all the summaries and takeaways © joseph p. newhouse, with some selective editing
TRANSCRIPT
All the Summaries and Takeaways
© Joseph P. Newhouse,
with some selective editing
Class 1What You Should Know
Understand the difference between the marginal $ in the cross-section vs over time Over time the capabilities of medicine change
Benefits of more $ over time may have exceeded cost, but waste in cross-section Downsides of higher costs: more deadweight
loss from higher taxes to finance Medicare, Medicaid, and premium subsidies; more risk from more cost sharing; more labor market distortions (more in Class 2)
Class 1 Takeaways - 1
The good news is that the medical care industry has come up with a lot of “good stuff” and probably will continue to do so
But there is a lot of bad news: The good stuff has cost a lot and there is a lot of waste
Financing as much future costly good stuff through either taxes or employment-based insurance (next time) is problematic
Class 1 Takeaways - 2
So there are two related issuesIs there a way to get rid of the waste
without cutting out a lot of the good stuff? The managed care backlash doesn’t augur well
(Classes 14 and 15) And getting out the waste is a one-time saving
And is there a way to slow cost growth without giving up the valuable innovation?
Class 1:A Possibly Helpful Schematic
Patient, Consumer Providers
Insurer (public, private) Regulator, Sponsor (employer, gov’t), Accreditor
Demand forinsurance;risk aversion
Selection;diseasemanagement
Demand for services; malpractice claims
Agency (SID, stinting);organization of care;defensive medicine
Eligibility and coverage rules; managed competition; insurance regulation
Qualityregulation
Political and labor markets
Information onplans, quality
Administeredprices, capitation,utilization review
Coding
Class 2—ESIWhat You Should Know
Incidence of employer-paid premiums and labor market effects
Theory of demand for care as a function of coinsurance
Distinction between positive and normative economics
Assumptions needed to establish efficiency and how medical care violates them
Class 3—Modeling DemandWhat You Should Know
Theory of demand for insuranceStrengths and weaknesses of various
empirical research designs/strategies to estimate demand for medical care
Selection/endogeneity and bias from omitted variables (these are related)
Class 4—HIE What You Should Know
Statistical power, sample size justificationFindings in the literature on cost sharing
Class 5, QualityWhat You Should Know
Quality can be measured and the existing measurements of it should not make patients feel warm and fuzzy about the care they are getting Nonetheless, most patients think they get high
quality careThere is variation under every rockIssues in defining “appropriateness” and
creating guidelines
Class 5, QualityConclusions
I think improving quality is an urgent task, but there are no magic bullets The strategies of improving public information
and P4P raise “second-best” kinds of issues– Improving quality for one disease by P4P or
information does not necessarily improve welfare But keeping information poor and not
rewarding good performance can’t be the answer; over time more IT should help
Class 5, QualityWhat You Should Know
Underlying causes of quality problemProblems in measurement at MD and
hospital levelsPotential for improvement from more
reporting of information, greater use of pay for performance, and greater IT investment
Class 6, QualityConclusions
I think improving quality is an urgent task, but there are no magic bullets The strategies of improving public information
and P4P raise “second-best” kinds of issues– Improving quality for one disease by P4P or
information does not necessarily improve welfare But keeping information poor and not
rewarding good performance can’t be the answer; over time more IT should help
Class 6, Quality What You Should Know
Underlying causes of quality problemProblems in measurement at MD and
hospital levelsPotential for improvement from more
reporting of information, greater use of pay for performance, and greater IT investment
Class 7, CERWhat You Should Know
The possibilities and problems of inferring outcomes from observational data Selection in this context Why clinicians have the RCT as gold standard
IV as a technique to address selection How to recognize a good study that uses IV
Strengths and weaknesses of RCTs vs observational data
Class 8, Tort Reform 1What You Should Know
Assumptions needed to establish optimality of damages that make injured person whole Whether optimal damages include pain and
sufferingReason for assigning liability to MDTheory to establish deterrent effects of tort
and how assumptions might or might not hold in practice
Class 9, Tort Reform 2What You Should Know
Assumptions needed to establish that tort law leads to optimal prevention/deterrence Negligence standard and efficiency Why settlement is efficient
Pros and cons of various reforms
Class 10, R-S ModelsWhat You Should Know
How markets can fail if the information of buyer and seller is asymmetric Selection in health insurance and how it is
managed or mitigated– Managed competition– Business coalitions– Welfare loss from selection
Class 13, Reform & MarketsWhat You Should Know
US insurance marketsPotential problems going forwardDifficulties of modeling effects of reforms
Class 14, Takeaways on Administrative Cost - 1
Low Medical Benefit Ratios may mean lack of competition in the insurance market or rents in provider fees
Economically the MBR is an arbitrary number; e.g., joint cost allocation
Do the additional activities of commercial insurers that raise their administrative costs above a passive bill reimburser add value? Keep this question in mind for the next class
Class 14, Takeaways on Administrative Cost - 2
Even if single payer advocates overstate administrative savings, a single payer must set prices and can act like a monopsonist
Although there would be savings in dollar costs with a monopsonist, there could be health giveups and inefficiencies that result from having to set prices; we are coming to reimbursement issues (Classes 16-18)
Class 14, Administrative Costs What You Should Know
The difference between accounting costs and economic costs
Class 15, Managed CareTakeaways on Managed Care
Instrument partly designed to reduce rents Networks; steering patients to certain providers
Instruments that could improve quality Tiering networks on quality; P4P Disease management; case management;
wellness/health promotion (ROI will be low if there is high turnover among beneficiaries)
IT, personal health records
Class 15, Managed Care Takeaways
What are the instruments by which managed care might add value
Do they add value????
*For profits, see notes.
Class 16, Prospective PaymentWhat You Should Know - 1
Evidence of profit maximization by: Selection (specialty hospital data) Unbundling (growth of post acute after 1988) Entry where profitable (growth of post acute)
85% of hospitals are nonprofit, so the numbers you see are dominated by them These data imply nonprofits maximize, but for
profits are even more aggressive*
Class 16, Prospective PaymentWhat You Should Know - 2
General lesson, which will also be part of the next several classes: It is impossible in practice to get administered prices exactly right and in some cases even approximately right
85% of American hospitals are non-profit.
Class 17, Admin Pro Payment What You Should Know - 1
The difficulties of setting economically efficient prices E.g., problem of different prices at different
providers for the same service (various post acute care sites, OPD vs office vs ASC)
Non-profit agents respond to prices Examples: Post-PPS, hospitals shifted overhead
to cost-based sites such as the SNF, OPD; they reduced LoS; they raised OPD charges
Class 17, Admin Pro Payment What You Should Know - 2
Economics of and who pays for training; effects of subsidizing a correlated but not causal cost factor (residents/bed) in an administered price system
Problem of how to account for geographic variation in input prices with imperfect labor market information and measurement
Vulnerability to geographic redistribution with a geographic based legislature
Class 18, Medicare Physician Payment Takeaways - 1
MD payment in Medicare illustrates inherent issues of administered pricing Setting prices in relation to (marginal?) cost
when productivity changes (so in principle price should be changed) and new procedures are implemented (so cost data are needed)
Political system resists redistribution, in this context across specialties
Class 18 Takeaways - 2
Changing Medicare’s payment methods literally requires an act of Congress Typically the benefits of a change are diffuse,
but the costs are concentrated on a particular group (specialty) that resists the change
*SGR = Sustainable Growth Rate
Class 18What You Should Know
Evidence that MDs respond to supply pricesSubstantive and political difficulties to set
economically efficient administered prices: Problem of allocating joint cost to services Changing relative costs at procedure level Updates (new procedures; productivity, SGR*) Geographic areas for input prices Ignoring structure of local market
Class 19, Part CSummary on Plan Payment
Medicare health plan payment shows many problems of an administered price system Same payment for persons with different
expected cost in the past led to selection Geographic variation political pressure for
uniform reimbursement so payment ≠ cost Changes in payment plans to exit, enter
Successful price competition requires workable risk adjustment methods
Class 19, Part C What You Should Know About Health Plan Payment
How to judge risk adjustmentDifficulties that the geographic variation in
spending creates for plan reimbursement Note that geographic variation in the US is
much greater than in the Netherlands so the issue doesn’t much arise there (see Van de Ven - Schut)
A Wrap Up on Medicare (except Part D)
The following slides try to summarize a number of the difficulties of administered price systems that we have covered in this class and the prior three classes Part D doesn’t have administered prices so I am
summarizing before we get to Part D
A Comparison of Medicare’s Payment Systems - 1
The following description is selective; MedPAC’s “Payment Basics” (see the reading list) has more
My intent here is to show some of the inconsistencies in an administered price system that is intended to be rational and has behind it much analytic work over many years by many smart people
*See notes for acronyms.
A Comparison of Payment Systems – 2*
Basis of payment differs by provider Health plan: Capitation, per member per month Hospital Inpatient: Stay; Outpatient: “service” SNF: day; IRF, LTCH: stay; HH: 60 day
episode Physician: CPT/HCPCS code End Stage Renal Disease: All services except
drugs (drugs outside bundle) Part B Drugs: Average sales price + 6%
*RUGs = Resource Utilization Groups; RVS = Relative Value Scale.
A Comparison of Payment Systems - 3
Relative prices Health plan payment for enrollee – Based on
age, sex, Medicaid eligibility, geography, diagnosis of enrollees (using TM treatment patterns); beneficiaries pay incremental cost > benchmark, get 75% of savings passed through
Hospital – Relative cost by DRG SNF – Time-motion with RUGs* Physician – Based on judgments of work and
estimates of practice expense (RVS)*
DHHS = Department of Health and Human Services.
A Comparison of Payment Systems - 4
Initial conversion factors Usually budget neutral
Updates Most services: Congress, following DHHS and
MedPAC recommendations Exception: MD updates are supposed to be
formulaic based on GDP growth and past quantity changes (SGR), though we now have de facto annual updates similar to other services
*Will now change to a varying % of TM in county
A Comparison of Payment Systems - 5
Geographic adjustment Health plans:* max(100% TM, floor; 50-50
county/nat’l Medicare 5 year average; 2% over past year), last two less common
Hospital and other institutional providers: wage index for each metro area and entire non-metro area of state; reclassification allowed
– SNF, HH have different labor mix than hospitals, but use the same wage index
MD: ad hoc, geographic areas vary by state
*DSH = Disproportionate Share Hospital
A Comparison of Payment Systems - 6
Special adjusters High cost outlier systems for hospital, OPD,
HH; low cost for HH, short-stay for rehab Post-acute transfer adjusters for some inpatient
hospital (converts hospital to per diem) Teaching, DSH* for inpatient hospital New technology pass through in hospital
inpatient and outpatient
*LTC = Long Term Care. See notes on waste from Medigap and drug
payment abuses.
Medicare Through the Eyes of the Course - 1
The cost sharing is wrong headed No stop loss; resulting waste in Medigap* Differentially high for hospital OPD; “donut
hole” in Part D (next class)The benefit structure makes little sense
Until 2006 almost no drugs covered– And abuses in reimbursing Part B drugs that were*
LTC* is mostly need based through Medicaid but comes into Medicare through HH and SNF
*See notes.
Medicare Through the Eyes of the Course - 2
Parts A and B distinction makes little sense Should be common cost sharing Committee jurisdiction means hard to change*
Quality concerns Reluctance to intervene in traditional Medicare Co-ordination with Medicaid (Class 21)
– Note to single-payer advocates: Could we get a single payer in public programs? Bradley proposed this in 2000, but Gore successfully attacked him
Medicare Through the Eyes of the Course - 3
Selection in Medicare Advantage (MA) pre-2006, not clear how much remains
Note for those wanting to save money by reducing variation: Congress dealt with the variation by leveling up; i.e., floors
A host of administered price distortions; see next slides
A List of Some Administered Pricing Problems - 1
Ability to react to technical change - or even obtain data on how costs change!
Arbitrary allocation of fixed or joint costsSelection when patients are heterogeneous
and reimbursed similarlyBundling handles substitution and
incentives for efficient production, but sets up incentives for unbundling and selection
And Still More Administered Price Problems - 2
No integration across acute hospital and post-acute reimbursement systems
Geographic distortions in both product markets (e.g., unbalancing of local markets in MA pricing post-1997 and 2% updates) and labor markets (arbitrary boundaries; hospital reclassifications)
Annual updates for MDs erratic
And a Few More
Politics of preserving inefficient providers Hard to close a hospital, especially rural hospitals For an example see the next slide
Administered prices tend to preserve inefficient technologies, especially if there are no or minimal safety problems or outcome differences; old providers can keep using inefficient technologies
Unlike other markets, disruptive technologies don’t seem to disrupt to the same degree
Class 20, Part DWhat You Should Know
Special difficulties of price setting in drugs Tradeoff between static and dynamic efficiency
Choices in structuring a market to maintain advantages of competition, minimize selection, and reduce the burden on beneficiaries
Class 21: Medicaid Takeaways
The mixed federal/state funding of the marginal $ creates incentives for states to devote effort to maximize federal revenue Efforts to make states fully responsible for the
marginal $ have political and substantive problems
Having the poor elderly eligible for both Medicare and Medicaid poses quality problems
Class 21,Takeaways on LTC
Private insurance is uncommon Could spread if employers subsidized, but this
is unlikely; no willingness to sacrifice cash wages, perhaps because of estate insurance nature, perhaps because of Medicaid
LTC has a substantial housing/hotel component that differentiates it from medical care
Class 21, Medicaid & LTC What You Should Know
Problems of a jointly financed state-federal program with state administration Including coordination with an all federal
program MedicareWhy private long-term care insurance is
small compared with health insurance Why health insurance may not be the right
model
*GP = general pratitioner
Class 22, Physician Workforce Takeaways on Geography - 1
The actual MD location fits the predictions of standard economic location theory
Presumption of market failure arose from Decline of GP* and rise of specialist For a time in the 1970s GPs were retiring from
towns not yet large enough to attract specialists Once subsidies to deal with a presumed failure
are established, it is hard to eliminate them
Class 22, Physician WorkforceTakeaways on Geography - 2
Diffusion of MDs of a given specialty as their numbers rise implies that MD demand-creation powers are bounded; i.e., MDs cannot or do not fully offset any change in demand per MD
Power of economics in emphasizing equilibrium conditions and preferences at the margin
Studies of individual MD location decisions are not helpful in establishing equilibrium conditions
Class 22, Physician Workforce Takeaways on Geography - 2
Diffusion of MDs of a given specialty as their numbers rise implies that MD demand-creation powers are bounded; i.e., MDs cannot or do not fully offset any change in demand per MD
Power of economics in emphasizing equilibrium conditions and preferences at the margin
Studies of individual MD location decisions are not helpful in establishing equilibrium conditions
Class 22, Physician Workforce Takeaways on Workforce - 2
This class focused on MD issues, but there is also a large debate on similar issues for nurses and allied health professions What services can they deliver independently? Is there a nurse shortage? If so, what, if
anything, should be done about it? Should we be importing nurses from LDCs?
– This is also an issue with respect to MDs
Five Issues in Health Policy and What the Course Covered - 1
1. Efficiency/value for money in medicine Quality/medical error/safety problems
– We didn’t deal with drug safety issues, but they are real, as Vioxx, Avandia, etc. have shown
The level of cost within the US vs the world Administratively set supply and demand prices
means reimbursement often diverges from cost Public reporting
Five Issues in Health Policy and What the Course Covered - 2
2. Financing the cost of medical care Growth rates and future costs Premium growth and the future of employment
based insurance– Labor market effects of employment based
insurance Tax rates for financing public programs and
possible macroeconomic effects
Five Issues in Health Policy and What the Course Covered - 3
3. Equity The uninsured Variation
– Geographic (equity as well as efficiency)– Disparities (we did not focus on this)
4. Innovation and research (barely touched on but intellectual property policy is important)
5. Health promotion and wellness “Sin” taxes, public health (not discussed)
Some Final Comments - 1
A major theme of the course was that we live in a second-best world (see slide notes)
Greater reliance on allocating resources through the market leads to more problems with selection and possible equity issues Questions of how well risk adjustment,
guaranteed issue and renewal, lock-ins, and income-related subsidies can deal with these
Some Final Comments - 2
Greater reliance on allocating resources through regulation and government provision leads to problems of administered price systems with associated inefficiencies and the standard political economy issues of lobbying/vote buying, favors for certain geographies, and inefficiencies from lack of competition Question of magnitude of inefficiencies
Some Final Comments - 3
So the issue can be framed as market failure vs. government failure; how one comes out depends on how one assesses the magnitude of these failures and how one weights efficiency and equity
*TM = Traditional Medicare
My Own Views – 1 Suppose we had a single payer in the form of a
universal TM* scheme with no supplementation and no choice of plan
That would eliminate most marketing expense and, for the individual and small group market, underwriting expense
There would be some administrative saving but the magnitude is unclear; we would still have billing costs and compliance/audit issues with providers
Would not deal with heterogeneous plan preferences
My Own Views - 2 Everyone would be covered, though there are
other ways to do that Many labor market distortions (e.g. job lock)
would be eliminated, but distortions and inefficiency from higher taxes would increase
The labor market distortions are also avoidable with competing plans and Connector scheme, which is the route the 2010 reform went, though this raises the question of who is the best agent for the consumer and whether selection can be managed
My Own Views - 3
The major welfare gain from the above – potentially available in any universal insurance scheme – is getting rid of the medical underwriting and selection issues in the individual and small group market and extending coverage to the uninsured
Anyone who loses employer-based insurance under current US arrangements has a potentially large welfare loss, especially if uninsurable
TM = Traditional Medicare
My Own Views - 4
KEY ISSUE: Which is worse: Government or market failure?
I sympathize with an emphasis on efficiency, which is unlikely without competing plans Plans can negotiate prices with providers; this
probably better approximates a market price But one must risk adjust at the plan level,
which means an element of administered pricing
My Own Views - 5
Risk of death spiral in TM if TM is a competing (public) plan and market failure from selection; this could have severe consequences for the elderly Note traditionally the left did not want TM as a
competing plan (see reaction to 1998 Bipartisan Commission), but many on the left (e.g., Jacob Hacker) now favor it in the under 65 market as a route to single payer
My Own Views - 6
Competition can’t be very effective if there is concentration in provider markets, which there is in many small markets and some large ones
Without good risk adjustment, the only solution for selection is a single plan, which would have to set prices (inefficiency)
As a practical matter we have health plans now, and it is unlikely they will go away as long as they make money
My Own Views - 7
With the amount of money at stake in Medicare (and Medicaid) there will be a heavy political input; reimbursement systems with a heavy political input will always exhibit some inefficiency
See the next slide for three examples
My Own Views - 8
Examples include: Dealing with geographic inequalities in a
geographically based Congress makes it hard to reduce floors in Part C
Ending subsidies for a rural (or even a metropolitan) hospital with a low occupancy rate that is losing money and probably not providing high quality care is hard;
Cerrtain mandated benefits
My Own Views - 9
And if we are talking about “actual” instead of “theoretical” Medicare-for-all, we have potential selection in the choice between Medicare Advantage and traditional Medicare, in Part D, and in the supplementary insurance market
Supplementary insurance adds admin cost; abolishing it adds budget cost
My Own Views - 10
So if we are to move toward universal coverage, I would personally move in the direction of the Massachusetts plan, which is a variant of premium support, but reasonable people can, of course, differ
This is, however, how the US has come out for now