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Wednesday, December 19, 2012

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Steps To Reduce Favorable Risk Selection In Medicare Advantage Largely Succeeded, Boding Well For Health Insurance Exchanges

Joseph Newhouse et al.
Health Affairs, December 2012, Pages 2618-2628

Abstract:
Within Medicare, the Medicare Advantage program has historically attracted better risks - healthier, lower-cost patients - than has traditional Medicare. The disproportionate enrollment of lower-cost patients and avoidance of higher-cost ones during the 1990s - known as favorable selection - resulted in Medicare's spending more per beneficiary who enrolled in Medicare Advantage than if the enrollee had remained in traditional Medicare. We looked at two measures that can indicate whether favorable selection is taking place - predicted spending on beneficiaries and mortality - and studied whether policies that Medicare implemented in the past decade succeeded in reducing favorable selection in Medicare Advantage. We found that these policies - an improved risk adjustment formula and a prohibition on monthly disenrollment by beneficiaries - largely succeeded. Differences in predicted spending between those switching from traditional Medicare to Medicare Advantage relative to those who remained in traditional Medicare markedly narrowed, as did adjusted mortality rates. Because insurance exchanges set up under the Affordable Care Act will employ similar policies to combat risk selection, our results give reason for optimism about managing competition among health plans.

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Health Care Reforms and the Value of Future Public Liabilities

Kristopher Hult & Tomas Philipson
NBER Working Paper, November 2012

Abstract:
Many developed countries are grappling with the large public liabilities attributable to health care subsidy programs. However, there has been no explicit analysis by economists of how various reforms affect future spending growth and, consequently, how they affect future public program liabilities. We analyze how approval and reimbursement reforms affect public liabilities through their impact on the returns to medical innovation, which many argue is a central factor driving spending growth. We separate how reforms impact innovative returns through changes to expected cash flows, their risk-adjustment, and their timing and defaults implied by the approval process. We argue that the innovation effects of common reforms imply that cutbacks in government programs may raise government liabilities and expansions may lower them. We quantitatively calibrate the implications of these arguments for the US Medicare program and find that further means-testing the program may substantially raise innovative returns and thereby put upward pressure on Medicare liabilities.

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Shipping Out Instead of Shaping Up: Rehospitalization from Nursing Homes as an Unintended Effect of Public Reporting

Tamara Konetzka, Daniel Polsky & Rachel Werner
Journal of Health Economics, forthcoming

Abstract:
Public reporting of health care quality has become a popular tool for incenting quality improvement. A fundamental question about public reporting is whether it causes providers to select healthier patients for treatment. In the nursing home post-acute setting, where patients must achieve a minimum length of stay to be included in quality measures, selection may take the form of discharge from the nursing home using rehospitalization, a particularly costly and undesirable outcome. We study the population of post-acute patients of skilled nursing facilities nationwide during 1999-2005 to assess whether selective rehospitalization occurred when public reporting was instituted in 2002, using multiple quasi-experimental designs to identify effects. We find that after public reporting was implemented, rehospitalizations before the length-of-stay cutoff increased. We conclude that nursing homes rehospitalize higher-risk post-acute patients to improve scores, providing evidence for selection behavior on the part of nursing home providers in the presence of public reporting.

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War, Tropical Disease, and the Emergence of National Public Health Capacity in the United States

Daniel Sledge
Studies in American Political Development, October 2012, Pages 125-162

Abstract:
This article analyzes the emergence of national public health capacity in the United States. Tracing the transformation of the federal government's role in public health from the 1910s through the emergence of the CDC during World War II, I argue that national public health capacity emerged, to a great extent, out of the attempts of government officials to deal with the problem of tropical disease within the southern United States during periods of mobilization for war.

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In Consumer-Directed Health Plans, A Majority Of Patients Were Unaware Of Free Or Low-Cost Preventive Care

Mary Reed et al.
Health Affairs, December 2012, Pages 2641-2648

Abstract:
Consumer-directed health plans are plans with high deductibles that typically require patients to bear no out-of-pocket costs for preventive care, such as annual physicals or screening tests, in order to ease financial barriers and encourage patients to seek such care. We surveyed people in California who had a consumer-directed health plan and found that fewer than one in five understood that their plan exempted preventive office visits, medical tests, and screenings from their deductible, meaning that this care was free or had a modest copayment. Roughly one in five said that they had delayed or avoided a preventive office visit, test, or screening because of cost. Those who were confused about the exemption were significantly more likely to report avoiding preventive visits because of cost concerns. Special efforts to educate consumers about preventive care cost-sharing exemptions may be necessary as more health plans, including Medicare, adopt this model.

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The Effect of Pharmaceutical Innovation on Longevity: Patient-Level Evidence from the 1996-2002 Medical Expenditure Panel Survey and Linked Mortality Public-Use Files

Frank Lichtenberg
NBER Working Paper, November 2012

Abstract:
We investigate the effect of the vintage (year of FDA approval) of the prescription drugs used by an individual on his or her survival and medical expenditure. When we only control for age, sex, and interview year, we estimate that a one-year increase in drug vintage increases life expectancy by 0.52%. Controlling for other variables including activity limitations, race, education, family income as a percent of the poverty line, insurance coverage, Census region, BMI, smoking and over 100 medical conditions has virtually no effect on the estimate of the effect of drug vintage on life expectancy. Between 1996 and 2003, the mean vintage of prescription drugs increased by 6.6 years. This is estimated to have increased life expectancy of elderly Americans by 0.41-0.47 years. This suggests that not less than two-thirds of the 0.6-year increase in the life expectancy of elderly Americans during 1996-2003 was due to the increase in drug vintage. The 1996-2003 increase in drug vintage is also estimated to have increased annual drug expenditure per elderly American by $207, and annual total medical expenditure per elderly American by $218. This implies that the incremental cost-effectiveness ratio (cost per life-year gained) of pharmaceutical innovation was about $12,900.

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The Impact of Medical Errors on Physician Behavior: Evidence from Malpractice Litigation

Ity Shurtz
Journal of Health Economics, forthcoming

Abstract:
How do medical errors affect physician behavior? Despite the importance of this question empirical evidence about it remains limited. This paper studies the impact of obstetricians' medical errors that resulted in malpractice litigation on their subsequent choice of whether to perform a C-section, a common procedure that is thought to be sensitive to physician incentives. The main result is that C-section rates jumped discontinuously by 4% after a medical error, establishing an association between medical errors and treatment patterns. C-section rates continued to increase afterwards, bringing the cumulative increase 2.5 years after a medical error to 8%.

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How Do the Elderly Fare in Medical Malpractice Litigation, Before and After Tort Reform? Evidence from Texas

Myungho Paik et al.
American Law and Economics Review, forthcoming

Abstract:
The elderly account for a disproportionate share of medical spending, but little is known about how they are treated by the medical malpractice system, or how tort reform affects elderly claimants. We compare paid medical malpractice claims brought by elderly plaintiffs in Texas during 1988-2009 to those brought by adult non-elderly plaintiffs. Controlling for healthcare utilization (based on inpatient days), elderly paid claims rose from about 20% to about 40% of the adult non-elderly rate by the early 2000s. Mean and median payouts per claim also converged, although the elderly were far less likely to receive large payouts. Tort reform strongly affected claim rates and payouts for both groups, but disproportionately reduced payouts to elderly claimants. We thus find evidence of convergence between the elderly and the adult non-elderly in both claim rates and payouts, which is interrupted by tort reform.

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The effects of a community-based partnership, Project Access Dallas (PAD), on emergency department utilization and costs among the uninsured

M. DeHaven et al.
Journal of Public Health, December 2012, Pages 577-583

Background: Approximately 19% of non-elderly adults are without health insurance. The uninsured frequently lack a source of primary care and are more likely to use the emergency department (ED) for routine care. Improving access to primary care for the uninsured is one strategy to reduce ED overutilization and related costs.

Methods: A comparison group quasi-experimental design was used to evaluate a broad-based community partnership that provided access to care for the uninsured-Project Access Dallas (PAD)-on ED utilization and related costs. Eligible uninsured patients seen in the ED were enrolled in PAD (n = 265) with similar patients not enrolled in PAD (n = 309) serving as controls. Study patients were aged 18-65 years, <200% of the federal poverty level and uninsured. Outcome measures include the number of ED visits, hospital days and direct and indirect costs.

Results: PAD program enrollees had significantly fewer ED visits (0.93 vs. 1.44; P < 0.01) and fewer inpatient hospital days (0.37 vs. 1.07; P < 0.05) than controls. Direct hospital costs were ∼60% less ($1188 vs. $446; P < 0.01) and indirect costs were 50% less ($313 vs. $692; P < 0.01).

Conclusions: A broad-based community partnership program can significantly reduce ED utilization and related costs among the uninsured.

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Free to Choose? Reform and Demand Response in the English National Health Service

Martin Gaynor, Carol Propper & Stephan Seiler
NBER Working Paper, November 2012

Abstract:
The impacts of choice in public services are controversial. We exploit a reform in the English National Health Service to assess the impact of relaxing constraints on patient choice. We estimate a demand model to evaluate whether increased choice increased demand elasticity faced by hospitals with regard to clinical quality and waiting time for an important surgical procedure. We find substantial impacts of the removal of restrictions. Patients became more responsive to clinical quality. Sicker patients and better informed patients were more affected. We leverage our model to calculate potential benefits. We find increased demand responsiveness led to a significant reduction in mortality and an increase in patient welfare. The elasticity of demand faced by hospitals increased post-reform, giving hospitals potentially large incentives to improve their quality of care and find suggestive evidence that hospitals responded strongly to the enhanced incentives due to increased demand elasticity. The results suggests greater choice can enhance quality.

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New Risk-Adjustment System Was Associated With Reduced Favorable Selection In Medicare Advantage

Michael McWilliams, John Hsu & Joseph Newhouse
Health Affairs, December 2012, Pages 2630-2640

Abstract:
Health plans participating in the Medicare managed care program, called Medicare Advantage since 2003, have historically attracted healthier enrollees than has the traditional fee-for-service program. Medicare Advantage plans have gained financially from this favorable risk selection since their payments have traditionally been adjusted only minimally for clinical characteristics of enrollees, causing overpayment for healthier enrollees and underpayment for sicker ones. As a result, a new risk-adjustment system was phased in from 2004 to 2007, and a lock-in provision instituted to limit midyear disenrollment by enrollees experiencing health declines whose exodus could benefit plans financially. To determine whether these reforms were associated with intended reductions in risk selection, we compared differences in self-reported health care use and health between Medicare Advantage and traditional Medicare beneficiaries before versus after these reforms were implemented. We similarly compared differences between those who switched into or out of Medicare Advantage and nonswitchers. Most differences in 2001-03 were substantially narrowed by 2006-07, suggesting reduced selection. Similar risk-adjustment methods may help reduce incentives for plans competing in health insurance exchanges and accountable care organizations to select patients with favorable clinical risks.

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Efficiency of health care delivery systems: Effects of health insurance coverage

Melanie Cozad & Bruno Wichmann
Applied Economics, 2013, Pages 4082-4094

Abstract:
Health insurance expansions may increase the demand for care-creating incentives for health systems to increase input consumption. The possibility remains that added capacity and personnel will have little effect on health outcomes, decreasing the technical efficiency of health care delivery systems. We estimate that a 1 percentage point increase in health insurance coverage decreases the technical efficiency of health care delivery by 1.3 percentage points, translating into approximately 50 billion dollars in additional health expenditures. This finding uncovers a previously unexplored consequence of changes in health insurance on the supply side of health care markets suggesting one avenue through which health care costs growth may occur.

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The Effect of Cadaveric Kidney Donations on Living Kidney Donations: An Instrumental Variables Approach

Jose Fernandez, David Howard & Lisa Stohr Kroese
Economic Inquiry, forthcoming

Abstract:
Transplantation is notable for the degree to which resources are allocated via administrative rather than market mechanisms. However, non-monetary incentives still permeate the system. Using instrumental variable regression, we estimate the substitution patterns between cadaveric and living kidney donations in the United States from 1988 to 2008. On average, a decrease of two to five cadaveric donations causes living kidney donations to increase by one. Disaggregating living donors into blood-related and non-blood-related donors, the strongest effect is found among non-blood-related donors known to the organ recipient. A 1% increase of cadaveric donations decreases living donations from this group by 1.54%.

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Hospital Pay-For-Performance Programs In Maryland Produced Strong Results, Including Reduced Hospital-Acquired Conditions

Sule Calikoglu, Robert Murray & Dianne Feeney
Health Affairs, December 2012, Pages 2649-2658

Abstract:
Over the past decade Medicare has put in place several pay-for-performance programs for hospitals, including one that stopped paying hospitals for treating hospital-acquired conditions and the Hospital Value-Based Purchasing Program that went into effect in October 2012. In this article we describe how the State of Maryland crafted two pay-for-performance programs applicable to all hospitals and payers - a Quality-Based Reimbursement Program similar to Medicare's value-based purchasing program and a separate program that compared hospitals' risk-adjusted relative performance on a broad array of hospital-acquired conditions. In the first program, all clinical process-of-care measures improved from 2007 to 2010, and variations among hospitals decreased substantially. For example, the statewide average rate of provision of influenza vaccines to patients with pneumonia increased by 20.5 percentage points, from 71.5 percent in 2007 to 92.0 percent in 2010. As a result of the second program, hospital-acquired conditions in the state declined by 15.26 percent over two years, with estimated cost savings of $110.9 million over that period. Extrapolating these results, the Medicare fee-for-service program nationally would have saved $1.3 billion over two years by implementing a similar hospital-acquired conditions program. The state programs used strong and consistent financial incentives to motivate hospitals' efforts to improve quality. This experience demonstrates that successful state experimentation can inform and influence federal policy and efforts to coordinate payment strategies in other states.

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The Impact of Medical Liability Standards on Regional Variations in Physician Behavior: Evidence from the Adoption of National-Standard Rules

Michael Frakes
American Economic Review, forthcoming

Abstract:
I explore the association between regional variations in physician behavior and the geographical scope of malpractice standards of care. I estimate a 30 - 50% reduction in the gap between state and national utilization rates of various treatments and diagnostic procedures following the adoption of a rule requiring physicians to follow national, as opposed to local, standards. These findings suggest that standardization of substantive malpractice law may lead to greater standardization in practices and, more generally, that physicians may indeed adhere to specific liability standards. In connection with the estimated convergence in practices, I observe no associated changes in patient health.

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Physician response to financial incentives when choosing drugs to treat breast cancer

Andrew Epstein & Scott Johnson
International Journal of Health Care Finance and Economics, December 2012, Pages 285-302

Abstract:
This paper considers physician agency in choosing drugs to treat metastatic breast cancer, a clinical setting in which patients have few protections from physicians' rent seeking. Physicians have explicit financial incentives attached to each potential drug treatment, with profit margins ranging more than a hundred fold. SEER-Medicare claims and Medispan pricing data were formed into a panel of 4,503 patients who were diagnosed with metastatic breast cancer and treated with anti-cancer drugs from 1992 to 2002. We analyzed the effects of product attributes, including profit margin, randomized controlled trial citations, FDA label, generic status, and other covariates on therapy choice. Instruments and drug fixed effects were used to control for omitted variables and possible measurement error associated with margin. We find that increasing physician margin by 10% yields between an 11 and 177% increase in the likelihood of drug choice on average across drugs. Physicians were more likely to use drugs with which they had experience, had more citations, and were FDA-approved to treat breast cancer. Oncologists are susceptible to financial incentives when choosing drugs, though other factors play a large role in their choice of drug.

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Hospices' Enrollment Policies May Contribute To Underuse Of Hospice Care In The United States

Melissa Aldridge Carlson et al.
Health Affairs, December 2012, Pages 2690-2698

Abstract:
Hospice use in the United States is growing, but little is known about barriers that terminally ill patients may face when trying to access hospice care. This article reports the results of the first national survey of the enrollment policies of 591 US hospices. The survey revealed that 78 percent of hospices had at least one enrollment policy that may restrict access to care for patients with potentially high-cost medical care needs, such as chemotherapy or total parenteral nutrition. Smaller hospices, for-profit hospices, and hospices in certain regions of the country consistently reported more limited enrollment policies. We observe that hospice providers' own enrollment decisions may be an important contributor to previously observed underuse of hospice by patients and families. Policy changes that should be considered include increasing the Medicare hospice per diem rate for patients with complex needs, which could enable more hospices to expand enrollment.

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On Hospice Operations Under Medicare Reimbursement Policies

Barış Ata et al.
Management Science, forthcoming

Abstract:
This paper analyzes the United States Medicare hospice reimbursement policy. The existing policy consists of a daily payment for each patient under care with a global cap of revenues accrued during the Medicare year, which increases with each newly admitted patient. We investigate the hospice's expected profit and provide reasons for a spate of recent provider bankruptcies related to the reimbursement policy; recommendations to alleviate these problems are given. We also analyze a hospice's incentives for patient management, finding several unintended consequences of the Medicare reimbursement policy. Specifically, a hospice may seek short-lived patients (such as cancer patients) over patients with longer expected lengths of stay. The effort with which hospices seek out, or recruit, such patients will vary during the year. Furthermore, the effort they apply to actively discharge a patient whose condition has stabilized may also depend on the time of year. These phenomena are unintended and undesirable but are a direct consequence of the Medicare reimbursement policy. We propose an alternative reimbursement policy to ameliorate these shortcomings.

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Price Inferences for Sacred versus Secular Goods: Changing the Price of Medicine Influences Perceived Health Risk

Adriana Samper & Janet Schwartz
Journal of Consumer Research, forthcoming

Abstract:
The current research examines how the price of a medication influences consumers' beliefs about their own disease risk - a critical question with new laws mandating greater price transparency for health care goods and services. Four studies reveal that consumers believe that lifesaving health goods are priced according to perceived need (i.e., communal-sharing principles) and that price consequently influences risk perceptions and intentions to consume care. Specifically, consumers believe that lower medication prices signal greater accessibility to anyone in need, and such accessibility thus makes them feel that their own self-risk is elevated, increasing consumption. The reverse is true for higher prices. Importantly, these effects are limited to self-relevant health threats and reveal that consumers make inconsistent assumptions about risk, prevalence, and need with price exposure. These findings suggest that while greater price transparency may indeed reduce consumption of higher-priced goods, it may do so for both necessary and unnecessary care.

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The effects of health shocks on employment and health insurance: The role of employer-provided health insurance

Cathy Bradley, David Neumark & Meryl Motika
International Journal of Health Care Finance and Economics, December 2012, Pages 253-267

Abstract:
Employment-contingent health insurance (ECHI) has been criticized for tying insurance to continued employment. Our research sheds light on two central issues regarding employment-contingent health insurance: whether such insurance "locks" people who experience a health shock into remaining at work; and whether it puts people at risk for insurance loss upon the onset of illness, because health shocks pose challenges to continued employment. We study how men's dependence on their own employer for health insurance affects labor supply responses and health insurance coverage following a health shock. We use the Health and Retirement Study (HRS) surveys from 1996 through 2008 to observe employment and health insurance status at interviews 2 years apart, and whether a health shock occurred in the intervening period between the interviews. All employed married men with health insurance either through their own employer or their spouse's employer, interviewed in at least two consecutive HRS waves with non-missing data on employment, insurance, health, demographic, and other variables, and under age 64 at the second interview are included in the study sample. We then limited the sample to men who were initially healthy. Our analytical sample consisted of 1,582 men of whom 1,379 had ECHI at the first interview, while 203 were covered by their spouse's employer. Hospitalization affected 209 men with ECHI and 36 men with spouse insurance. A new disease diagnosis was reported by 103 men with ECHI and 22 men with other insurance. There were 171 men with ECHI and 25 men with spouse employer insurance who had a self-reported health decline. Labor supply response differences associated with ECHI - with men with health shocks and ECHI more likely to continue working - appear to be driven by specific types of health shocks associated with future higher health care costs but not with immediate increases in morbidity that limit continued employment. Men with ECHI who have a self-reported health decline are significantly more likely to lose health insurance than men with insurance through a spouse. With the passage of health care reform, the tendency of men with ECHI as opposed to other sources of insurance to remain employed following a health shock may be diminished, along with the likelihood of losing health insurance.

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Is There a Medicaid Penalty? The Effect of Hospitals' Medicaid Population on their Private Payer Market Share

Andrew Sfekas
Health Economics, forthcoming

Abstract:
This study examines whether privately insured patients avoid hospitals with large Medicaid populations. I use a conditional logit model of hospital choice to determine whether the size of a hospital's Medicaid population affects the probability that a privately insured patient will choose that hospital. I focus on the metropolitan area of Tampa, Florida, in the years 1994-1996. I control for hospital fixed effects, hospital-specific time trends, patients' driving time to the hospital, and interactions between patient and hospital characteristics. I also instrument for the Medicaid population using the predicted Medicaid population. The results show that privately insured patients are less likely to choose a hospital if it served a larger number of Medicaid patients who were admitted through the emergency department in the previous 6 months. The effect persists over time - an additional 6-month lag cuts the effect in half. Capacity constraints do not seem to be the reason for the effect. I show that the Medicaid effect size could have a moderate effect on the profits of some hospitals. Although limited in scope, this study suggests that hospitals may experience a negative effect on their private revenues when they admit a large population of Medicaid patients.

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Inappropriately Ordered Echocardiograms Are Related to Socioeconomic Status

Gabriel Silverman, Stuart Vyse & David Silverman
American Journal of Medical Quality, November/December 2012, Pages 487-493

Abstract:
Although the appropriateness of ordering tests is increasingly measured, the demographic characteristics of patients receiving inappropriate cardiac tests, such as echocardiograms, have seldom been studied. The authors hypothesized that particular patient characteristics might influence the frequency of inappropriate echocardiogram ordering. Demographics and appropriateness were examined in a consecutive series of 535 inpatients receiving echocardiograms at a metropolitan hospital; inappropriate tests were ordered in 9% of cases. Disabled patients received a significantly higher proportion of inappropriate echocardiograms compared to both retired and employed patients. Among patients receiving repeat echocardiograms, Medicaid patients were significantly more likely to receive inappropriately ordered echocardiograms than patients with either Medicare or private insurance. In conclusion, certain socioeconomic and demographic characteristics are associated with a higher incidence of inappropriate test ordering. Further research into the causal factors behind this association may be useful to reduce inappropriate test ordering.

By KEVIN LEWIS | 09:00:00 AM