Unbiased Analysis of Today's Healthcare Issues

Small business in limbo and other health care stories

Written By: Jason Shafrin - Apr• 10•17

The ACA is here…for now.  The AHCA is dead…for now.  Where will the health insurance market be 1 year from now, let alone in 5 or 10 years?  These questions have not yet been answered and the uncertainty is especially taxing for small businesses, especially as their premiums have risen.

Marketplace has an interesting story looking at “How small businesses are dealing with health care limbo“.

One women–who has less than 10 employees in her firm–noted that premiums for family policy for her firm jumped from $650/month to $1,150/month from one year to the next.  Small business leaders’ thoughts on the ACA and AHCA vary dramatically.

The National Federation of Independent Business endorsed the Republicans’ plan, arguing that it would have delivered more predictability and lower costs. But other business groups, like the Main Street Alliance, want the GOP to fix Obamacare, not let it explode.

Remember, company owners are both employers and individuals.

“For us it just means we are able to not spend $20,000 to $30,000 on health care, and that’s money you can put into your business,” said Ashley Montague, who co-owns the Penn Book Center in Philadelphia with her husband, Michael Rowe.

Obamacare cut their family premium in half initially, and all the guaranteed coverage — the same stuff that drove premiums up for Vicki — was a huge relief for them. Michael said it’s given them peace of mind at a time when the threat of Amazon forces them to restructure their business.

Some other stories of interest from the past week include:

Hospital of the future

Written By: Jason Shafrin - Apr• 09•17

The Economist‘s recent article “Prescription for the future” describes some new trends in health care treatment and predicts what the hospital of the future will look like.  Some excerpts are below:

When I think of the hospital of the future, I think of a bunch of people sitting in a room full of screens and phones,” says Toby Cosgrove, the Cleveland Clinic’s head. In such a vision, a hospital would resemble an air-traffic control tower, from which medical teams would monitor patients near and far to a standard until recently only possible in an ICU. The institution itself would house only emergency cases and the priciest equipment. The only in-hospital consultations would be those requiring the expertise of several specialists working in a team. Patients inside the building would be cared for better. But fewer people would be admitted, as hospitals co-ordinated care remotely and led population-wide efforts to keep people well.

Kaiser is already leading the way on remote care.

Last year half of consultations offered by Kaiser Permanente, an integrated American health-care firm that runs many hospitals, were virtual, with medical professionals communicating with patients by phone, e-mail or videoconference.

Technology can even augment how surgery is performed.

Sricharan Chalikonda, a surgeon at the Cleveland Clinic, says he can imagine scrubbing up “full Robocop-style”, with a helmet with built-in VR goggles giving him fighter-pilot “super-vision” and gloves that give him “super-hands”. His team has already worked with 3D prints of patients’ organs; the next big leap would be to project live images, showing the blood flowing through them. Microsoft HoloLens, clever virtual-reality goggles, is already being used to teach students about anatomy; cadavers can be cut up, which is useful, but to observe biological processes such as circulation in action only a live or VR body will do. In the future, every big hospital could have a Star Trek-style holodeck where surgeons could plan and rehearse complex operations on a 3D projection of the patient.

The future is sure to be exciting and patients can expect significant advances that will improve their health, improve convenience, and (hopefully) lower costs.

HWR is up

Written By: Jason Shafrin - Apr• 08•17

Hank Stern has posted Health Wonk Review: Pre-Passover edition at InsureBlog.  Check it out!

What is causing U.S. debt to explode?

Written By: Jason Shafrin - Apr• 05•17

According to the Congressional Budget Office’s (CBO’s) 2017 Long-Term Budget Outlook, you need to look no further than entitlements for the elderly.

Mandatory programs have accounted for a rising share of the federal government’s noninterest spending over the past few decades, exceeding 60 percent for the past several years. Much of the growth has occurred because Social Security and Medicare—the government’s two largest mandatory programs—provide benefits mainly to people age 65 or older, a group that has been growing significantly. On average, federal outlays for Social Security and Medicare made up almost 40 percent of total noninterest spending during the past 10 years, compared with 16 percent 50 years ago.

In particular, Medicare spending as a share of the economy is expected to almost double over the next 30 years:

Medicare spending, net of offsetting receipts (mostly premiums paid by enrollees), would increase from 3.1 percent of GDP today to 6.1 percent in 2047, and it would account for more than three-quarters of the increase in spending for major health care programs over the next 30 years.

Other health care programs for non-elderly Americans are also contributing to the budget deficit.  Medicaid and the Children’s Health Insurance Program (CHIP) would increase by 50% as a share of the economy.

Spending on Medicaid and CHIP, combined with outlays for the marketplace subsidies and related spending, would rise from 2.4 percent of GDP today to 3.2 percent in 2047.

At the same time, one must recognize that these program provide key benefits for the elderly, indigent, and young.  It is unclear if or how any Republican bill would change these trends.  Nevertheless, the country faces some key challenges in the coming years as baby boomers begin to retire.


Does drug detailing affect prescribing patterns?

Written By: Jason Shafrin - Apr• 04•17

The obvious answer seems to be ‘yes’.  Why would pharmaceutical companies spend billions of dollars on drug detailing (i.e., visits by pharmaceutical representatives to physicians to explain drug benefits) and drug samples if they don’t work?   When I say billions, I mean billions:

A new study by Datta and Dave (2017), however, finds that drug detailing may not affect physicians in the way you might think.

The estimates suggest that detailing has a significant and positive effect on the number of new scripts written for the detailed drug, with an elasticity magnitude of 0.06. This effect is substantially smaller than those in the literature based on aggregate information, suggesting that most of the observed relationship between physician-directed promotion and drug sales is driven by selection bias. We find that detailing impacts selective brand-specific demand but does not have any substantial effects on class-level demand. The increase in brand-specific demand appears to crowd out demand for the substitute branded drug although not for the generic alternative. Results also indicate that most of the detailing response may operate at the extensive margin; detailing affects the probability of prescribing the drug more than it affects the number of prescriptions conditional on any prescribing.

The authors claim that their approach to this estimate is novel for three reasons.  First they have a large nationally reprsentative data set with longitudinal data over a 24-month time period.  Second, the use fixed effect to control for both unobserved physician-specific heterogeneity and the effect of detailing selection (i.e., representatives may be more likely to visit physicians already disposed to dispense their drug).  Third, the authors also examine whether detailing increases the number of people using the drugs compared to the affect the number of prescriptions conditional on taking the treatment (these are the intensive and extensive findings).

In short, marketing works, but only when two products are clear branded substitutes for one another.


Quotation of the Day

Written By: Jason Shafrin - Apr• 03•17

“In theory there is no difference between theory and practice; in practice there is.”

  • Yogi Berra

The kindly physician or the profit maximizer?

Written By: Jason Shafrin - Apr• 02•17

In the U.S. physician fees are largely set through regulation or negotiation with insurers. For physicians accepting Medicare or Medicaid patients, fees are set by government entities (i.e., the Centers for Medicare and Medicaid Services for Medicare reimbursement for the former and state Medicaid agencies for the latter). Rates for physicians accepting patients with private health insurance are set through negotiations between the insurer and the physician (or more likely the physician’s group or larger network). Within each payer, reimbursement for physician services generally does not vary although payment rates do vary significantly between Medicare, Medicaid and commercial payers.

What would physician pricing look like in an unregulated market? A paper by Johar, Mu, Gool and Wong (2017) attempts to answer this question. They use a study of specialist fees in Australia. Australia uses what is known as a balance billing approach.

In Australia, the tax-financed universal public health insurance, Medicare, provides a government determined fixed rebate for each type of medical service. These rebates set a floor price for a given service, but there are no controls over the maximum fees that doctors can charge to their patients. The patient pays the gap between the doctor’ s fee and the Medicare rebate as an out-of-pocket (OOP) cost. OOP costs are equal to zero when the doctor’ s fee is equal to the rebate. No private health insurance can be purchased for out-of-hospital services that are covered by Medicare.

Note that the Australian system is not completely unregulated. For instance, all individuals need a referral from a general practitioner to visit a specialist. Further, the referral names an individual specialist on the form and switching the referral to another specialist would require another GP visit. Thus, there is room for significant physician negotiating leverage once the patient arrives.

The authors use the 45 and Up Study data which contain over a quarter of a million non-institutionalized patients in Australia.

…in an unregulated fee-setting environment, specialist physicians practise price discrimination on the basis of their patients’ income status. Our results are consistent with profit maximisation behaviour by specialists… There are large variations across specialties, with neurologists exhibiting the largest fee gap between the high-income and low-income patients.

They find that the overall average fee gap is AU$26.38, which is about 38% of base payment the Australian Medicare system pays for a specialist visit. The authors find that physicians are more likely to give larger discounts to older individuals, those without private insurance, those unemployed and that these discounts based on patient demographics, insurance status and work status are larger for low compared to high-income individuals.


JMCP Award for Excellence

Written By: Jason Shafrin - Mar• 30•17

This week at the 2017 Academy of Managed Care Pharmacy (AMCP) conference, the Journal of Managed Care & Specialty Pharmacy (JMCP) announced its annual Award for Excellence. The award was established in 2002 “…to recognize an article that represents the best scholarly work in managed care pharmacy.”

This year, the 2016 Award for Excellence went to one of my papers.

The study–co-authored with Joanna P. MacEwan, PhD; Felicia M. Forma, BSc; Ainslie Hatch, PhD; Darius N. Lakdawalla, PhD; and Jean-Pierre Lindenmayer, MD–is titled “Patterns of Adherence to Oral Atypical Antipsychotics Among Patients Diagnosed with Schizophrenia.”  The abstract is below.

BACKGROUND: Poor medication adherence contributes to negative treatment response, symptom relapse, and hospitalizations in schizophrenia. Many health plans use claims-based measures like medication possession ratios or proportion of days covered (PDC) to measure patient adherence to antipsychotics. Classifying patients solely on the basis of a single average PDC measure, however, may mask clinically meaningful variations over time in how patients arrive at an average PDC level.

OBJECTIVE: To model patterns of medication adherence evolving over time for patients with schizophrenia who initiated treatment with an oral atypical antipsychotic and, based on these patterns, to identify groups of patients with different adherence behaviors.

METHODS: We analyzed health insurance claims for patients aged ≥ 18 years with schizophrenia and newly prescribed oral atypical antipsychotics in 2007-2013 from 3 U.S. insurance claims databases: Truven MarketScan (Medicaid and commercial) and Humana (Medicare). Group-based trajectory modeling (GBTM) was used to stratify patients into groups with distinct trends in adherence and to estimate trends for each group. The response variable was the probability of adherence (defined as PDC ≥ 80%) in each 30-day period after the patient initiated antipsychotic therapy. GBTM proceeds from the premise that there are multiple distinct adherence groups. Patient demographics, health status characteristics, and health care resource use metrics were used to identify differences in patient populations across adherence trajectory groups.

RESULTS: Among the 29,607 patients who met the inclusion criteria, 6 distinct adherence trajectory groups emerged from the data: adherent (33%); gradual discontinuation after 3 months (15%), 6 months (7%), and 9 months (5%); stop-start after 6 months (15%); and immediate discontinuation (25%). Compared to patients 18-24 years of age in the adherent group, patients displaying a stop-start pattern after 6 months had greater odds of having a history of drug abuse (OR = 1.46; 95% CI = 1.26-1.66; P < 0.001), alcohol abuse (OR = 1.34; 95% CI = 1.14-1.53; P< 0.001), and a codiagnosis of major depressive disorder (OR = 1.24; 95% CI = 1.05-1.44; P < 0.001) and were less likely to be aged 35-54 years (OR = 0.66; 95% CI = 0.46-0.85; P < 0.001).

CONCLUSIONS: Longitudinal medication adherence patterns can be expressed as distinct trajectories associated with specific patient characteristics and health care utilization patterns. We found 6 distinct patterns of adherence to antipsychotics over 12 months. Patients in different groups may warrant different types of clinical interventions to prevent hospitalizations, longer hospital stays, and increased clinical complexity. For example, clinicians may consider regular home visits, assertive community treatment, and other related interventions for patients at high risk of immediate discontinuation. Health plans should consider supplementing claims-based adherence measures with new technologies that are able to track patient adherence patterns over time.

Previous year winners are listed here.

Is more income equality a good thing?

Written By: Jason Shafrin - Mar• 30•17

This is a normative question.  Some people would prefer a society with more income re-distribution.  More income re-distribution is “fairer” in the sense that fewer people would suffer from a low standard of living.  Most societies (and individual humans) place at least a some value in insuring that the worst off amongst us have some resources at their disposal.   Others would argue that less income redistribution is “fairer” because people should earn what they produce.   More income redistribution decreases incentives to work and become an entrepreneur since hard work is rewarded less in societies with more redistribution.

Both approaches could be argued for under John Rawl’s veil of ignorance.  Basically, if you didn’t know if you were rich or poor, smart or dumb, healthy or sick, how would you structure a society. Even under this veil of ignorance, there certainly can be arguments made on both sides.

A relative but positive (rather than normative) question is what are the factors that lead the the largest increases in income inequality.  An interesting article in The Atlantic by Walter Scheidel answers the question.

Throughout history, only massive, violent shocks that upended the established order proved powerful enough to flatten disparities in income and wealth. They appeared in four different guises: mass-mobilization warfare, violent and transformative revolutions, state collapse, and catastrophic epidemics. Hundreds of millions perished in their wake, and by the time these crises had passed, the gap between rich and poor had shrunk.

These can’t be the only solutions, right? Aren’t there more enlightened ways to redistribute income?

History offers little comfort. Land reform often foundered or was subverted by the propertied. Successful programs that managed to parcel out land to the poor and made sure they kept it owed much to the threat or exercise of violence…Even the most progressive welfare states of continental Europe are now struggling to compensate for the widening income disparities that exist before taxes and transfers. In the coming decades, the dramatic aging of rich countries and the pressures of immigration on social solidarity will make it ever harder to ensure a fairly equitable distribution of net incomes.

This post does not mean to say that increasing in income or wealth inequality is a bad (or good) thing, nor that increasing income inequality is hopeless.  At the same time, history does teach us that massive changes in income inequality often occur due to inauspicious sources.


Supply side health reform

Written By: Jason Shafrin - Mar• 28•17

Alex Tabarrok of Marginal Revolution notes that designing a health care system that focuses on benefits to consumers and is important, but one should not ignore how any health care system design affects the supply of health care, in particular incentives to create innovative goods and services.

By greater spending on medical research, I mean not only greater spending through the NIH but also a commitment to innovation policy more broadly. We know, for example, that price controls kill medical research so no price controls. We can also improve the FDA. I would favor less regulation but there are other methods to speed up the approval process which could command bipartisan support such as greater funding of the FDA. The FDA is also not monolithic, some departments are better than others, so we can reform the FDA by making it more like the better parts of itself.

In thinking about pharmaceutical regulation we also need to remember that 80-90% of prescriptions are for generic drugs and due to intense competition, generic drug prices are low and falling–so lets build on the parts of the US health care system that work well by keeping the entry barriers to entry in the generics market low.

In addition to recommendations to increase spending on medical research and avoid price controls, Tabarrok also recommends increasing the supply of physicians and increase price transparency.  The former he recommends a  “free trade” approach of allowing more foreign physicians to practice in the U.S. and allowing more Americans to get treatment abroad.  

These recommendations are entirely sensible and I agree with Tabarrok that focusing on getting individuals insured is important, but if the insurance doesn’t cover high quality, innovative treatment or you need to wait weeks or months to visit a physician, insurance is not as valuable as it could be.  While in the short-run providing care to today’s patients is important, the importance of improving health care for future generations should not be underestimated.