Unbiased Analysis of Today's Healthcare Issues

Will OCM dis-incentivize innovation?

Written By: Jason Shafrin - Mar• 13•17

The answer seems to be yes according to a paper by Seiden, Neubauer and Verrilli (2017).  Although the Oncology Care Model (OCM) rewards practices both for improving quality and reducing cost, practices are not rewarded for dramatic increases in quality at marginal cost increases because financial returns are dependent on the creation of some cost savings. The following example I found illuminating.  They authors state that the Oncology Care Model:

does include quality metrics, but doesn’t include response, survival, or toxicity. The calculation of shared saving that would be delivered to the practice is equal to a quality score multiplied by cost saving score. Consider, as an example, a practice that doubled its quality score from 50 to 100 while its healthcare costs increased 10%. In this hypothetical case there was a marked improvement in quality and perhaps even survival, simultaneously with an increase in costs. While the improvement in quality would exceed the cost increase (and thus improved “value”), the cost-saving equation would yield no financial return for the practice (reward in the OCM = quality score x cost savings). In the event the practice made significant financial investment to transform clinical care through investment in information technology, staff, and processes, they could easily have overspent their monthly management fee. This highlights an important discordance with value and shared savings that dominates APMs [Alternative Payment Models].

Admittedly, balancing the desire to accelerate innovation and grant patients access to the latest medications must be balanced with limitations on society’s resources.  Balancing these two competing needs is imperative to insuring budgets are balanced and patients live long, healthy lives.

Links to start the week

Written By: Jason Shafrin - Mar• 12•17

Health Wonk Review is up

Written By: Jason Shafrin - Mar• 10•17

Peggy Salvatore has posted the “May You Live in Interesting Times” Edition of Health Wonk Review at Health Systems Ed Blog, and as you might expect in a week that saw the release of the Republican’s proposed Obamacare replacement plan, it’s a solid, jam-packed edition.

Why don’t people like the American Health Care Act?

Written By: Jason Shafrin - Mar• 09•17

There has been a lot of criticism of the Republican’s “repeal and replace” bill known as the American Health Care Act. The critiques are coming from both the left and the right. Let’s look at just one provision–the premium age bands–to better understand why both people on the left and right do not like the American Health Care Act for very different reasons.

Consider the provision that insurers can set the price of health insurance for older Americans at up to five times the premiums of younger Americans. This provision will result in higher premiums for older individuals. The AARP writes:

“Before people even reach retirement age, big insurance companies would be allowed to charge them an age tax that adds up to thousands of dollars more per year. Older Americans need affordable health care services and prescriptions.

While it is true that older Americans will receive larger tax credits through AHCA, these credits likely will not offset the additional cost. Thus, AARP is concerted about whether near elderly individuals will be able to afford health insurance on the private market.

Michael Cannon is from the Cato Institute and also does not like the premium age band provision either. However, he believes that community rating is the problem and that that the 5 to 1 premium ratio is too narrow rather than to wide.  He writes:

ObamaCare’s community-rating price controls literally penalize insurers who offer quality coverage to patients with expensive conditions, creating a race to the bottom in insurance quality…The leadership bill would modify ObamaCare’s community-rating price controls by expanding the age-rating bands (from 3:1 to 5:1) and allowing insurers to charge enrollees who wait until they are sick to purchase coverage an extra 30 percent (but only for one year). Even with these changes, however, premiums would remain high, ObamaCare would continue to make it easier for people to wait until they are sick to purchase coverage, and the law would continue to penalize high-quality coverage for the sick. In fact, the House leadership’s decision to leave ObamaCare’s community-rating price controls in place while relaxing its “essential health benefits” requirements would cause coverage for sick to deteriorate even faster than ObamaCare does.

So the AARP wants health insurance to be affordable for consumers on the demand side.  The AHCA may not make enough progress on this front for many constituencies.  At the same time, Cato wants to make sure suppliers (i.e., insurers) are able to set actuarially fair premiums rather than have a narrow premium bands under community rating.  By keeping the community rating provisions of Obamacare–even with some age-related premium variance and some penalties–not only is the risk of an adverse event death spiral high, but insurers have an incentive to provide poor quality service to high-cost individuals (e.g., those with cancer) because they are money losers.

A more reasonable solution would be the “Best of Both Worlds” proposal from the American Enterprise Institute.  The two primary provisions of this proposal include:

  • Allow and encourage insurance companies to charge individualized premiums to consumers that reflect their true health care costs. When insurance is fairly price, insurers will not exit the market and will be incentivized to provide high quality care to the sick rather than trying to get them to leave their plan.   In other insurance markets, people with higher potential expenses get charged more.  For instance, those with a Ferrari pay higher car insurance rates than those who own a Toyota.  Insurers should get paid more for providing insurance to individuals who they expect will cost more so they no longer attempt to shun the sickest individuals.
  • Subsidize premiums based on income and age.  The AEI plan calls for insuring that all individuals have access to a “basic insurance plan”.  What that plan is and how much cost sharing there should be is a political question.  As U.S. society has largely believed that all individuals should have access to some form of healthcare, some redistribution is needed.  The degree to which this redistribution occurs depends on societal preferences.  However, there is precedent for this approach.    In the Netherlands and Switzerland, risk adjustment is used so that sicker individuals receive larger premium subsidies.  Thus, although insurance will be fairly price, the sickest should be able to afford this insurance due to the risk adjustment subsidies.

This plan works because it is both market-based and equitable.  Allowing insurers to set their own prices addresses the Cato Institute’s concerns as it means that markets will function and we will not see mass exits of payers for certain markets.  Government premium support subsidies addresses the AARP’s concern that health insurance is not affordable.  The AHCA’s simple 5:1 premium bands by age are crude and do a poor job of aligning subsidies with likely premium costs.  By better tying government subsidies to expected market premiums, health care would remain affordable for all.


Overview of the American Health Care Act (a.k.a. “Repeal and Replace”)

Written By: Jason Shafrin - Mar• 09•17

Before we get into the details of how the American Health Care Act bill will proposed to change the current system, let’s first talk about what is not changing.  In fact, while “repeal and replace” has a catchy ring to it, there is a lot that is staying the same.  As Ezra Klein of Vox notes, Obamacare provisions that remain include:

  • The ability to stay on your parents insurance until age 26
  • Requiring insurers to cover pre-existing conditions
  • A ban of insurers instituting both annual spending limits and lifetime limits
  • Tax credits for health insurance remain (although the exact form and amount of the credit would change)
  • Medicaid expansion will not be repealed and in fact stats that did not previously expand Medicaid can do so until 2020.
  • All insurers must provide ten “essential health benefits”.  These benefits include maternity care and preventive services.

So what did change?

  • No more individual mandate…kind of.  The individual mandate is gone.  Under Obamacare, people who did not buy health insurance owed a tax penalty.  Under the American Health Care Act, there is no tax penalty but individuals who’s insurance lapses can be charged a 30% premium over regular rates. A 30% premium rate hike sounds stiff.  However, if you are sick and have cancer for instance, a 30% premium hike is small potatoes compared to the actual cost of treatment.  On the other hand, for healthy people, a 30% rate increase may drive them away from having insurance. Thus, the non-mandate–even with the 30% penalty–may lead to a adverse selection death spiral whereby only sick people purchase insurance and premiums rise dramatically.
  • No more employer mandate.  Large and medium size employers no longer have to provide health insurance to their employees.  Of course, they can do so if the choose to, but the repeal of the employer mandate is the clearest “repeal” of the Affordable Care Act provisions.
  • Medicaid expansion ends in 2020…kind of.  Sarah Kiff of Vox explains: “In 2020, enrollment in the Medicaid expansion will ‘freeze’ and states with no longer be able to sign new enrollees up for the program. Legislators expect that enrollment would slowly decline, as enrollees’ incomes change and they shift off the program.”  Thus, the expansion is likely to die a slow death.  That is, unless there is too much popular support for the Medicaid expansion by 2020.  Michael Cannon of the Cato Institute writes: “By 2020, the constituency for preserving the Medicaid expansion would be much larger than it is now. More states, more voters, and more special interests will resist repealing the expansion than do today.”
  • Tax credits are based on age and income rather than income alone.  Kaiser Health News explains that “The GOP tax credits would be tied largely to age, with older people getting twice as much ($4,000 per year) as younger people ($2,000). ”  Specifically, these credit rages are $2,000 for those under 30; $2,500 for those between 30 and 40; $3,000 for those between 40 and 50; $3,500 for those between 50 and 60 and $4,000 for those over 60.  However, individuals (households) earning less than $75,000 ($150,000) would get the full $4,000 credit.  Setting tax credits based on income (to increase progressively) and likely health care cost (i.e., age) is not unreasonable.  However, using crude 10 year age bins
  • Community rating remains but with more price variability.  Under the ACA, health insurers  could charge older individuals premiums that were three times the premium they charge charge younger individuals.  Under AHCA, insurers would be able to charge older customers five times as much five times as much as younger ones and give states the option to set their own ratio.

Tomorrow, I will weigh in with my comments on the bill.

Immigrant Physicians

Written By: Jason Shafrin - Mar• 07•17

Interesting facts from Alex Tabarrok of Marginal Revolution:

One percent of all the physicians in the United States come from the six countries targeted in Donald Trump’s new Executive Order. I found that a surprisingly high number. According to the Immigrant Doctors Project, those 7000 physicians provide 14 million doctors’ appointments each year and many of them are located in the poorer, whiter, and rural parts of the country.

I don’t see this as a knockdown argument against the policy but it does illustrate a surprising cost and also how much the United States benefits from the immigration of the highly-skilled and educated.

Measuring the quality of cancer care

Written By: Jason Shafrin - Mar• 06•17

How do you measure the quality of care patients with cancer receive?  How long they live?  Avoiding side effects?  Patient satisfaction? Process measures?

Further, there are multiple types of cancer and different cancer have different recommended treatments and methods of providing care.  To further complicate the issue, new cancer treatments are being introduced in rapid succession; what qualifies as high quality cancer treatment today may be out of date months or even weeks later.

Oragnizations such as Institute of Medicine,6 National Quality Forum (NQF),79 and Core Quality Measure Collaborative (CQMC)

So what are the options?  Provide uber-detailed qualty metrics for each individual tumor type (or even within tumor type)?  Measure quality of care broadly?  Or give up on the whole top-down quality measurement endeavor.

A recent paper by Valuck et al. (2017) examined current quality measures and practice guidelines for 10 tumor types:breast, chronic myelogenous leukemia (CML), colon, kidney, melanoma, non-Hodgkin’s lymphoma (NHL), non-small cell lung (NSCLC), ovarian, pancreatic, and prostate.  Then, they asked a panel of experts how these quality measures should best implemented in practice.

The group determined that overreliance on condition-specific process measures is problematic because of rapidly changing evidence and increasing personalization of cancer care. The group’s primary recommendation for enhancing measure sets was to prioritize and develop effective cross-cutting measures that assess clinical and patient-reported outcomes, including shared decision making, care planning, and symptom control. The group also prioritized certain safety and structural measures to complement condition-specific process measures.

They also come to some sensible recommendations:

  1. VBP models should leverage the best available measures, beginning with those identified by the CQMC, as well as monitor adherence to pathways and incentivize PRO data reporting.

  2. Payers and providers should use a layered measurement approach for performance improvement, monitoring, and accountability measures, aligned across the physician, system, and external accountability levels.

  3. Measure developers (e.g., ASCO, ASTRO, and NCQA); program implementers (e.g., CMS, state Medicaid agencies, Medicaid managed care organizations, and commercial health plans); and industry should continue to support, fund, and develop cross-cutting measures, including clinical outcomes and PRO-PMs, leveraging collaborative processes such as the NQF Incubator.

  4. Public- and private-sector payers, measure developers, and industry should incorporate best practices to improve measure specifications, evaluate the impact of measures used in accountable care programs, and address measurement methodological issues in model design and measurement (e.g., risk adjustment and stratification and provider attribution), as identified by groups such as HCP LAN and NQF.

  5. Research organizations, such as the Agency for Healthcare Research and Quality and Patient-Centered Outcomes Research Institute, and industry should fund measurement science, including PRO-PM design and implementation.

Overall, an interesting perspective on measuring and paying for quality.


Patient Engagement in Cost Effectiveness Research

Written By: Jason Shafrin - Mar• 05•17

Cost effectiveness research aims to determine if the benefits of a treatment outweigh the cost.  But which benefits should be included?  How should we weight improvements in different outcomes?  What data and methods need to be used to measure benefits and costs?

These are questions that academics typically think of as within the domain of research experts. However, there is another group of experts that is often ignored: patients.

A 2012 JAMA commentary from Mullins, Abdulhalim, and Lavallee (2012) discuss specific points to involve patients in the process.  In particular, they advocate for continuous cost effectiveness research.  This process would incorporate patient feedback on direction through the entire research process.  The 20 steps they outline are detailed below.

  • Topic solicitation: Identify topics that are important to patients, caregivers, and the community; Propose topics to be investigated
  • Prioritization: Solicit feedback on relevance and priority of topics; Discuss the urgency of addressing topics
  • Framing the question:  Ascertain questions’ relevance and usefulness; Assess “real-world” applicability
  • Selection of comparators and outcomes: Identify comparator treatments of interest; Identify outcomes of interest; Incorporate other aspects of treatment
  • Creation of conceptual framework: Provide a “reality check”; Verify logic of conceptual framework; Supplement with additional factors not documented in the literature
  • Analysis plan: Verify importance of factors and variables; Ascertain whether there is a good proxy for a specific concept; Inquire about potential confounding factors
  • Data collection: Determine best approaches for data collection (eg, trial, registry, medical charts); Assist with selection of data sources
  • Reviewing and interpreting results: Assess believability of results; Suggest alternative explanations or approaches; Provide input for sensitivity analysis
  • Translation: Interpret results to be meaningful; Document which results are easy or difficult to understand; Indicate which results are counterintuitive
  • Dissemination: Facilitate engagement of other patients; Help other patients to understand findings

Mullins and co-authors lay out a convincing case.  Although patients have hetergeneous clinical backgrounds, treatment preferences and technical sophistication, if cost effectiveness reserach aims to ultimately to improve the value of care patients receive, it would be a disservice not to include patients themselves explicitly in the research process.


Friday Links

Written By: Jason Shafrin - Mar• 03•17

Trump Addresses Congress: The Healthcare Economist’s Take

Written By: Jason Shafrin - Feb• 28•17

Tonight, President Donald Trump delivered his first address to a joint session of Congress.  Although the speech touched on a number of topics, I give my line-by-line commentary on the portions of the speech related to health care.

Tonight, I am also calling on this Congress to repeal and replace Obamacare with reforms that expand choice, increase access, lower costs and at the same time provide better health care.

  • If only it were so easy.  More choice, more access, lower cost.  It all sounds good, but the devil is in the details.

Mandating every American to buy government-approved health insurance was never the right solution for our country. The way to make health insurance available to everyone is to lower the cost of health insurance, and that is what we are going to do.

  • This comment targets the individual mandate.  The advantage of the individual mandate was that it helped avoid the problem of adverse selection.  Some insurance markets will unravel if healthy patients leave the market.  When healthy patients leave the market, premiums rise.  This price increase can lead to a viscous cycle where moderately healthy individuals no longer buy health insurance and premiums rise even further.  At the same time, Americans place a high value on choice and generally do not like the government to mandate anything if it can be helped.  President Trump is correct that coverage in and of itself is not enough; health insurance must also deliver high value to the individuals who purchase it.

Obamacare premiums nationwide have increased by double and triple digits.  As an example, Arizona went up 116 percent last year alone. Gov. Matt Bevin of Kentucky just said Obamacare is failing in his state, the state of Kentucky, and it’s unsustainable and collapsing.

One third of the counties have only one insurer, and they’re losing them fast, they are losing them so fast. They’re leaving. And many Americans have no choice at all. There’s no choice left.

Remember when you were told that you could keep your doctor and keep your plan? We now know that all of those promises have been totally broken. Obamacare is collapsing and we must act decisively to protect all Americans.

  • It is certainly true that in 2017, a number of Obamacare markets have seen large premium increases. As I state in my interview in NPR, some of these premium increases are one-time increases due to decreased federal support of insurer’s high cost patients.  However, some large insurers did exit certain markets–like Arizona–and a lack of competition did drive up premiums in these areas.  Stating that “Obamacare is collapsing,” however, is certainly an exaggeration.  For instance, the Covered California Obamacare marketplace has been remarkably functional and could serve as a model for the nation).  Nevertheless, policymakers should recognize that in 2017 the exchanges in some states become less stable.

Action is not a choice; it is a necessity. So I am calling on all Democrats and Republicans in Congress to work with us to save Americans from this imploding Obamacare disaster.

  • Disaster is certainly an overstatement.  I do agree that collaboration between Democrats and Republicans would be nice for a change.

Here are the principles that should guide Congress as we move to create a better health care system for all Americans.

First, we should ensure that Americans with pre-existing conditions have access to coverage and that we have a stable transition for Americans currently enrolled in the health care exchanges.

  • Insuring high-cost individuals with pre-existing conditions is a serious issue.  Creating publicly funded high-risk pools reduces insurer uncertainty and helps to lower premiums for the general market.  However, these high-risk pools have generally been underfunded and run large deficits. Including high-risk patients with pre-existing conditions in the general insurance pool, however, can risk destabilizing the market due to an averse selection death spiral (see more details below).
  • One solution proposed by John Cochrane is premium insurance.  Under this scenario, health insurance is priced in an actuarially fair manner. If you are sick you would owe more for health insurance than someone who is healthy. To address the issue of equity, one could buy premium insurance.   For individuals who become seriously ill, premium insurance would cover this increase in premiums by providing a lump sum payment (or an annuity) that could be used towards the purchase of the now higher-priced health insurance.  Thus, patients who fall ill would be no worse financially than before.  Further, insurers would actually compete to attract sick patients since they would be paying higher premiums.    There are a number of logistical issues to this approach that would need to be worked out, but it may be worth considering supporting a market for premium insurance.

Secondly, we should help Americans purchase their own coverage, through the use of tax credits and expanded health savings accounts, but it must be the plan they want, not the plan forced on them by our government.

  • At first glance, health savings accounts sound like an idea any economist would like.  High deductible plans with health savings accounts put patients at more financial risk for the care they purchase and thus the may spend healthcare resources more frugally and eliminate unnecessary care.  In practice, however, patients with high-deductible plans generally reduce all healthcare spending rather than just low-value care.  Further, the ability of many sick individuals to price compare is limited not only by a lack of price transparency but also by the fact that sick people are less likely to have the time or energy to price compare.   Finally, the largest share of health care cost is incurred by the sickest people.  These individuals inevitably will blow past their out-of-pocket maximum quickly and thus the high-deductible plans are likely to have a modest effect on overall cost.

Thirdly, we should give our state governors the resources and flexibility they need with Medicaid to make sure no one is left out.

  • This statement likely is tied to a proposal to give block grants to states to provide Medicaid coverage.  In essence, this proposal would transfes all risk of Medicaid cost increases to the states.  There is a worry of a ‘race to the bottom’.  States could decrease Medicaid benefits in order to lower taxes and attract wealthier residents.  Other states that wish to increase Medicaid benefits, may–due to competition across state lines–be forced to lower these benefits.  On the other hand, states may appreciate the increased flexibility to managed Medicaid as they please.  Pushing government closer to the local level is often sound policy.

Fourth, we should implement legal reforms that protect patients and doctors from unnecessary costs that drive up the price of insurance and work to bring down the artificially high price of drugs and bring them down immediately.

  • The comment about legal reforms is likely related to tort reform.  Capping malpractice awards may decrease physicians malpractice premiums, but will hurt the patients harmed by poor care.  Capping malpractice awards also dulls the incentive for physicians to practice more safely.  There is evidence that defensive medicine works to reduce risk to patients.
  • Drug prices are a hotly contentious issue. In the short-run, it would appear that decreasing drug prices is a good thing.  Drugs are generally cheap to produce and getting more people access to life saving medicines is certainly a good thing.  If all drugs were very low cost, however, few pharmaceutical firms would have an incentive to invest in the research and development needed to create then next generations of medicines.  This tension between short-term benefits to current patients from low prices, and the medium to long-term benefits that high prices can bring through increased innovation is a constant tension.
  • How drug prices would be reduced is also key issue.  If drug prices are reduced through decreased regulation, prices could fall with no adverse effect on innovation.  Decreased regulation, however, may also decreased patient safety so that any initiatives that accelerate drug development likely would need to be coupled with additional post-market surveillance.  On the other hand, centralized drug pricing is generally a poor option.  The federal government generally is not good at setting prices.  On the one hand, the federal government would be incentivized to price drugs too low since short-run costs (i.e., the drug itself) are clearly seen by constituents, but the long-term benefits of higher drug prices (i.e., increased innovation of novel treatments) are not.  On the other hand, government prices may be too high in the long run.  As competitor products enter the market, drug manufacturers are less likely to compete on price when prices are set through a central authority compared to when prices are set within a market.  Further, currently, a number of governments programs (e.g., Medicaid) rely on private market prices as a benchmark for their own prices; controlling prices through top-down planning would be problematic.

And finally, the time has come to give Americans the freedom to purchase health insurance across state lines which will create a truly competitive national marketplace that will bring costs way down and provide far better care. So important.

  • This proposal is likely to have a small impact on overall health care cost.  For health insurers to sell into a market, they not only need regulatory approval from the state, but they also have to contract with a network of hospitals and physicians. Thus, it is unlikely that an insurer in New Jersey can sell insurance to patients in California without having established a local market presence.  My guess is that this initiative would result in a small decrease in premiums due to increased competition but only in selected markets where there was entry by health insurers.

Everything that is broken in our country can be fixed. Every problem can be solved.

  • Easier said than done.