Unbiased Analysis of Today's Healthcare Issues

ACA, Uninsurance and American Cities

Written By: Jason Shafrin - Jun• 29•14

The Affordable Care Act (ACA) increased the likelihood individuals have insurance by: (i) offering states money to expand Medicaid eligibility, and (ii) offering individuals subsidies to purchase insurance through newly created health insurance exchanges.  Did it work?  A Robert Wood Johnson report examines at the effect of the ACA on uninsurance rates in 14 large cities: Atlanta, Charlotte, Chicago, Columbus,  Denver, Detroit, Houston, Indianapolis, Los Angeles, Memphis, Miami, Philadelphia, Phoenix,  and Seattle. They found:

  • Among the seven cities in states that have expanded Medicaid, the ACA will likely decrease the number of uninsured by an average of 57 percent. City by city, the reduction is projected to vary between 49 percent in Denver and 66 percent in Detroit by 2016.  New federal spending on health care from 2014 to 2023 would range from $4.1 billion in Seattle to $27 billion in Los Angeles.
  • Among the seven cities in states not expanding Medicaid, the ACA will likely decrease the number of uninsured by an average of 30 percent. The decrease would range from 25 percent in Atlanta to 36 percent in Charlotte by 2016.  New federal spending due to the ACA from 2014 to 2023 would increase by between $1.9 billion in Atlanta and $9.9 billion in Houston.
  • If Medicaid eligibility were expanded in these cities, the number of uninsured would fall by an average of 52 percent, ranging from 45 percent in Houston to 59 percent in Memphis. New federal spending would increase by between $4.8 billion in Atlanta and $16.4 billion in Houston from 2014 to 2023.

We certainly see some crowd-out employer-sponsored health insurance with Medicaid and private non-group health insurance. The report states that: “In most of the cities we considered, the share of adults
with employer-sponsored insurance is noticeably lower.”

Friday Links

Written By: Jason Shafrin - Jun• 27•14


Regional Variation in Medical Spending: A Texas Case Study

Written By: Jason Shafrin - Jun• 25•14

A large body of research (including my own) indicates that there exists significant regional variation in medical spending. What is the source of these differences: differences in the prices paid per service or differenes in the amount of healthcare services used? The conventional wisdom is that Medicare does a better job of controlling prices, and private plans do a better job of controlling volume. Is this true?

A paper by Franzini et al. (2014) examines regional variation in spending across hospital referral regions (HRRs) in Texas. They authors use data from Blue Cross Blue Shield of Texas (BCBSTX) to examine regional variation in spending for the privately insured population and data from Medicare to examine regional variataion in spending for the publicly insured. They find the following:

Price had a considerable impact on spending variation across Texas HRRs in the privately insured population, but a much smaller impact on Medicare spending. This is expected since Medicare rates are not negotiated but rather regulated to use nationally applicable price schedules. Price accounted for 32 percent of BCBSTX spending variation…

However, these results varied by service category. Only 15% of regional variation in outpatient spending and 12% of physician and other professional fees is explained by regional differences in price. fees (i.e., physician fees). The authors claim that:

In this case, it is likely that because professional service providers tend to be in relatively small practices, particularly in Texas where small and solo practices are the norm, they have limited market power and are likely to be price-takers from BCBSTX

On the other hand, hospitals use their market power to negotiate higher rates.

Our finding that a large portion of spending variation for inpatient services is due to price variation is likely due to many hospitals having significant market leverage in negotiating prices. In Texas, price negotiations in the inpatient setting revolve often on an overall spending increase; for example, BCBSTX may target a 5 percent spending increase for a given hospital but leaves it to the hospital to allocate the increase internally. Thus, high-priced markets for inpatient services continue to be high priced over time.

The authors find that in Texas, outpatient and professional services have little market power and are price takers from both private insurance and Medicare. Hosptials, however, have more market power and can negotiate higher prices from private insurers.


CoR #211

Written By: Jason Shafrin - Jun• 25•14

Julie Ferguson of Workers Comp Insider hosts this week’s electrifying round-up of risky posts.

Long-Term Care Hospitals

Written By: Jason Shafrin - Jun• 24•14

What are Long-Term Care Hospitals (LTCH)?  These facilities are different from nursing homes.  The New York Times explains the type of care they provide:

These are no ordinary hospitals: Critically ill patients, sometimes unresponsive or in comas, may live here for months, even years, sustained by respirators and feeding tubes. Some, especially those recovering from accidents, eventually will leave. Others will be here for the rest of their lives…

But more experts and policy makers are likely to have to start thinking about them soon. The cost of long-term acute care is substantial, about $26 billion a year in the United States, and by one estimate the number of patients in these facilities has more than tripled in the past decade to 380,000.

Doctors are getting better at keeping people alive. This is certainly a positive development. However, the expense to keep people alive on ventilators or other intensive devices is non-trivial. Although most patients in LTCH’s are initially covered by Medicare, the benefit runs out at 150 days. After this point, either private insurance or (more likely) Medicaid takes over or–in the worst case–the patient is unnecessarily discharged. Even those covered by Medicare are experiencing cuts.

Medicare, concerned about the high price of long-term acute care hospitals, is trying to trim reimbursements. Nearly half of the $7.3 billion cut from its budget by the Affordable Care Act came from reductions in payments to these facilities. Medicare officials argue that perhaps these patients could stay in regular hospitals or nursing homes instead, and say it’s unclear whether care is better in long-term acute care hospitals.

However, these dollar figures often hide the human aspect.

But while many of these patients may occupy a frightening middle ground between death and the lives they once knew, some do find happiness. The children, some abandoned by their parents, gurgle happily in the hands of volunteers careful not the disturb their respirator hoses. The couple who recently were married, Chris Plum, 38, and Margaret Lavigne, 43, share a room crowded with medical equipment, attended at all hours by determined aides. They kiss each other good night before being lifted into separate hospital beds.

Does hope spring eternal?

A new Platinum, Gold, Silver and Bronze

Written By: Jason Shafrin - Jun• 23•14

Currently, patients entering the health insurance exchanges can choose from platinum, gold, silver and bronze plans.  What is the difference between them?  As the names indicate, platinum has the highest premium and bronze the lowest.  However, bronze plans may be more expensive.  Why is this?  In essence, all the plans cover the same items.  The only difference between platinum and bronze is that the actuarial value differ.  In plain speak, what this means is that patient cost sharing (i.e., copayments and deductibles) in platinum plans are much lower than in bronze plans.  Thus, if you have a serious illness, bronze plans may cost more than platinum plans due to high deductibles.  Rather then platinum, and bronze plans, better names would be low risk/high cost and high risk/low cost.

Is there a better way?  Amitabh Chandra and Austin Frankt think so.  Here is their proposal in the New York Times:

Health plans could define themselves at least in part by the value of technologies they cover, an idea proposed by Professor Russell Korobkin of the U.C.L.A. School of Law. For example, a bronze plan could cover hospitalizations and visits to doctors for emergencies and accidents; genetic diseases; and prescription drugs that keep people out of hospitals. A silver plan could cover what bronze plans do but also include treatments a large majority of physicians find useful. A gold plan could be more inclusive still, adding coverage, for instance, for every cancer therapy shown to improve patient outcomes (no matter the cost) as long as it was delivered at a leading cancer center. Finally, a platinum plan could cover experimental and unproven cancer therapies, including, for example, that proton beam.

This certainly seems like a sensible proposal to me.

Medicare Pricing Distortions and Patient Satisfaction

Written By: Jason Shafrin - Jun• 22•14

The cost of operating a physician practices differs across states.  For instance, rent is much higher in New York City than Nebraska.  Labor costs are much higher in Los Angeles than in La Crosse, Wisconsin.  To account for differences in the cost of operating a practice, Medicare adjusts reimbursement rates in their standard physician fee schedule based on these geographic factors using the geographic practice cost index (GPCI).

However, these these areas are not very precisely defined.  There are only 89 regions in the country.  This means that many region comprise whole states.  Further, expensive areas–such as San Diego–are lumped together in with less expensive areas–rural California.  I have worked with CMS directly and developed reports to evaluate the GPCI system.

One question is, even if the GPCIs are imprecise, does it affect patient care?  A paper by Brunt and Jensen (2014) asks whether patients in areas where Medicare payment rates are “too low” are less satisfied with their care than patients in areas where payment rates are “too high.”

Using data from the Medicare Current Beneficiary Survey, the authors measure patient satisfaction.  But how does one measure whether the GPCI’s are too generous or not generous enough?  What is the gold standard?  The authors replicate the standard GPCI methodology, but calculate the GPCIs at a smaller geographic level Census Public Use Microdata Areas (PUMAs).  In addition, the current work GPCI is constrained to only vary +/- 25% from the national average; the authors do not impose this restriction.

Using this approach, the authors find:

In geographically favorable areas, patients are 12% more likely to be very satisfied with their overall quality of medical care, 10.51% less likely to be satisfied, and 1.51% less likely to be dissatisfied with it, compared with geographically unfavorable areas.

These findings extend to patient’s satisfaction with access to care, as well. In geographically favorable areas, patients are 3.84% more likely to be very satisfied with the availability of medical services at night and on weekends, 2.55% less likely to be satisfied, and 1.29% less likely to be dissatisfied.


Friday Links: World Cup Edition

Written By: Jason Shafrin - Jun• 19•14

Get your Friday health care fix…

…and in the spirit of the World Cup, here are two sports-related posts…

The U.S. plays Portugal at 6pm ET on Sunday. You can watch it on ESPN or streaming or online at Univisión.  I would recommend Univisión, just so you can hear calls like this from the 2010 World Cup.


HWR: World Cup Edition

Written By: Jason Shafrin - Jun• 19•14

Julie Ferguson has posted a fresh Health Wonk Review: The “Undeterred by World Cup Fever” Issue at Workers’ Comp Insider.  Check it out!

Is Health Care Exceptional?

Written By: Jason Shafrin - Jun• 18•14

Many health care wonks claim that health care is a market unlike any other. Unique features make it unsuited to be governed by a market economy. However, research research by Amitabh Chandra, et al. (2013) claims that healthcare providers act like firms in most any other industry.

The conventional wisdom in health economics is that large differences in average productivity across hospitals are the result of idiosyncratic, institutional features of the healthcare sector which dull the role of market forces. Strikingly, however, we find that productivity dispersion in heart attack treatment across hospitals is, if anything, smaller than in narrowly defined manufacturing industries such as ready-mixed concrete. While this fact admits multiple interpretations, we also find evidence against the conventional wisdom that the healthcare sector does not operate like an industry subject to standard market forces. In particular, we find that hospitals that are more productive at treating heart attacks have higher market shares at a point in time and are more likely to expand over time. For example, a 10 percent increase in hospital productivity today is associated with about 4 percent more patients in 5 years. Taken together, these facts suggest that the healthcare sector may have more in common with “traditional” sectors than is often assumed.