, there is no reason to have value-based cost sharing.  In this case, patients should internalize the marginal benefits–now and in the future.  ”When all agents have perfect knowledge of patient illness states and benefits of care, optimal coinsurance should be zero; insurance should take the form of a fixed dollar (indemnity) payment to cover the full cost of care when care is cost-effective, and should pay nothing in circumstances in which care has benefits that fall short of cost.”

Under asymmetric information, however, patients may make naive decisions.  For instance, patients may decide to forgo preventive care because the do not realize its long-term health benefits.  Coinsurance rates must still be designed to balance the twin goals of risk sharing and averting moral hazard.  Lower coninsurance rates will incentivize patients to get needed care.  However, designing coinsurance rates solely based on the marginal benefit of the procedure may not be optimal once we take into account that patient moral hazard may increase medical care above optimal levels.  

Pauly and Blavin also note that under asymmetric information, “it may now be the more price responsive service that should get the cost reduction, since lowering its cost sharing will have a larger effect in terms of moving it closer to the ideal level than would be the case for a less responsively demanded service.  That is, if patient ignorance resulting in underestimation of benefits from care in a given setting is severe enough, the direct relationship between price responsiveness and optimal cost sharing should be reversed.”

Yet just because value-based cost sharing can work does not mean that is the only solution.  Instead of spending money to reduce coinsurance rates, insurance companies or policymakers could spend money to inform consumers of the true benefits and costs of different types of medical care.  This is especially true of medical services that are not price responsive; where the only way to convince patients to undergo these potentially uncomfortable procedures is to increase information dissemination.  For instance, most people would prefer not to undergo a colonoscopy even at a price of 0.  The only way to convince patients that the procedure is needed is by information dissemination.

Value-based cost sharing is not a magic bullet, but may be a useful technique in the presence of asymmetric information.

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Learning and Drug Diffusion

February 2, 2009 in Asymmetric Information, Pharmaceuticals, Supply of Medical Services | 1 comment

How do doctors know which drugs to give to which patients?  Of course there are clinical trials giving the relative efficacy of each drug.  With less than perfect adherence, however, clinical trials may not accurately predict a drug’s efficacy or the potential side effects.

A paper by  Chintadunta, Jiang and Jin (2008) look at two types of physician learning about pharmaceuticals: learning across patients and learning within patients.  Across patient learning occurs when the physician learns about the average quality of a drug.  Physicians figure out which drugs are best suited for individual patients through within-patient learning.

The authors look at physician learning in the setting of Cox-2 Inhibitors:

“Between 1998 and 2001, the FDA approved three Cyclooxygenase-2 (Cox-2) Inhibitors: Celebrex (Dec. 1998), Vioxx (May. 1999), and Bextra (Nov. 2001). All of them were heavily advertised as safer alternatives to then existing pain killers. By September 2004, the class had more than 10 million patients, annual sales had reached $6 billion in 2003, and total advertising dollars spent in 2003 were as high as $400 million. After a clinical trial associated Vioxx with severe cardiovascular (CV) risks, Merck withdrew the blockbuster drug in September 2004. CV risks and enhanced concerns on skin irritation led to the withdrawal of Bextra in April 2005. As of today, Celebrex is the only Cox-2 Inhibitor remaining on the market, with warnings added in April 2005. ”

Data and Methods

The authors use data from four sources to identify physician learning: 

  1. patient-level prescription and satisfaction data from the IPSOS patient diary database (IPSOS-PD), 
  2. monthly advertising expenditures obtained from the New Product Spectra (NPS) database, 
  3. the number of news articles covering Cox-2s derived from Lexis-Nexis for the period 1999 to 2005, and
  4. the number of academic articles covering Cox-2s from Medline from 1999 to 2005. 

Patient level satisfaction is importance because the more satisfied a patient is with the prescription, the less likely the physician will decide to switch brands.  Physician learns which brands are well-suited to which type of patients.  Advertising, media coverage and academic articles all play a roll in across-patient learning.  

The authors use a Bayesian model to identify learning.  The authors assume each physician has a prior about the relative efficacy and safety of each of the Cox-2 Inhibitors.  Patient satisfaction, advertising, media coverage, and academic articles all will update the posterior probabilities.  

The utility of each of patient, p, from using each drug, j, at time, t, is:

  • Upjt = β0j + βsE(satis)jt + βxjXpt + βzZjt +εpjt

The patient’s utility depends on a drug specific constant, the patient’s average satisfaction rating up to that date, patient specific factors, X, and drug specific information, Z.

Results

The authors find that there is significant physician learning based on the evolution of patient satisfaction measures.  Other types of information seem to have less of an effect on physician prescribing behavior.  Physicians hold strong priors which leads to slow updating.

Interestingly, “News articles have a positive influence on prescriptions, no matter whether these titles sound negative or non-negative. This suggests that the major role of news articles is informing doctors/patients of the existence of Cox-2s, rather than revealing the quality of Cox-2s…In contrast, a medical article about Cox-2s has a significant negative impact on prescription sales, even if its title and abstract are non-negative.”

Thus, the authors find that doctors learn more within-patient than across patient.  

FDA updates have no impact on physician behavior.  How can this be?  By the time the FDA issues a warning on the risks of the potential risk of different drugs, there almost always have been academic articles published on these issues.  This is not to say that the FDA updates are useless, only that they often come after the academic research has already taken place and the physicians have already updated their priors.

For policy makers, the conclusions of this study may be worrisome for proponents of evidenced based medicine.  Currently, physician learning from new information is very slow.  Secondly, physicians seem to focus on tailoring treatments to individual patients rather than updating whether or not the treatment is worthwhile in the first place. 

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Uwe Reinhardt on Hospital Prices

February 1, 2009 in Hospitals | No comments

Health Economist Uwe Reinhardt supports expanding the DRG system to all payers.  

“Under Medicare’s approach, hospitals are paid one price for an entire inpatient episode, rather than piece-rate (fee-for-service) for every single supply and service delivered in that episode…To eliminate the rampant price-discrimination inherent in current hospital pricing, all hospitals under this system would be required to charge all patients the same price for a given D.R.G. Ideally, this stricture should apply even to patients covered by Medicare or Medicaid, as is done in the “all payer” system that has long been operating in Maryland and seems to have worked well there…Payments in addition to the case-payment would have to be made for highly complex cases — so-called “outliers.” Medicare has decades of practical experience with that problem as well.”

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