Bad outcomes
Medical Malpractice Reform, the Supply of Physicians, and Adverse Selection
Ethan Lieber
Journal of Law and Economics, May 2014, Pages 501-527
Abstract:
Malpractice reforms tend to reduce physicians' liability for harming patients. Because these reforms are passed at the state level, the costs of harming patients vary widely by geographic location. In this paper, I test whether malpractice reforms affect where physicians choose to practice and whether physicians who relocate in response to reforms are particularly prone to commit malpractice. Because a state’s own reforms cannot separately distinguish moral hazard from adverse selection, and because those reforms are likely to have direct effects on measures of malpractice via the legal market, I focus attention on neighboring states’ reforms. I find that when a state’s neighbor passes a cap on noneconomic damages, both the physician-to-population ratio and the malpractice rate fall. This suggests that physicians who relocate in response to noneconomic damages caps are more likely to commit malpractice.
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"Sticker Shock" in Individual Insurance under Health Reform
Mark Pauly, Scott Harrington & Adam Leive
NBER Working Paper, June 2014
Abstract:
This paper provides estimates of the changes in premiums, average or expected out of pocket payments, and the sum of premiums and out of pocket payments (total expected price) for a sample of consumers who bought individual insurance in 2010 to 2012, comparing total expected prices before the Affordable Care Act with estimates of total expected prices if they were to purchase silver or bronze coverage after reform, before the effects of any premium subsidies. We provide comparisons for purchasers of self only coverage in California and in 23 states with minimal prior state premium regulation before the ACA now using federally managed exchanges. Using data from the Current Population Survey, we find that the average prices increased by 14 to 28 percent, with similar changes in California and the federal exchange states; we attribute the increase primarily to higher premiums in exchanges associated with insurer expectations of a higher risk population being enrolled. The increase in total expected price is similar for age-gender population subgroups except for a larger than average increases for older women. A welfare calculation of the change in risk premium associated with moving from coverage that prevailed before reform to bronze or silver coverage finds small changes.
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Do Doctors Practice Defensive Medicine, Revisited
Myungho Paik, Bernard Black & David Hyman
Northwestern University Working Paper, April 2014
Abstract:
Does tort reform reduce defensive medicine and thus healthcare spending? Several (though not all) prior studies find a drop in spending following the adoption of caps on non-economic or total damages (“damage caps”), principally during the 1980s. We re-examine this issue in several ways. First, we study health care spending trends in the nine states that adopted caps during the “third reform wave,” from 2002-2005. Across a variety of difference-in-difference (DiD) methods, damage caps have no significant impact on Medicare Part A (hospital) spending, but lead to 4-5% higher Medicare Part B (physician) spending. Consistent with the DiD analysis, in county fixed effects regressions over 1998-2010, Part B spending is higher in states with lower med mal claim rates. We then revisit the 1980s caps, using stronger covariates. We find no evidence of a post-adoption drop (or rise) in spending for these caps. We conclude that (i) there is no evidence that damage caps reduce overall Medicare spending, and (ii) third-wave caps induce a gradual increase in Part B spending.
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Katherine Swartz & John Graves
Health Affairs, July 2014, Pages 1286-1293
Abstract:
The next open enrollment period for plans offered in the Affordable Care Act’s (ACA’s) insurance Marketplaces is set to occur between November 15, 2014, and February 15, 2015 — just when many lower-income people are financially stressed by demands of the holiday season. Recent research by experimental psychologists and behavioral economists strongly suggests that when people’s decision-making capacity (bandwidth) is stretched thin, either they cannot make decisions or they make poor choices. Using data from nearly a decade of US-based Internet search queries to measure population behavior, we found considerable seasonality in measures of financial stress and in when people seek out information on health insurance plans. A more opportune time for scheduling open enrollment for the ACA Marketplaces may be between February 15 and April 15 — weeks when low-income people typically receive income tax refunds and Earned Income Tax Credit payments. Such lump-sum payments could be applied to pay individuals’ share of premiums.
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The Affordable Care Act in an Economy with Federal Disability Insurance
Yue Li
NBER Working Paper, May 2014
Abstract:
This paper examines the effects of the Affordable Care Act (ACA) by considering a dynamic interaction between extending health insurance coverage and the demand for federal disability insurance. This paper extends the Bewley-Huggett-Aiyagari incomplete markets model by endogenizing health accumulation and disability decisions. The model suggests that the ACA will reduce the fraction of working-age people receiving disability benefits by 1 percentage point. In turn, the changes associated with disability decisions will help fund 47 percent of the ACA's cost. Last, compared to the ACA, an alternative plan without Medicaid expansion will reduce tax burdens and improve welfare.
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José Escarce Sarah Edgington & Carole Roan Gresenz
Medical Care, July 2014, Pages 626-633
Objective: To assess the spillover effects of the rate of uninsurance in a community on the awareness, treatment, and control of hypertension, a chronic condition responsible for substantial morbidity and mortality in the United States, among insured adults.
Research Design: NHANES III (1988–1994) and the 1999–2010 NHANES were linked to data from the Current Population Survey, Area Resource File, and InterStudy Competitive Edge. Multivariate probit regression models used 2 alternative estimation approaches: (1) maximum likelihood estimation, and (2) 2-stage residual inclusion estimation, an instrumental variables method.
Results: A 10 percentage point increase in the community uninsurance rate reduced the probability of receiving antihypertensive medications by 4.2 percentage points among insured hypertensive adults and by 5.5 percentage points among insured hypertensive adults who were aware of their hypertension. A 10 percentage point increase in the community uninsurance rate also resulted in a 6.8 percentage point decline in the probability of blood pressure control among insured hypertensive adults who were aware of their condition.
Conclusions: Nationally, the Affordable Care Act is expected to reduce the number of uninsured by >30 million by 2016, although changes will be experienced by communities to a greater or lesser extent depending on the existing numbers and characteristics of the uninsured in the area and the ways in which health care reform is implemented. Our results suggest that reductions in the community uninsurance rate have the potential to improve quality of care and clinical outcomes among the insured.
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Nurse Unions and Patient Outcomes
Arindrajit Dube, Ethan Kaplan & Owen Thompson
University of California Working Paper, June 2014
Abstract:
We estimate the impact of nurse unions on health care quality using patient discharge data and the universe of hospital unionizations in California between 1996 and 2005. We find that hospitals with a successful union election outperform hospitals with a failed election in 12 of 13 nurse sensitive patient outcomes measures. We also find that hospitals with a unionization drive are establishments with declining quality as measured by patient outcomes. When such declines are accounted for using hospital-specific trends, we find that unionized hospitals also outperform hospitals without any union election in the same 12 of 13 outcome measures.The timing of the quality improvement is consistent with a causal impact: the largest changes occur precisely in the year of unionization. The biggest improvements are found in the incidence of metabolic derangement, pulmonary failure, and central nervous system disorders such as depression and delusion, where the estimated changes are between 15% and 60% of the mean incidence for those measures. Dynamic estimates confirm that the improvements in health care outcomes occur within the first two years following nurse unionization.
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Guy David et al.
Journal of Health Economics, forthcoming
Abstract:
Despite its salience as a regulatory tool to ensure the delivery of unprofitable services, cross-subsidization of services within hospital systems has been notoriously difficult to detect and quantify. We use repeated shocks to a profitable service in the market for hospital-based medical care to test for cross-subsidization of unprofitable services. Using patient-level data from general short-term hospitals in Arizona and Colorado before and after entry by cardiac specialty hospitals, we study how incumbent hospitals adjusted their provision of uncontested services. While the hospitals most exposed to entry reduced their provision of services considered to be unprofitable (psychiatric, substance-abuse, and to a lesser extent trauma care), the estimates are generally modest in magnitude and in some instances statistically indistinguishable from zero. Although entry by single-specialty hospitals may adversely affect the provision of unprofitable uncontested services, these findings warrant further evaluation of service-line cross-subsidization as a means to finance them.
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The Deterrent Effect of Tort Law: Evidence from Medical Malpractice Reform
Zenon Zabinski & Bernard Black
Northwestern University Working Paper, April 2014
Abstract:
A principal goal of tort law is to deter negligent behavior, but there is limited empirical evidence on whether it does so. We study that question for medical malpractice liability. We examine whether medical malpractice reforms affect in-hospital patient safety, using Patient Safety Indicators (PSIs) – measures of adverse events developed by the Agency for Healthcare Research and Quality – as proxies for overall safety. In Difference-in-Differences analyses of five states that adopt caps on non-economic damages during 2003-2005, we find consistent evidence that patient safety generally falls after the reforms, compared to control states.
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Medicare Part B Intensity and Volume Offset
Christopher Brunt
Health Economics, forthcoming
Abstract:
Under Medicare Part B, adjustments to the fee schedule are made under the assumption that physicians and hospitals make up for fee reductions through increased service provision called ‘volume offsetting’. While historically, researchers have found evidence of volume offsetting, more recent studies have called into question its magnitude and existence. This study is the first to propose and empirically evaluate an alternative hypothesis of offsetting, namely the alteration of billed or provided services as a means of ‘intensity offsetting’. Evaluating both forms of offsetting, it finds strong evidence of intensity offsetting and little to no evidence of volume offsetting. Simulating a 10% reduction in the Medicare fee schedule, this study estimates that across different procedures between 22% and 59% of a fee reduction will be offset through alterations in service intensity.
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Effect of Massachusetts Health Reform on Chronic Disease Outcomes
Tomasz Stryjewski et al.
Health Services Research, forthcoming
Objective: To determine whether Massachusetts Health Reform improved health outcomes in uninsured patients with hyperlipidemia, diabetes, or hypertension.
Study Design: We examined 1,463 patients with hyperlipidemia, diabetes, or hypertension who were uninsured in the 3 years before the 2006 Massachusetts Health Reform implementation. We assessed mean quarterly total cholesterol, glycosylated hemoglobin, and systolic blood pressure in the respective cohorts for five follow-up years compared with 3,448 propensity score-matched controls who remained insured for the full 8-year study period. We used person-level interrupted time series analysis to estimate changes in outcomes adjusting for sex, age, race, estimated household income, and comorbidity. We also analyzed the subgroups of uninsured patients with poorly controlled disease at baseline, no evidence of established primary care in the baseline period, and those who received insurance in the first follow-up year.
Principal Findings: In 5 years after Massachusetts Health Reform, patients who were uninsured at baseline did not experience detectable trend changes in total cholesterol (−0.39 mg/dl per quarter, 95 percent confidence interval [−1.11 to 0.33]), glycosylated hemoglobin (−0.02 percent per quarter [−0.06 to 0.03]), or systolic blood pressure (−0.06 mmHg per quarter [−0.29 to 0.18]). Analyses of uninsured patients with poorly controlled disease, no evidence of established primary care in the baseline period, and those who received insurance in the first follow-up year yielded similar findings.
Conclusions: Massachusetts Health Reform was not associated with improvements in hyperlipidemia, diabetes, or hypertension control after 5 years. Interventions beyond insurance coverage might be needed to improve the health of chronically ill uninsured persons.
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Massachusetts Health Reform and Access for Children With Special Health Care Needs
Anna Jo Smith & Alyna Chien
Pediatrics, forthcoming
Background and objectives: Children with special health care needs (CSHCN) face unique challenges in accessing affordable health care. Massachusetts implemented major health reform in 2006; little is known about the impact of this state’s health reform on uninsurance, access to care, and financial protection for privately and publicly insured CSHCN.
Methods: We used a difference-in-differences (DD) approach to compare uninsurance, access to primary and specialty care, and financial protection in Massachusetts versus other states and Washington, DC before and after Massachusetts health reform. Parent-reported data were used from the 2005–2006 and 2009–2010 National Survey of Children with Special Health Care Needs and adjusted for age, gender, race/ethnicity, non-English language at home, and functional difficulties.
Results: Postreform, living in Massachusetts was not associated with significant decreases in uninsurance or increases in access to primary care for CSHCN. For privately insured CSHCN, Massachusetts was associated with increased access to specialists (DD = 6.0%; P ≤ .001) postreform. For publicly insured CSHCN, however, there was a significant decrease in access to prescription medications (DD = –7.2%; P = .003) postreform. Living in Massachusetts postreform was not associated with significant changes in financial protection compared with privately or publicly insured CSHCN in other states.
Conclusions: Massachusetts health reform likely improved access to specialists for privately insured CSHCN but did not decrease instances of uninsurance, increase access to primary care, or improve financial protection for CSHCN in general. Comparable provisions within the Affordable Care Act may produce similarly modest outcomes for CSHCN.
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The Effect of the Affordable Care Act’s Expanded Coverage Policy on Access to Dental Care
Marko Vujicic, Cassandra Yarbrough & Kamyar Nasseh
Medical Care, August 2014, Pages 715-719
Background: The Affordable Care Act included a dependent coverage policy that extends parents’ or guardians’ health insurance to adults aged 19–25. This policy does not apply directly to private dental benefits. However, for various reasons it could still have an indirect “spillover” effect if employers voluntarily expand dental coverage in conjunction with medical coverage.
Research Design: Difference-in-differences models were used to measure the association between the dependent coverage policy and private dental benefits coverage, utilization, and financial barriers to dental care. We analyze 2008–2012 National Health Interview Survey data, comparing results in 2011 and 2012 with results from 2008 to 2010 (prereform period).
Results: Relative to the prereform period, private dental benefits coverage among adults aged 19–25 increased by 5.6 percentage points in 2011 (P<0.001) and 6.9 percentage points in 2012 (P<0.001) compared with adults aged 26–34. Dental care utilization among adults aged 19–25 increased by 2.8 percentage points in 2011 (P=0.062) and 3.3 percentage points in 2012 (P=0.038) compared with adults aged 26–34. Adults aged 19–25 experienced a 2.1 percentage point decrease in 2011 (P=0.068) and a 2.0 percentage point decrease in 2012 (P=0.087) in financial barriers to dental care compared with adults aged 26–34.
Conclusions: The dependent coverage policy was associated with an increase in private dental benefits coverage and dental care utilization, and a decrease in financial barriers to dental care among young adults aged 19–25.
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Paying on the Margin for Medical Care: Evidence from Breast Cancer Treatments
Liran Einav, Amy Finkelstein & Heidi Williams
NBER Working Paper, June 2014
Abstract:
We present a simple framework to illustrate the welfare consequences of a “top up” health insurance policy that allows patients to pay the incremental price for more expensive treatment options. We contrast it with common alternative policies that require essentially no incremental payments for more expensive treatments (as in the United States), or require patients to pay the full costs of more expensive treatments (as in the United Kingdom). We provide an empirical illustration of this welfare analysis in the context of treatment choices among breast cancer patients, where lumpectomy with radiation therapy is a more expensive treatment than mastectomy, with similar average health benefits. We use variation in distance to the nearest radiation facility to estimate the relative demand for lumpectomy and mastectomy. Extrapolating the resultant demand curve (grossly) out of sample, our estimates suggest that the “top-up” policy, which achieves the efficient treatment decision, increases total welfare by $700-2,500 per patient relative to the current US “full coverage” policy, and by $700-1,800 per patient relative to the UK “no top up” policy. While we caution against putting much weight on our specific estimates, the analysis illustrates the potential welfare gains from more efficient reimbursement policies for medical treatments. We also briefly discuss additional tradeoffs that arise from the top-up and UK-style policies, which both lead to additional (ex-ante) risk exposure.
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Health Insurance Reform: The impact of a Medicare Buy-In
Gary Hansen, Minchung Hsu & Junsang Lee
Journal of Economic Dynamics and Control, August 2014, Pages 315–329
Abstract:
The steady state general equilibrium and welfare consequences of a Medicare buy-in program, optional for those aged 55–64, is evaluated in a calibrated life-cycle economy with incomplete markets. Incomplete markets and adverse selection create a potential welfare improving role for health insurance reform. We find that adverse selection eliminates any market for a Medicare buy-in if it is offered as an unsubsidized option to individual private health insurance. The subsidy needed to bring the number of uninsured to less than 5 percent of the target population could be financed by an increase in the labor income tax rate of just 0.03 to 0.18 percent depending on how the program is implemented.
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The effect of health insurance coverage on the reported health of young adults
Eric Cardella & Briggs Depew
Economics Letters, September 2014, Pages 406–410
Abstract:
We exploit a sharp change in the likelihood that an individual is covered by health insurance when they turn 19 years of age to study how health insurance affects reported health status. We find that an individual is 6 percentage points less likely to have health insurance when they turn 19. Using a fuzzy regression discontinuity design, we find that having health coverage significantly increases the likelihood of reporting excellent health among young adults.
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The Early Effects of Medicare's Mandatory Hospital Pay-for-Performance Program
Andrew Ryan et al.
Health Services Research, forthcoming
Objective: To evaluate the impact of hospital value-based purchasing (HVBP) on clinical quality and patient experience during its initial implementation period (July 2011–March 2012).
Study Design: Acute care hospitals were exposed to HVBP by mandate while critical access hospitals and hospitals located in Maryland were not exposed. We performed a difference-in-differences analysis, comparing performance on 12 incentivized clinical process and 8 incentivized patient experience measures between hospitals exposed to the program and a matched comparison group of nonexposed hospitals. We also evaluated whether hospitals that were ultimately exposed to HVBP may have anticipated the program by improving quality in advance of its introduction.
Principal Findings: Difference-in-differences estimates indicated that hospitals that were exposed to HVBP did not show greater improvement for either the clinical process or patient experience measures during the program's first implementation period. Estimates from our preferred specification showed that HVBP was associated with a 0.51 percentage point reduction in composite quality for the clinical process measures (p > .10, 95 percent CI: −1.37, 0.34) and a 0.30 percentage point reduction in composite quality for the patient experience measures (p > .10, 95 percent CI: −0.79, 0.19). We found some evidence that hospitals improved performance on clinical process measures prior to the start of HVBP, but no evidence of this phenomenon for the patient experience measures.
Conclusions: The timing of the financial incentives in HVBP was not associated with improved quality of care. It is unclear whether improvement for the clinical process measures prior to the start of HVBP was driven by the expectation of the program or was the result of other factors.
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Electronic Medical Records and Physician Productivity: Evidence from Panel Data Analysis
Hemant Bhargava & Abhay Nath Mishra
Management Science, forthcoming
Abstract:
This paper studies the impact of an electronic medical record (EMR) system on the productivity of physicians. Physicians influence a vast majority of treatment decisions and are central to the care delivery process; thus, it is important to understand how EMRs may impact the nature of their work. Our research builds on prior literature on physician productivity, IT productivity, and task–technology fit theory. We use a unique panel data set comprising 87 physicians specializing in internal medicine, pediatrics, and family practice, located in 12 primary care clinics of an academic healthcare system in the western United States. We employ the Arellano–Bond system generalized method of moments estimation technique on our data set, which contains 3,186 physician-month productivity observations collected over 39 months. We find that productivity drops sharply immediately after technology implementation and recovers partly over the next few months. The ultimate, longer-term impact depends on physician specialty. The net impact of the EMR system is more benign on internal medicine physicians than on pediatricians and family practitioners. We postulate that the fit provided by an EMR system to the task requirements of physicians of various specialties may be key to disentangling the productivity dynamics. Our research finds that on one hand, present-day EMR systems do not produce the kind of productivity gain that could lead to substantial savings in healthcare; at the same time, EMRs do not cause a major productivity loss on a sustained basis, as many physicians fear.
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Anticipating the Impact of Insurance Expansion on Inpatient Urological Surgery
Chandy Ellimoottil et al.
Urology Practice, forthcoming
Introduction: The Affordable Care Act is expected to provide coverage for nearly 25 million previously uninsured individuals. Because the potential impact of the ACA on urological care remains unknown, we estimated the impact of insurance expansion on the use of inpatient urological surgeries using Massachusetts health care reform as a natural experiment.
Methods: We identified nonelderly patients who underwent inpatient urological surgery from 2003 through 2010 using inpatient databases from Massachusetts and 2 control states. Using July 2007 as the transition point between pre-reform and post-reform periods, we performed a difference-in-differences analysis to estimate the effect of insurance expansion on overall and procedure specific rates of inpatient urological surgery. We also performed subgroup analyses according to race, income and insurance status.
Results: We identified 1.4 million surgeries performed during the study interval. We observed no change in the overall rate of inpatient urological surgery for the Massachusetts population as a whole. However, we saw an increase in the rate of inpatient urological surgery for nonwhite and low income patients. Our difference-in-differences analysis confirmed these results (all patients 1.0%, p=0.668; nonwhite patients 9.9%, p=0.006; low income patients 6.6%, p=0.041). At a procedure level insurance expansion caused increased rates of inpatient benign prostatic hyperplasia procedures but had no effect on rates of prostatectomy, cystectomy, nephrectomy, pyeloplasty or percutaneous nephrolithotomy.
Conclusions: Insurance expansion in Massachusetts increased the overall rate of inpatient urological surgery only for nonwhite patients and low income patients. These data inform key stakeholders about the potential impact of national insurance expansion for a large segment of urological care.
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Pharmaceutical Profits and the Social Value of Innovation
David Dranove, Craig Garthwaite & Manuel Hermosilla
NBER Working Paper, June 2014
Abstract:
Prior research has shown that exogenous shocks to the demand for medical products spur additional product development. These studies do not distinguish between breakthrough products and those that largely duplicate the performance of existing products. In this paper, we use a novel data set to explore the impact of the introduction of Medicare Part D on the development of new biotechnology products. We find that the law spurred development of products targeting illnesses that affect the elderly, but most of this effect is concentrated among products aimed at diseases that already have multiple existing treatments. Moreover, we find no increase in products targeting orphan disease or those receiving either fast track or priority review status from the FDA. This suggests that marginal changes in demand may have little effect on the development of products with large welfare benefits.
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Price-Cap Regulation, Uncertainty and the Price Evolution of New Pharmaceuticals
Ali Shajarizadeh & Aidan Hollis
Health Economics, forthcoming
Abstract:
This paper examines the effect of the regulations restricting price increases on the evolution of pharmaceutical prices. A novel theoretical model shows that this policy leads firms to price new drugs with uncertain demand above the expected value initially. Price decreases after drug launch are more likely, the higher the uncertainty. We empirically test the model's predictions using data from the Canadian pharmaceutical market. The level of uncertainty is shown to play a crucial role in drug pricing strategies.
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Jeremy Goldhaber-Fiebert et al.
NBER Working Paper, June 2014
Abstract:
Reforms introduced by the Affordable Care and Patient Protection Act (ACA) build new sources of coverage around employment-based health insurance. But what if firms find it cheaper to have their employees obtain insurance from these sources, even after accounting for penalties (for non-provision of insurance) and employee bonuses (to ensure the shift is cost neutral for them)? State and local governments (SLGs) have strong incentives to consider the economics of such “divestment”; many have large unfunded benefits liabilities. We investigated whether SLGs would save under two scenarios: (1) shifting all employees and under-65-retirees to alternative sources of coverage; (2) shifting only employees whose household incomes indicate they would be eligible for federally subsidized coverage and all under-65-retirees. Full divestment would cost SLGs more than they currently pay, due primarily to penalty costs. Selective divestment could save SLGs nearly $119 billion over 10 years at the expense of the federal government.
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Variations in Medicare Payments for Episodes of Spine Surgery
Andrew Schoenfeld et al.
Spine Journal, forthcoming
Purpose: To examine variation in episode payments for spine surgery in the national Medicare population. We also sought to determine root causes for observed variations in payment at high cost hospitals.
Methods: All patients in the national fee for service Medicare population undergoing surgery for three conditions (spinal stenosis, spondylolisthesis, lumbar disc herniation) between 2005-2007 were identified (n= 185,954 episodes of spine surgery). Hospitals were ranked on least to most expensive and grouped into quintiles. Results were risk- and price-adjusted using the empirical Bayes method. We then assessed the contributions of index hospitalization, physician services, readmissions and post-acute care to the overall variations in payment. This study was funded in part by a grant from the National Institutes of Aging. There are no conflicts of interest associated with this study.
Results: Episode payments for hospitals in the highest quintile were more than twice as high as those made to hospitals in the lowest quintile ($34,171 vs $15,997). After risk- and price-adjustment, total episode payments to hospitals in the highest quintile remained $9,210 (47%) higher. Procedure choice, including the use of fusion, was a major determinant of the total episode payment. After adjusting for procedure choice, however, hospitals in the highest quintile continued to be 28% more expensive than those in the lowest. Differences in the use of post-acute care accounted for most of this residual variation in payments across hospitals. Hospital episode payments varied to a similar degree after subgroup analyses for disc herniation, spinal stenosis and spondylolisthesis. Hospitals expensive for one condition were also found to be expensive for services provided for other spinal diagnoses.
Conclusions: Medicare payments for episodes of spine surgery vary widely across hospitals. As they respond to the new financial incentives inherent in healthcare reform, high cost hospitals should focus on the use of spinal fusion as well as post-acute care.
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Karen Stockley et al.
NBER Working Paper, June 2014
Abstract:
In the Medicare Advantage (MA) market, private health insurers compete to offer plans with the most attractive premium and benefit package. Medicare provides a subsidy, based on a "benchmark payment rate", for each Medicare beneficiary a plan enrolls. We investigate how this subsidy, the primary policy lever in the market, affects the equilibrium premiums and benefits of MA plans. We exploit variation in benchmark payment rates within plans over time, coming from rebasing years where benchmark changes differed across areas in ways that were plausibly exogenous, to determine empirically how plan premiums and benefit generosity respond to changes in benchmarks. We find that premiums do not respond to changes in the benchmark payment rate on average but that insurers do pass through a portion of the benchmark increase by increasing plan benefit generosity.
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Luisa Franzini et al.
Health Services Research, forthcoming
Objective: To measure the contribution of market-level prices, utilization, and health risk to medical spending variation among the Blue Cross Blue Shield of Texas (BCBSTX) privately insured population and the Texas Medicare population.
Study Design: We used observational data and decomposed overall and service-specific spending into health status and health status adjusted utilization and input prices and input prices adjusted for the BCBSTX and Medicare populations.
Principal Findings: Variation in overall BCBSTX spending across HRRs appeared driven by price variation, whereas utilization variation factored more prominently in Medicare. The contribution of price to spending variation differed by service category. Price drove inpatient spending variation, while utilization drove outpatient and professional spending variation in BCBSTX. The context in which negotiations occur may help explain the patterns across services.
Conclusions: The conventional wisdom that Medicare does a better job of controlling prices and private plans do a better job of controlling volume is an oversimplification. BCBSTX does a good job of controlling outpatient and professional prices, but not at controlling inpatient prices. Strategies to manage the variation in spending may need to differ substantially depending on the service and payer.