Bill of Health

Kevin Lewis

February 26, 2014

Understanding Differences Between High- And Low-Price Hospitals: Implications For Efforts To Rein In Costs

Chapin White, James Reschovsky & Amelia Bond
Health Affairs, February 2014, Pages 324-331

Private insurers pay widely varying prices for inpatient care across hospitals. Previous research indicates that certain hospitals use market clout to obtain higher payment rates, but there have been few in-depth examinations of the relationship between hospital characteristics and pricing power. This study used private insurance claims data to identify hospitals receiving inpatient prices significantly higher or lower than the median in their market. High-price hospitals, compared to other hospitals, tend to be larger; be major teaching hospitals; belong to systems with large market shares; and provide specialized services, such as heart transplants and Level I trauma care. High-price hospitals also receive significant revenues from nonpatient sources, such as state Medicaid disproportionate-share hospital funds, and they enjoy healthy total financial margins. Quality indicators for high-price hospitals were mixed: High-price hospitals fared much better than low-price hospitals did in U.S. News & World Report rankings, which are largely based on reputation, while generally scoring worse on objective measures of quality, such as postsurgical mortality rates. Thus, insurers may face resistance if they attempt to steer patients away from high-price hospitals because these facilities have good reputations and offer specialized services that may be unique in their markets.


Equilibrium Health Spending and Population Aging in a Model of Endogenous Growth — Will the GDP Share of Health Spending Keep Rising?

Isaac Ehrlich & Yong Yin
NBER Working Paper, January 2014

The apparently unrelenting growth in the GDP-share of health spending (SHS) has been a perennial issue of policy concern. Does an equilibrium limit exist? The issue has been left open in recent dynamic models which take income growth and population aging as given. We view these variables as endogenously determined within an overlapping-generations, human-capital-based endogenous-growth model, where a representative parent makes all life-cycle consumption and investment decisions, and life and health protection are subject to diminishing returns. Our prototype model, allowing for both quantity and quality of life as desired goods, yields equilibrium upper bounds for SHS. Our calibrated simulations also account for observed trends in reproductive choices, population aging, life expectancy, and economic growth. The analysis offers new insights about factors that drive long-term trends in aging and health spending and establishes a direct relation between health investments at young age and the equilibrium, steady-state rate of economic growth.


Covering the Remaining Uninsured Children: Almost Half of Uninsured Children Live in Immigrant Families

Eric Seiber
Medical Care, March 2014, Pages 202-207

Objective: Previous authors have answered “how many children in immigrant families are uninsured”; we do not know the inverse: “how many uninsured children live in immigrant families.” This paper will show the total contribution of having an immigrant parent to the uninsured rate for children in the United States.

Data Source: Secondary data from the 2008–2010 American Community Survey.

Study Design: Descriptive analyses and a multinomial probit model illustrate the relationship between immigration history and insurance status.

Principal Findings: In 2010, almost half (42%) of uninsured children lived in an immigrant family. State-level estimates range from a low of 4% in Maine to a high of 69% in California. Two thirds (69%) of these uninsured children are citizens; furthermore, 39% are Medicaid eligible, 39% are not eligible for Medicaid, and eligibility is unknown for the 21% that are low-income, noncitizens.

Conclusions: In 2000, a third of all uninsured children lived in immigrant families. In 2010, 42% of all uninsured children lived in immigrant families. Initiatives to expand coverage or increase Medicaid and CHIP uptake will require decision makers to develop new policy and outreach approaches to enroll these children so they do not fall further behind.


Suicide and Organ Donors: Spillover Effects of Mental Health Insurance Mandates

Jose Fernandez & Matthew Lang
Health Economics, forthcoming

This paper considers the effect of mental health insurance mandates on the supply of cadaveric donors. We find that enacting a mental health mandate decreases the count of organ donors from suicides and results are driven by female donors. Using a number of empirical specifications, we calculate that the mental health parity laws are responsible for an approximately 0.52% decrease in cadaveric donors. Additional regression results show that the mandates are not related to other types of organ donations, ruling out the possibility that the mandates are related to an overall trend in the supply of organ donations. The findings suggest that future policies aimed at reducing suicide in a large and significant way can potentially increase the inefficiency that currently exists in the organ donor market.


Redistribution Under the ACA is Modest in Scope

Stan Dorn, Bowen Garrett & John Holahan
Urban Institute Working Paper, February 2014

Claims that the ACA involves "the largest income transfer in American history" are exaggerated. Low- and moderate-income people receive benefits equaling 0.9 percent of GDP, a fraction of spending on Medicare, Social Security, and tax preferences for employer-sponsored insurance. The affluent contribute just 0.2 percent of GPD, with taxes limited to 2.4 percent of tax-filers, who pay an average of 0.5 percent of income. Nearly three-quarters of ACA's funding comes, not from the wealthy, but from the health care industry, through reimbursement cuts or taxes and fees. However, these contributions are offset by new revenue from people gaining health insurance.


Assessing Incentives for Service-Level Selection In Private Health Insurance Exchanges

Thomas McGuire et al.
Journal of Health Economics, forthcoming

Even with open enrollment and mandated purchase, incentives created by adverse selection may undermine the efficiency of service offerings by plans in the new health insurance Exchanges created by the Affordable Care Act. Using data on persons likely to participate in Exchanges drawn from five waves of the Medical Expenditure Panel Survey, we measure plan incentives in two ways. First, we construct predictive ratios, improving on current methods by taking into account the role of premiums in financing plans. Second, relying on an explicit model of plan profit maximization, we measure incentives based on the predictability and predictiveness of various medical diagnoses. Among the chronic diseases studied, plans have the greatest incentive to skimp on care for cancer, and mental health and substance abuse.


How well does the U.S. Government provide health insurance for infants?

Manan Roy
Empirical Economics, February 2014, Pages 253-284

The debate over universal health insurance (HI) in the U.S., as well as the proper role of the government in the HI market, has been quite heated. Fueling this debate is the uncertainty pertaining to the benefits of HI in general, and the relative benefits of private versus public HI in particular. This uncertainty stems from non-random selection into different types of HI (private, public, or none) in combination with the absence of experimental data. Moreover, the lack of typical exclusion restrictions complicates identification of the causal effects of different HI types. Here, the aim is to assess the causal impact of public HI, relative to private HI, on the insured infant’s health. To that end, this study employs the methodology proposed in Altonji et al. (J Polit Econ 113:151–184, 2005) which trades off what can be learned in exchange for not requiring an exclusion restriction. Nonetheless, the method remains quite informative in the present context. Specifically, using data from the Early Childhood Longitudinal Survey, Birth Cohort, along with several measures of infant health, the results suggest that while public HI is associated with worse infant health, this association disappears once selection on observables and unobservables is considered. In fact, the estimated effects of public HI are predominantly positive once both types of selection are admitted. Further analysis reveals that the likely beneficial effects of public HI are due to greater coverage for infants at a much lower cost.


The Effect of Macroeconomic Conditions on the Care Decisions of the Employed

Danny Hughes & Amir Khaliq
Medical Care, February 2014, Pages 121-127

Background: Medical care utilization has been found to be affected indirectly by changes in economic conditions through associated changes in employment or insurance status. However, if individuals interpret external macroeconomic conditions as employment risk, they may alter decisions to seek care even if they remain both employed and insured.

Objective: To examine the relationship between macroeconomic fluctuations and the medical care usage of Americans who are both employed and insured.

Research Design: Restricting the Medical Expenditure Panel Survey from 1995 to 2008 to respondents whose employment status and insurance status did not change, we employed a fixed-effect Poisson model to examine the association between state average annual unemployment rates and the utilization of 12 medical services.

Results: The average annual state unemployment rate was found to be a significant factor in hospital outpatient visits (P < 0.01) and emergency room visits (P < 0.01). A one percentage point increase in the unemployment rate was found to produce an additional 0.67 hospital outpatient visits and 0.14 emergency room visits.

Conclusions: State unemployment rates were found statistically significantly associated with several of the medical services studied, suggesting macroeconomic conditions are an important factor in the medical decisions of employed and insured individuals. Thus, policy changes that increase access among the unemployed or uninsured may mitigate this employment risk effect and create incentives that potentially alter the utilization decisions among those currently both employed and insured.


Could a Website Really Have Doomed the Health Exchanges? Multiple Equilibria, Initial Conditions and the Construction of the Fine

Florian Scheuer & Kent Smetters
NBER Working Paper, February 2014

Public attention has focused on how the launch of the national health exchanges could impact the types of risks who initially enroll and thereby affect future premiums and enrollment. We introduce simple dynamics into a standard model of insurance under adverse selection to show that such “initial conditions” can indeed matter. When firms are price-takers, the market can converge to a Pareto-inferior “bad” equilibrium if there are at least three equilibria, which we suggest has empirical support. Strategic pricing eliminates Pareto dominated equilibria but requires common knowledge of preference and risk distributions. Changing the fine on non-participants from a fixed amount to a fraction of equilibrium prices increases the range of initial conditions consistent with reaching the “good” equilibrium while reducing the “badness” of the bad equilibrium — all without increasing the fine value in the good equilibrium. Allowing insurers to quickly change prices can encourage them to experiment with strategic pricing if market fundamentals are not perfectly known, increasing the chance of reaching the good equilibrium independently from initial conditions.


Uninsured Veterans Who Will Need to Obtain Insurance Coverage Under the Patient Protection and Affordable Care Act

Jack Tsai & Robert Rosenheck
American Journal of Public Health, March 2014, Pages e57-e62

Objectives: We examined the number and clinical needs of uninsured veterans, including those who will be eligible for the Medicaid expansion and health insurance exchanges in 2014.

Methods: We analyzed weighted data for 8710 veterans from the 2010 National Survey of Veterans, classifying it by veterans’ age, income, household size, and insurance status.

Results: Of 22 million veterans, about 7%, or more than 1.5 million, were uninsured and will need to obtain coverage by enrolling in US Department of Veterans Affairs (VA) care or the Medicaid expansion or by participating in the health insurance exchanges. Of those uninsured, 55%, or more than 800 000, are likely eligible for the Medicaid expansion if states implement it. Compared with veterans with any health coverage, those who were uninsured were younger and more likely to be single, Black, and low income and to have been deployed to Iraq and Afghanistan.

Conclusions: The Patient Protection and Affordable Care Act is likely to have a considerable impact on uninsured veterans, which may have implications for the VA, the Medicaid expansion, and the health insurance exchanges.


Variation in Congenital Heart Surgery Costs Across Hospitals

Sara Pasquali et al.
Pediatrics, forthcoming

Background: A better understanding of costs associated with common and resource-intense conditions such as congenital heart disease has become increasingly important as children’s hospitals face growing pressure to both improve quality and reduce costs. We linked clinical information from a large registry with resource utilization data from an administrative data set to describe costs for common congenital cardiac operations and assess variation across hospitals.

Methods: Using linked data from The Society of Thoracic Surgeons and Pediatric Health Information Systems Databases (2006–2010), estimated costs/case for 9 operations of varying complexity were calculated. Between-hospital variation in cost and associated factors were assessed by using Bayesian methods, adjusting for important patient characteristics.

Results: Of 12 718 operations (27 hospitals) included, median cost/case increased with operation complexity (atrial septal defect repair, [$25 499] to Norwood operation, [$165 168]). Significant between-hospital variation (up to ninefold) in adjusted cost was observed across operations. Differences in length of stay (LOS) and complication rates explained an average of 28% of between-hospital cost variation. For the Norwood operation, high versus low cost hospitals had an average LOS of 50.8 vs 31.8 days and a major complication rate of 50% vs 25.3%. High volume hospitals had lower costs for the most complex operations.

Conclusions: This study establishes benchmarks for hospital costs for common congenital heart operations and demonstrates wide variability across hospitals related in part to differences in LOS and complication rates. These data may be useful in designing initiatives aimed at both improving quality of care and reducing cost.


Relaxing Occupational Licensing Requirements: Analyzing Wages and Prices for a Medical Service

Morris Kleiner et al.
NBER Working Paper, February 2014

Occupational licensing laws have been relaxed in a large number of U.S. states to give nurse practitioners the ability to perform more tasks without the supervision of medical doctors. We investigate how these regulations may affect wages, employment, costs, and quality of providing certain types of medical services. We find that when only physicians are allowed to prescribe controlled substances that this is associated with a reduction in nurse practitioner wages, and increases in physician wages suggesting some substitution among these occupations. Furthermore, our estimates show that prescription restrictions lead to a reduction in hours worked by nurse practitioners and are associated with increases in physician hours worked. Our analysis of insurance claims data shows that the more rigid regulations increase the price of a well-child medical exam by 3 to 16 %. However, our analysis finds no evidence that the changes in regulatory policy are reflected in outcomes such as infant mortality rates or malpractice premiums. Overall, our results suggest that these more restrictive state licensing practices are associated with changes in wages and employment patterns, and also increase the costs of routine medical care, but do not seem to influence health care quality.


Health information exchange among U.S. hospitals: Who's in, who's out, and why?

Julia Adler-Milstein & Ashish Jha
Healthcare, forthcoming

Background: A key goal of the 2009 HITECH Act is to ensure broad electronic exchange of clinical data among providers. We sought to assess whether current policy efforts, many of which are being developed by states, appear to be tackling key barriers to hospital participation in health information exchange (HIE).

Methods: We used the most recent national data from the American Hospital Association's IT Supplement to assess U.S. hospital participation in HIE and how participation varies by state. We then examined whether HIE is being pursued by all types of hospitals, or whether specific types of hospitals are not yet engaged. We focused on for-profit hospitals, those with smaller market share, and those in more competitive markets.

Results: We found that 30% of U.S. hospitals engaged in health information exchange with unaffiliated providers. There was large variation in state-level participation, with some states achieving more than 70% participation (Rhode Island, Delaware and Vermont) and others with minimal participation. In markets where exchange occurred, for-profit hospitals were far less likely to engage in HIE than non-profit hospitals (OR=0.17; p<0.001). Hospitals with a larger market share were more likely to engage in exchange (OR=2.05 for hospitals in the highest relative to the lowest quartile of market share; p<0.001), as were hospitals in less competitive markets (OR=2.15 for hospitals in the most relative to least concentrated market quartile; p=0.04).

Conclusions: Despite an uptick in hospital HIE participation since the start of HITECH, the majority of hospitals still do not engage in HIE and there is large state-to-state variation. Specific types of hospitals appear to feel that they are better off not engaging in HIE.


Does Health Information Exchange Reduce Redundant Imaging? Evidence From Emergency Departments

Eric Lammers, Julia Adler-Milstein & Keith Kocher
Medical Care, March 2014, Pages 227-234

Background: Broad-based electronic health information exchange (HIE), in which patients' clinical data follow them between care delivery settings, is expected to produce large quality gains and cost savings. Although these benefits are assumed to result from reducing redundant care, there is limited supporting empirical evidence.

Objective: To evaluate whether HIE adoption is associated with decreases in repeat imaging in emergency departments (EDs).

Data Source/Study Setting: ED discharge data from the State Emergency Department Databases for California and Florida for 2007-2010 were merged with Health Information Management Systems Society data that report hospital HIE participation.

Methods: Using regression with ED fixed effects and trends, we performed a retrospective analysis of the impact of HIE participation on repeat imaging, comparing 37 EDs that initiated HIE participation during the study period to 410 EDs that did not participate in HIE during the same period. Within 3 common types of imaging tests [computed tomography (CT), ultrasound, and chest x-ray), we defined a repeat image for a given patient as the same study in the same body region performed within 30 days at unaffiliated EDs.

Results: In our sample there were 20,139 repeat CTs (representing 14.7% of those cases with CT in the index visit), 13,060 repeat ultrasounds (20.7% of ultrasound cases), and 29,703 repeat chest x-rays (19.5% of x-ray cases). HIE was associated with reduced probability of repeat ED imaging in all 3 modalities: -8.7 percentage points for CT [95% confidence interval (CI): -14.7, -2.7], -9.1 percentage points for ultrasound (95% CI: -17.2, -1.1), and -13.0 percentage points for chest x-ray (95% CI: -18.3, -7.7), reflecting reductions of 44%-67% relative to sample means.

Conclusions: HIE was associated with reduced repeat imaging in EDs. This study is among the first to find empirical support for this anticipated benefit of HIE.


Challenges to Regulatory Decentralization: Lessons from State Health Technology Regulation

Jill Horwitz & Daniel Polsky
NBER Working Paper, January 2014

Policymakers often prefer decentralized regulation to central planning because decentralization allows them to better reflect the views of local residents, encourage experimentation, and evaluate various regulatory approaches. These advantages can be undermined, however, when the regulations of one government are affected by those of another. To examine the implications of such externalities, we consider the case of state certificate of need laws (CON), which require providers within the state to obtain licenses before adopting various types of health care technology. In particular, we analyze the cross-border effects of these laws on the number and location of magnetic resonance imaging providers. We find a large effect on the location of providers near borders between unregulated and regulated states. These results provide examples of some of the limitations of using states as policy laboratories as well as the ability of states to use state laws to reflect their local preferences. The results may also help explain conflicting studies on whether and why CON regulation may have failed to control costs and quantity.


The Association of Hospital Cost-Inefficiency With Certificate-of-Need Regulation

Michael Rosko & Ryan Mutter
Medical Care Research and Review, forthcoming

Certificate-of-need (CON) regulations can promote hospital efficiency by reducing duplication of services; however, there are practical and theoretical reasons why they might be ineffective, and the empirical evidence generated has been mixed. This study compares the cost-inefficiency of urban, acute care hospitals in states with CON regulations against those in states without CON requirements. Stochastic frontier analysis was performed on pooled time-series, cross-sectional data from 1,552 hospitals in 37 states for the period 2005 to 2009 with controls for variations in hospital product mix, quality, and patient burden of illness. Average estimated cost-inefficiency was less in CON states (8.10%) than in non-CON states (12.46%). Results suggest that CON regulation may be an effective policy instrument in an era of a new medical arms race. However, broader analysis of the effects of CON regulation on efficiency, quality, access, prices, and innovation is needed before a policy recommendation can be made.


Beyond Volume: Does Hospital Complexity Matter?: An Analysis of Inpatient Surgical Mortality in the United States

Marta McCrum et al.
Medical Care, March 2014, Pages 235-242

Background: Hospitals show wide variation in outcomes and systems of care. It is unclear whether hospital complexity — the range of services and technologies provided — affects outcomes and in what direction. We sought to determine whether complexity was associated with inpatient surgical mortality.

Methods: Using national Medicare data, we identified all fee-for-service inpatients who underwent 1 of 5 common high-risk surgical procedures in 2008–2009 and measured complexity by the number of unique primary diagnoses admitted to each hospital over the 2-year period. We calculated 30-day postoperative mortality rates, adjusting for patient and hospital characteristics, and used multivariable Poisson regression models to test for an association between hospital complexity and mortality rates. We then used this model to generate predicted mortality rates for low-volume and high-volume hospitals across the spectrum of hospital complexity.

Results: A total of 2691 hospitals were analyzed, representing a total of 382,372 admissions. After adjusting for hospital characteristics, including hospital volume, increasing hospital complexity was associated with lower surgical mortality rates. Patients receiving care at the hospitals in the lowest quintile of unique diagnoses had a 27% higher risk of death than those at the highest quintile. The effect of complexity was largest for low-volume hospitals, which were capable of achieving mortality rates similar to high-volume hospitals when in the most complex quintile.

Conclusions: Hospital complexity matters and is associated with lower surgical mortality rates, independent of hospital volume. The effect of complexity on outcomes for nonsurgical services warrants investigation.


The Economic Crisis and Medical Care Use: Comparative Evidence from Five High-Income Countries

Annamaria Lusardi, Daniel Schneider & Peter Tufano
Social Science Quarterly, forthcoming

Objective: We examine how the economic crisis has affected individuals’ use of routine medical care and assess the extent to which the impact varies depending on national context.

Methods: Data from a new cross-national survey fielded in the United States, Great Britain, Canada, France, and Germany are used to estimate the effects of employment and wealth shocks and financial fragility on the use of routine care.

Results: We document reductions in individuals’ use of routine nonemergency medical care in the midst of the economic crisis. Americans reduced care more than individuals in Great Britain, Canada, France, and Germany. At the national level, reductions in care are related to the degree to which individuals must pay for it, and within countries, reductions are linked to shocks to wealth and employment and to financial fragility.

Conclusions: The economic crisis has led to reductions in the use of routine medical care, and systems of national insurance provide some protection against these effects.


Has Massachusetts Health Care Reform Worked for the Working Poor? Results from an Analysis of Opportunity

Liane Tinsley, Susan Hall & John McKinlay
Annals of Epidemiology, forthcoming

Purpose: Health care reform was introduced in Massachusetts in 2006 and serves as a model for what was subsequently introduced nationally as the Patient Protection and Affordable Care Act (ACA) (1). The Boston Area Community Health (BACH) survey collected data before (2002-2005) and after (2006-2010) introduction of the Massachusetts health insurance mandate, providing a unique opportunity to assess its effects in a large, epidemiological cohort.

Methods: We report on the apparent effects of the mandate on the same participants over time, focusing specifically on the vulnerable working poor. We evaluated differences in subpopulations of interest at pre- and post-reform periods in order to explore whether Massachusetts health care reform resulted in an overall gain in insurance coverage.

Results: Massachusetts health care reform was associated with net gains in health insurance coverage overall and among the subgroups studied. Our findings suggest that despite being targeted by health care reform legislation, the working poor in Massachusetts continue to report lower rates of insurance coverage compared to both the non-working poor and the not poor.

Conclusions: Massachusetts health care reform legislation, including the expansion of Medicaid, resulted in substantial overall gains in coverage. Disparities in insurance coverage persist among some subgroups following health care reform implementation in Massachusetts. These results have important implications for health services researchers and policy makers, particularly in light of the ongoing implementation of the ACA.


from the


A weekly newsletter with free essays from past issues of National Affairs and The Public Interest that shed light on the week's pressing issues.


to your National Affairs subscriber account.

Already a subscriber? Activate your account.


Unlimited access to intelligent essays on the nation’s affairs.

Subscribe to National Affairs.