The Doc Fix

This is the most succinct discussion of the so-called doc fix (change in the standard growth rate for Part B payments) that I have seen from Ezra Klein's blog. He both gets at what the SGR is, sets it in some context compared to other recent legislation, identifies the fact that addressing it has been delayed many times since 1998 (true bipartisanship!) and how it is not a persuasive means of attacking the reform bill just passed. Rep. Ryan was welcome to bravely lead the charge to fix the SGR back when Republicans controlled the House, Senate and White House.

In fact, it would be a great chance for the President to gain some cred on spending/deficits by proposing a long term SGR fix and paying for it. If you are looking for suggestions, wrap up some more med mal reforms, the estate tax along with this and go from there.

Deficit Commission Meets

for the first time April 27, 2010. Expectations seem to be fairly low for what they will achieve since there is no mechanism to preference their recommendations with respect to congressional action. There was such a commission in the works that appeared poised to pass against some powerful Democrats wishes, but 7 Republicans who had supported such a commission early during this current Congress changed their mind in January, 2010 and it died by a 53-56 vote (because everything takes 60 votes in this Congress. However, the problems with the long term structural deficit (meaning the degree to which the ins don't match the outs over time after the economy is roughly normal) are immense and will not get better without strong action. Erskine Bowles, co-chair of the commission says his mother urged him not to touch Medicare. His quote in response sums up what we have to do.

"We have to touch Medicare. We have to touch Social Security. We have to touch Defense. And we have to take a strong look at revenue."

The TARP and the Recovery Act, are all irrelevant to this, meaning that even if we hadn't had those or even if we hadn't had a terrible recession, we would still be sunk long term if we don't have some large reforms, mostly because the baby boomers had fewer children than their parents.

Some good background material here. And if you are sick of talking about health policy but ready to talk about the deficit.....Medicare and Medicaid are at the heart of the deficit issue. Social Security as well, but it is a much simpler program and since benefits are indexed to inflation, it cannot grow at 2-3 times overall inflation like a health care program can (and has been doing for 3 decades).

Prices

The main reason that the U.S. spends so much money on health care is prices....meaning how much is paid per unit of care. Here is an interesting article about medical tourism. Good old fashioned shopping won't work for some types of care, but for others it could. It will be interesting to see if the trend toward medical tourism increases, and whether providers (mostly hospitals and health systems) have to began to respond to the competition.

Long Term Care and CLASS Act

The Woodrow Wilson School of Public Policy Quarterly has a bit on a paper I did on private long term care insurance and the use of genetic markers as underwriting tools. The CLASS Act is one of the parts of the new reform law that will need a great deal of policy making to implement the law well. I will be writing about that in the next weeks.

I haven't been blogging much...end of the semester back log. But, one great bit of news: I got tenure!

More on malpractice

WSJ blog on a study that they say shows that fear of malpractice suits leads doctors to do more test, etc. They note that CBO looked at the savings that would amount from national application of a mix of tort reforms....a $54 Billion reduction in the deficit over 10 years, or around a 0.2% decrease in total health spending due to lower malpractice insurance premiums and a 0.3% decrease in total health spending that would result from reductions in defensive medicine and increases in tax receipts. The tax receipt increase ($13 Billion over 10 years of the $54 Billion deficit reduction that CBO projected) would occur because if health spending slows, then rate of growth of insurance premiums would slow, and wages would rise since employers view compensation in totality [meaning wages and benefits]). An increase in wages is taxable, while an increase in health insurance premiums paid by an employer is tax free income. You can stump your friends at the next cocktail party with that one....one of the ways tort reform would reduce the deficit is via increased tax receipts.

The $54 Billions savings is substantial as compared to what CBO scored as expected 10 year deficit reduction for the health reform bill (~$138 Billion/10 years), but far lower than they estimates often used by proponents of tort of reform, in political discourse. Roughly speaking, add a zero if making a Republican stump speech....

It should be noted that the study on defensive medicine noted by the WSJ blog is based on a survey whereby doctors are asked about the non-medical reasons for doing a given test. They asked doctors** why they did things, and focused on non clincial reasons to order tests, here focused on cardiac catherization procedures. 24% said fear of malpractice was a non clinical reason to order a test, while 27% said belief their colleagues would order a test influenced them (a new take on peer pressure). 5 of the 598 doctors surveyed said they commonly or frequently ordered more cardiac cath procedures to increase 'financial stability' of their practice.

So, there are multiple explanations or motivations for what is termed defensive medicine. I have written that malpractice reform is needed, but as a step 1 toward a patient safety based system. However, more stringent malpractice reform is needed if we will substantially address the rate of health care cost inflation because any attempt to alter the practice of medicine to slow cost inflation will be met with the retort from docs 'what are malpractice?' From a policy stand point, we must do more because: (1) it will result in lots of savings (I suspect CBO is about right here; it is big or small depending on your perspective); (2) because it is a route to more comprehensive patient safety/quality improvements (most definitely); and (3) it will remove an easy cultural out for the medical profession when discussing payment rates and movement toward paying based on quality/value. Note that it is certain that there are both overpaid and underpaid doctors (across speciality, geography, and skill)....the aggregate effect on payment to doctors as class is ambiguous. The distributional effects would likely be huge. Most everyone will say they want to move toward pay being based on quality/value, but I suspect alot of the providers (docs, hospitals, health systems) either don't mean it, or don't understand what it would mean for the revenue.

**If you did a survey of professors, you would find out that we are smarter than you think we are, you should listen to us more, and we are very underpaid.

A Culture of delusion

Writing columns in the Raleigh (N.C.) News and Observer about health reform has been been harder than I thought it would be, but also more interesting. The columns are to the right side of the blog page. I have had the privilege of interacting with many people whom I never would have met had it not been for my writing in the paper, and gotten to speak with many people and groups.

One of my bottom line conclusions from all of this is that there is a certain delusional quality to what many of us think about health care, especially as it relates to costs.

When I go and talk about reform with groups, I tend to focus on the unsustainable nature of the system. By unsustainable, I mean we can't keep doing what we are doing, it will bankrupt our nation. As I talk through various sets of slides and numbers that illustrate this, there are always knowing nods of agreement. Indeed, it is hard to find someone who won't assent to the notion that we spend too much and that we must do something about it. Then comes the delusional part.

If you talk about things that could slow the rate of cost inflation, low and behold the people who think we spend too much really don't think that at all. Or at least they don't want to do anything to slow the rate of cost inflation. End the tax exclusion of employer paid benefits? That is a tax increase, I work hard for my benefits! Develop lists of procedures that Medicare won't pay for under certain situations? Why that is rationing of care, don't you love your grandmother! And on and on and on.

David Leonhardt has a nice article running through this cultural delusion in the U.S. We say we want to slow the rate of cost inflation, but don't like any of the things that might actually reduce spending. It turns out we want a magic solution, like a ride at Disney World. Not the reality that a dollar of saving is either a dollar of reduced care and/or a dollar of reduced revenue for someone.

One answer that Leonhardt suggests is focusing on the quality side. It turns out that there is lots of evidence that the most expensive thing is not always the best thing. We certainly seem to start with a belief that it is, and efforts to focus more on quality of life improvements and life extension would actually lead to spending reductions in some areas.

I have done some work showing that hospice reduces Medicare expenditures in the last year of life. This is a case whereby people who are in a very difficult situation and are imminently dying choose hospice, a choice the literature says improves quality of life both for patients and their families. And actually saves Medicare a bit of money. Focusing only on end of life or last year of life costs will not be enough, in part because it is not clear when the last year of life began until it ends. More generally, we need to move toward providing patients and providers and payors with information that helps us purchase health care that is productive. By productive, I mean care that increases life span and/or improves quality of life. The reality is that a great deal of what we spend doesn't meet either of these criteria. In the abstract, many will say, ok lets do that. But, once we start to try, they will go insane.

However, we have to do this. We have to take it on head on. There are many policy changes needed. Most importantly, we need a cultural conversation and change that doesn't demonize even asking the questions.

More on Donald Berwick

President Obama's nominee for the head of the Center for Medicare and Medicaid Services (CMS). Policy types are excited and encouraged about him in this role, and the job typically exists and is carried out in the minutiae of the health policy world. Given the passage of reform, his confirmation hearings in the Senate will be far more public, and he doesn't have experience as a politician, as Kathleen Sebelius, a former Governor who is now the Secretary of Health and Human Services has. There is lots of detailed policy making to be done at CMS, and hopefully the confirmation hearings will get going soon.

Gaming in Mass?

Austin Frakt covers the Boston Globe's look at gaming of the individual mandate....basically jumping in when sick but defying mandate when not. Here is his follow up today on this topic. This is an important issue, though since Mass is at 97% cover, it can only be so big of a problem. However, it is something to pay attention to in the roll out of the national reform....I for one, would be for strengthening the individual mandate based on the notion that if we are going to try it, lets try it.....with it being an individual mandate.

Frakt has other interesting stuff on whether we should have a repeat of the Health Insurance Experiment (HIE)....or whether a series of smaller observational studies would be money better spent. I think I would go with more observational studies. One problem with randomized trials of policy implementations is that while the internal validity is high (does x cause y), the external validity is often low (will this finding hold across settings, generally be applicable).

Medicaid, going forward

The new health reform law expands insurance coverage in a relatively new manner (expanding the number of persons purchasing their own insurance) and an old way (Medicaid expansions). Medicaid is the federal/state program that covers low income persons. It is really two programs, one that covers primarily pregnant women and kids (about 6 in 10 beneficiaries) and another that covers elderly and disabled persons who have become impoverished paying for long term care (mostly nursing home care). The 6 in 10 beneficiaries consume about 3 in 10 of the program dollars, primarily because most kids and pregnant women are relatively healthy; the long term disabled and elderly in nursing homes are the really expensive patients, and are among the most vulnerable members of society.

The long term care system, or which nursing home care is a part, has many problems, and the health reform law passed addresses this for future generations with the CLASS provisions. However, there is little that can be done in the short or medium term about Medicaid being the payor of nursing home care of last resort.

However, the reform law has substantially expanded the number of persons covered by Medicaid for acute care services (doctor, hospital, etc), by around 16 Million in 2019. This article lays out many of the issues related to relatively (as compared to other payers) low reimbursement rates that Medicaid pays. In the short run, the reform law increases payment rates especially for primary care, but after 2015 this costs will shift to states. [There is a general cost share formula between the federal gov't and states based on poverty in given states; in California, it is 50/50; in Mississippi, it is around 82% federal; in NC it is around 65% federal].

Medicaid has financed important health services for persons who would likely have gone without them, or who would have gotten them later when they were sicker. But, it has a stigma as you would expect with anything often referred to as 'poor people's insurance' and the relatively low payment rates mean that some physicians are unwilling or unable to treat Medicaid beneficiaries. The relative attractiveness of Medicaid payment differs from locale to locale depending upon alternative payment sources available, but it seems clear that there is much work to be done to either make Medicaid a more 'acceptable' payor, or seek a way to transition persons to other sources of insurance.

Over time, I would see it as a worthy goal to seek to end or at least reduce the size of acute care Medicaid (again, kids, pregnant women, lower income workers) and move them into private insurance markets, with premium support. This is where the functioning of the exchanges is so important. Will there be robust competition amongst insurance companies that will drive down premiums? If yes, then it would make it relatively easier to transition persons from Medicaid into private insurance. We have a great deal riding on getting the exchanges up and working well, and for consumers to actually embrace purchasing their own insurance.

If the exchanges work well, it would provide a way to open them up over time to those with employer based coverage, increasing choices, and perhaps to begin transitioning at least some persons from Medicaid into private health insurance purchased through exchanges.

What if there were no 3rd party payers?

Recently I have had some interesting exchanges with a few docs on various topics. A composite theme of these conversations are the bad aspects of third party payment (anyone other than the patient paying is third party, whether Medicare, private insurance, Medicaid, etc.). A couple of docs have said we would be better off with no third party payers. Leaving aside the fact that you would expect insurance to develop anytime there was a risky situation of note (uncertain probability of a bad thing happening, with the cost of the bad thing being potentially catastrophic), what would happen if we had no third party insurance, focusing on the market for physician services?

Revenue flows to doctors would decline. There is a tremendous moral hazard effect of having third party insurance, especially as insurance has morphed away from indemnity style coverage toward fixed co-pays. Moral hazard is typically viewed as only bad, but in another sense the degree to which it is good or bad depends on how much extra health is purchased/produced by the extra care. But, bottom line is that with no insurance, revenue flows to doctors would be lower.

Expenses of doctors would decline. If there were no third party insurers, then a doctor practice would have lower administrative costs because they wouldn't have to deal with billing/collecting from insurance companies. They would have to deal with billing/collecting from patients, and doctors would have to determine policies. If people had to pay in full up front, docs would provide less care, but would have no billing/collecting headaches. At the other end of the spectrum, if docs set up payment plans and the like with patients, then you would have more administrative costs; not as compared to today, most likely, but as compared to only treating when payment is made up front.

The effect of a world without insurance on net income to physicians is ambiguous. Revenue would be lower, but so too would be the cost of doing business, with the net impact being unclear. My hunch is that the net income to doctors as a class/group of people would be lessened, but there would likely be tremendous distributional impacts across specialities and across geographical locations. There would likely be tremendous competition among docs to be the providers for persons with means, and for certain specialities and providers of care that was not understood to be discretionary. Other docs would probably be very lonely.

What would the impact be on patients and health? This really depends on how much health care currently provided is unproductive in the sense that it produces no benefit....with benefit defined as a longevity extension and/or improvement of quality of life however measured or defined. And further it depends on whether the reduction in the aggregate amount of care provided would occur solely or mostly in the non productive health spending. If you look at the aggregation of health spending in the U.S. in a year, you find that 50% of the population consumes only 3.2% of the total health spending (2006 figure). So, for half the peoople in a given year, having no insurance would have very little impact. [Of course, over the course of your life, almost no one remains in the low spending group for their entire life, since everyone dies and most are sick before doing so]. At the other end of the spectrum, 1% of the population uses 21.2% of the total spending, so the impact on this group would be profound, and they would certainly use less care than they would with third party insurance. It is hard to imagine that this group would not be harmed, but that is still ambiguous and depends upon what proportion of the care they receive is productive, in whatever way you want to define that term. And 1 in 10 people use around two-thirds of the total health spending in a given year, so the large impacts on patients, in a given year, would be highly focused on a relatively small group of people, who would disproportionately be elderly.

The effect on total health spending? We would spend much, much less on health care than we currently do if we had no third party insurance. In the 1930s the U.S. spent about 2% of GDP on health care, and health insurance was quite rare. Today it is over 17%. Also rare in the 1930s were therapies that clearly extended life span and improved quality of life. As these developed, so too did the drive to expand insurance. And vice-versa, almost certainly when thinking about things from an innovation standpoint. Replaying the 1970s-90s without Medicare (about 6 in 10 elderly were uninsured in 1964; the market had decided) would undoubtedly have seen much lower rates of heart revascularization and the innovation of same, for example.

It is unimaginable that we have no third party insurance. However, the thought experiment of no third party payment is useful to imagine how things would be different without insurance, and to set the problems of the current system in context of the (different) problems we might have with no health insurance.