Bitter pill

Kevin Lewis

February 26, 2013

Focus Groups Highlight That Many Patients Object To Clinicians' Focusing On Costs

Roseanna Sommers et al.
Health Affairs, February 2013, Pages 338-346

Having patients weigh costs when making medical decisions has been proposed as a way to rein in health care spending. We convened twenty-two focus groups of people with insurance to examine their willingness to discuss health care costs with clinicians and consider costs when deciding among nearly comparable clinical options. We identified the following four barriers to patients' taking cost into account: a preference for what they perceive as the best care, regardless of expense; inexperience with making trade-offs between health and money; a lack of interest in costs borne by insurers and society as a whole; and noncooperative behavior characteristic of a "commons dilemma," in which people act in their own self-interest although they recognize that by doing so, they are depleting limited resources. Surmounting these barriers will require new research in patient education, comprehensive efforts to shift public attitudes about health care costs, and training to prepare clinicians to discuss costs with their patients.


Let Them Have Choice: Gains from Shifting Away from Employer-Sponsored Health Insurance and toward an Individual Exchange

Leemore Dafny, Kate Ho & Mauricio Varela
American Economic Journal: Economic Policy, February 2013, Pages 32-58

Most nonelderly Americans purchase health insurance through their employers, which sponsor a limited number of plans. Using a panel dataset representing over ten million insured lives, we estimate employees' preferences for different health plans and use the estimates to predict their choices if more plans were made available to them on the same terms, i.e., with equivalent subsidies and at large-group prices. Using conservative assumptions, we estimate a median welfare gain of 13 percent of premiums. A proper accounting of the costs and benefits of a transition from employer-sponsored to individually-purchased insurance should include this nontrivial gain.


Information and Quality when Motivation is Intrinsic: Evidence from Surgeon Report Cards

Jonathan Kolstad
NBER Working Paper, February 2013

If profit maximization is the objective of a firm, new information about quality should affect firm behavior only through its effects on market demand. I consider an alternate model in which suppliers are motivated by a desire to perform well in addition to profit. The introduction of quality "report cards" for cardiac surgery in Pennsylvania provides an empirical setting to isolate the relative role of extrinsic and intrinsic incentives in determining surgeon response. Information on performance that was new to surgeons and unrelated to patient demand led to an intrinsic response four times larger than surgeon response to profit incentives.


Tax Subsidies for Employer-Sponsored Health Insurance: Updated Microsimulation Estimates and Sensitivity to Alternative Incidence Assumptions

Edward Miller & Thomas Selden
Health Services Research, forthcoming

Objective: To estimate 2012 tax expenditures for employer-sponsored insurance (ESI) in the United States and to explore the sensitivity of estimates to assumptions regarding the incidence of employer premium contributions.

Data Sources: Nationally representative Medical Expenditure Panel Survey data from the 2005-2007 Household Component (MEPS-HC) and the 2009-2010 Insurance Component (MEPS IC).

Study Design: We use MEPS HC workers to construct synthetic workforces for MEPS IC establishments, applying the workers' marginal tax rates to the establishments' insurance premiums to compute the tax subsidy, in aggregate and by establishment characteristics. Simulation enables us to examine the sensitivity of ESI tax subsidy estimates to a range of scenarios for the within-firm incidence of employer premium contributions when workers have heterogeneous health risks and make heterogeneous plan choices.

Principal Findings: We simulate the total ESI tax subsidy for all active, civilian U.S. workers to be $257.4 billion in 2012. In the private sector, the subsidy disproportionately flows to workers in large establishments and establishments with predominantly high wage or full-time workforces. The estimates are remarkably robust to alternative incidence assumptions.

Conclusions: The aggregate value of the ESI tax subsidy and its distribution across firms can be reliably estimated using simplified incidence assumptions.


HealthPartners' Online Clinic For Simple Conditions Delivers Savings Of $88 Per Episode And High Patient Approval

Patrick Courneya, Kevin Palattao & Jason Gallagher
Health Affairs, February 2013, Pages 385-392

The delivery of health care online is relatively new. However, early indications suggest that it can improve the experience of care for patients and the health of populations, along with reducing per capita health care costs. HealthPartners in Minnesota launched an online clinic called virtuwell in late 2010. After more than 40,000 cases, we report an average $88 lower cost per episode compared with care received in traditional settings, strong indicators of clinical effectiveness, and a 98 percent "would recommend" rating from customers. The possibility of extrapolating such savings to larger volumes of cases is compelling. We suggest a need for regulatory reform, particularly around state-level statutes that create barriers to the expansion of online care delivery, such as those that require clinicians to be located in the same state as the patient and those requiring clinicians to have had a previous face-to-face visit with a patient. Such reforms would encourage further innovation and lead to cost reduction and improvements in access and convenience for consumers throughout the health care system.


Making Medicare Advantage a Middle-Class Program

Jacob Glazer & Thomas McGuire
Journal of Health Economics, forthcoming

This paper studies the role of Medicare's premium policy in sorting beneficiaries between traditional Medicare (TM) and managed care plans in the Medicare Advantage (MA) program. Beneficiaries vary in their demand for care. TM fully accommodates demand but creates a moral hazard inefficiency. MA rations care but disregards some elements of the demand. We describe an efficient assignment of beneficiaries to these two options, and argue that efficiency requires an MA program oriented to serve the large middle part of the distribution of demand: the "middle class." Current Medicare policy of a "single premium" for MA plans cannot achieve efficient sorting. We characterize the demand-based premium policy that can implement the efficient assignment of enrollees to plans. If only a single premium is feasible, the second-best policy involves too many of the low-demand individuals in MA and a too low level of services relative to the first best. We identify approaches to using premium policy to revitalize MA and improve the efficiency of Medicare.


Modeling Employer Self-Insurance Decisions after the Affordable Care Act

Amado Cordova et al.
Health Services Research, forthcoming

Objective: To present a microsimulation model that addresses the methodological challenge of estimating the firm decision to self-insure.

Methodology: The model considers the risk that the firm bears when self-insuring and the opportunity to mitigate that risk by purchasing stop-loss insurance. The model makes use of a structural, utility maximization framework to account for numerous aspects of the firm decision, and a multinomial probit to reproduce the elasticity of the firm's demand for health insurance.

Findings and Conclusions: Our simulations provide three important conclusions. First, they project significant increases in self-insurance rates among small firms -- presumably induced by the desire to avoid ACA's rate-banding and risk adjustment regulations - only if generous stop-loss policies become widely available. Second, they show that this increase would be due to this hypothetical adoption of widespread, generous reinsurance by the market and not by passage of the ACA. Third, even with a substantial increase of self-insurance rates among small firms, they project negligible adverse selection in the exchanges, as indicated by our finding that the increase in exchange premium is less than 0.5% when assuming very generous stop-loss policies after implementation of the ACA.


The Effect of Medicaid Physician Fees on Take-up of Public Health Insurance among Children in Poverty

Youjin Hahn
Journal of Health Economics, forthcoming

I investigate how changes in fees paid to Medicaid physicians affect take-up among children in low-income families. The existing literature suggests that the low level of Medicaid fee payments to physicians reduces their willingness to see Medicaid patients, thus creating an access-to-care problem for these patients. For the identical service, current Medicaid reimbursement rates are only about 65 percent of those covered by Medicare. Increasing the relative payments of Medicaid would increase its perceived value, as it would provide better access to health care for Medicaid beneficiaries. Using variation in the timing of the changes in Medicaid payment across states, I find that increasing Medicaid generosity is associated with both an increase in take-up and a reduction in uninsured rate. These results provide a partial answer to the puzzling question of why many low-income children who are eligible for Medicaid remain uninsured.


Are the Healthy Behaviors of US High-Deductible Health Plan Enrollees Driven by People Who Chose These Plans? Smoking as a Case Study

Jeffrey Kullgren, Kevin Volpp & Daniel Polsky
PLoS ONE, February 2013

Purpose: To determine whether negative associations between enrollment in a high-deductible health plan (HDHP) and one exemplar unhealthy behavior - daily smoking - are found only among people who chose these plans.

Design: Cross-sectional analysis of nationally-representative data.

Setting: United States from 2007 to 2008.

Subjects: 6,941 privately insured non-elderly adult participants in the 2007 Health Tracking Household Survey.

Measures: Self-reported smoking status.

Analysis: We classified subjects as HDHP or traditional health plan enrollees with employer-sponsored insurance (ESI) and no choice of plans, ESI with a choice of plans, or coverage through the non-group market. We used multivariate logistic regression to measure associations between HDHP enrollment and daily smoking within each of the 3 coverage source groups while controlling for potential confounders.

Results: HDHP enrollment was associated with lower odds of smoking among individuals with ESI and a choice of plans (AOR 0.55, 95% CI 0.33-0.90) and those with non-group coverage (AOR 0.64, 95% CI 0.34-1.22), though the latter association was not statistically significant. HDHP enrollment was not associated with lower odds of smoking among individuals with ESI and no choice of plans (AOR 1.04, 95% CI 0.69-1.56).

Conclusions: HDHP enrollment is associated with lower odds of smoking only among individuals who chose to enroll in an HDHP. Lower rates of unhealthy behaviors among HDHP enrollees may be a reflection of individuals who choose these plans.


The Effect of Pay-for-Performance in Nursing Homes: Evidence from State Medicaid Programs

Rachel Werner, Tamara Konetzka & Daniel Polsky
Health Services Research, forthcoming

Objective: Pay-for-performance (P4P) is commonly used to improve health care quality in the United States and is expected to be frequently implemented under the Affordable Care Act. However, evidence supporting its use is mixed with few large-scale, rigorous evaluations of P4P. This study tests the effect of P4P on quality of care in a large-scale setting-the implementation of P4P for nursing homes by state Medicaid agencies.

Data Sources/Study Setting: 2001-2009 nursing home Minimum Data Set and Online Survey, Certification, and Reporting (OSCAR) datasets.

Study Design: Between 2001 and 2009, eight state Medicaid agencies adopted P4P programs in nursing homes. We use a difference-in-differences approach to test for changes in nursing home quality under P4P, taking advantage of the variation in timing of implementation across these eight states and using nursing homes in the 42 non-P4P states plus Washington, DC as contemporaneous controls.

Principal Findings: Quality improvement under P4P was inconsistent. While three clinical quality measures (the percent of residents being physically restrained, in moderate to severe pain, and developed pressure sores) improved with the implementation of P4P in states with P4P compared with states without P4P, other targeted quality measures either did not change or worsened. Of the two structural measures of quality that were tied to payment (total number of deficiencies and nurse staffing) deficiency rates worsened slightly under P4P while staffing levels did not change.

Conclusions: Medicaid-based P4P in nursing homes did not result in consistent improvements in nursing home quality. Expectations for improvement in nursing home care under P4P should be tempered.


An Effort To Spread Decision Aids In Five California Primary Care Practices Yielded Low Distribution, Highlighting Hurdles

Grace Lin et al.
Health Affairs, February 2013, Pages 311-320

Despite the proven efficacy of decision aids as interventions for increasing patient engagement and facilitating shared decision making, they are not used routinely in clinical care. Findings from a project designed to achieve such integration, conducted at five primary care practices in 2010-12, document low rates of distribution of decision aids to eligible patients due for colorectal cancer screening (9.3 percent) and experiencing back pain (10.7 percent). There were also no lasting increases in distribution rates in response to training sessions and other promotional activities for physicians and clinic staff. The results of focus groups, ethnographic field notes, and surveys suggest that major structural and cultural changes in health care practice and policy are necessary to achieve the levels of use of decision aids and shared decision making in routine practice envisioned in current policy. Among these changes are ongoing incentives for use, physician training, and a team-based practice model in which all care team members bear formal responsibility for the use of decision aids in routine primary care.


Growth in private payments for health care by Canadian households

Michael Law et al.
Health Policy, forthcoming

Introduction: Despite first-dollar public coverage for hospital and physician services, Canadians spend more privately on health care than citizens of most other developed countries. We quantified recent growth in private payments by Canadian households for health care.

Methods: Using data from 163,081 respondents to Statistics Canada's annual Survey of Household Spending from 1998 to 2009, we calculated inflation-adjusted per-household spending on private health insurance premiums and out-of-pocket payments on six types of health care services. Further, we estimated the prevalence and some socio-economic determinants of households spending over 10% of after-tax income on health care using logistic regression.

Results: We found that Canadian households spent $19.8 billion on private payments for health care in 2009. This represents an average of $1523 per household - a 37% increase over 1998. The top three spending categories in 2009 were private health insurance premiums ($5.9 billion), dental ($4.9 billion) and prescription drugs ($4.2 billion). Even after adjusting for inflation, expenditure on every category of health care spending increased between 1998 and 2009. The proportion of households spending more than 10% of after-tax income on health care increased by 56% (from 3.3% to 5.2%). Households including a senior, with a low income, and in British Columbia or the Atlantic Provinces were significantly more likely to reach this threshold.


The Impact of Profitability of Hospital Admissions on Mortality

Richard Lindrooth et al.
Health Services Research, forthcoming

Background: Fiscal constraints faced by Medicare are leading to policies designed to reduce expenditures. Evidence of the effect of reduced reimbursement on the mortality of Medicare patients discharged from all major hospital service lines is limited.

Methods: We modeled risk-adjusted 30-day mortality of patients discharged from 21 hospital service lines as a function of service line profitability, service line time trends, and hospital service line and year-fixed effects. We simulated the effect of alternative revenue-neutral reimbursement policies on mortality. Our sample included all Medicare discharges from PPS-eligible hospitals (1997, 2001, and 2005).

Results: The results reveal a statistically significant inverse relationship between changes in profitability and mortality. A $0.19 average reduction in profit per $1.00 of costs led to a 0.010-0.020 percentage-point increase in mortality rates (p < .001). Mortality in newly unprofitable service lines is significantly more sensitive to reduced payment generosity than in service lines that remain profitable. Policy simulations that target service line inequities in payment generosity result in lower mortality rates, roughly 700-13,000 fewer deaths nationally.

Conclusions: The policy simulations raise questions about the trade-offs implicit in universal reductions in reimbursement. The effect of reduced payment generosity on mortality could be mitigated by targeting highly profitable services only for lower reimbursement.


The Demand for Preventive and Restorative Dental Services

Chad Meyerhoefer, Samuel Zuvekas & Richard Manski
Health Economics, forthcoming

Chronic tooth decay is the most common chronic condition in the United States among children ages 5-17 and also affects a large percentage of adults. Oral health conditions are preventable, but less than half of the US population uses dental services annually. We seek to examine the extent to which limited dental coverage and high out-of-pocket costs reduce dental service use by the nonelderly privately insured and uninsured. Using data from the 2001-2006 Medical Expenditure Panel Survey and an American Dental Association survey of dental procedure prices, we jointly estimate the probability of using preventive and both basic and major restorative services through a correlated random effects specification that controls for endogeneity. We found that dental coverage increased the probability of preventive care use by 19% and the use of restorative services 11% to 16%. Both conditional and unconditional on dental coverage, the use of dental services was not sensitive to out-of-pocket costs. We conclude that dental coverage is an important determinant of preventive dental service use, but other nonprice factors related to consumer preferences, especially education, are equal if not stronger determinants.


Hospital cost and quality performance in relation to market forces: An examination of U.S. community hospitals in the "post-managed care era"

Joanna Jiang, Bernard Friedman & Shenyi Jiang
International Journal of Health Care Finance and Economics, March 2013, Pages 53-71

Managed care substantially transformed the U.S. healthcare sector in the last two decades of the twentieth century, injecting price competition among hospitals for the first time in history. However, total HMO enrollment has declined since 2000. This study addresses whether managed care and hospital competition continued to show positive effects on hospital cost and quality performance in the "post-managed care era." Using data for 1,521 urban hospitals drawn from the Healthcare Cost and Utilization Project, we examined hospital cost per stay and mortality rate in relation to HMO penetration and hospital competition between 2001 and 2005, controlling for patient, hospital, and other market characteristics. Regression analyses were employed to examine both cross-sectional and longitudinal variation in hospital performance. We found that in markets with high HMO penetration, increase in hospital competition over time was associated with decrease in mortality but no change in cost. In markets without high HMO penetration, increase in hospital competition was associated with increase in cost but no change in mortality. Overall, hospitals in high HMO penetration markets consistently showed lower average costs, and hospitals in markets with high hospital competition consistently showed lower mortality rates. Hospitals in markets with high HMO penetration also showed lower mortality rates in 2005 with no such difference found in 2001. Our findings suggest that while managed care may have lost its strength in slowing hospital cost growth, differences in average hospital cost associated with different levels of HMO penetration across markets still persist. Furthermore, these health plans appear to put quality of care on a higher priority than before.


Microsimulation of Financial Impact of Demand Surge on Hospitals: The H1N1 Influenza Pandemic of Fall 2009

Sabina Braithwaite et al.
Health Services Research, forthcoming

Objective: Microsimulation was used to assess the financial impact on hospitals of a surge in influenza admissions in advance of the H1N1 pandemic in the fall of 2009. The goal was to estimate net income and losses (nationally, and by hospital type) of a response of filling unused hospital bed capacity proportionately and postponing elective admissions (a "passive" supply response).

Methods: Epidemiologic assumptions were combined with assumptions from other literature (e.g., staff absenteeism, profitability by payer class), Census data on age groups by region, and baseline hospital utilization data. Hospital discharge records were available from the Healthcare Cost and Utilization Project Nationwide Inpatient Sample (NIS). Hospital bed capacity and staffing were measured with the American Hospital Association's (AHA) Annual Survey.

Results: Nationwide, in a scenario of relatively severe epidemiologic assumptions, we estimated aggregate net income of $119 million for about 1 million additional influenza-related admissions, and a net loss of $37 million for 52,000 postponed elective admissions.

Implications: Aggregate and distributional results did not suggest that a policy of promising additional financial compensation to hospitals in anticipation of the surge in flu cases was necessary. The analysis identified needs for better information of several types to improve simulations of hospital behavior and impacts during demand surges.


Provider competition and healthcare quality: More bang for the buck?

Michael Katz
International Journal of Industrial Organization, forthcoming

Public and private entities around the world are trying to induce the provision of higher-quality health care by adopting institutional arrangements intended to promote competition among care providers. I selectively survey and supplement the literature to show that an increase in competition - modeled either as a larger number of care providers or greater precision of signals available to consumers regarding provider quality - may result in lower equilibrium quality holding prices fixed. These findings are an indication that considerable opportunities exist for industrial organization theorists to contribute to our understanding of healthcare markets.


Distance Bias and Surgical Outcomes

David Etzioni et al.
Medical Care, March 2013, Pages 238-244

Background: A body of research has found that patients who travel a significant distance to obtain medical treatment experience better outcomes, a phenomenon termed "distance bias." This study uses risk-adjusted surgical outcomes data to analyze distance bias in a population of patients treated surgically at a tertiary care institution.

Methods: We used risk-adjusted surgical outcomes data from the National Surgical Quality Improvement Project at the Mayo Clinic to calculate observed and expected risk of a severe complication. Operations were stratified into quintiles based on the distance traveled by the patient.

Results: The average age of patients in our cohort was 56.7 years, and 59.2% were female; patients traveled an average of 226 miles for treatment. Patients living closest to the Mayo Clinic (quintile 1) had lower observed and expected risks of a severe complication relative to patients in quintiles 2-5. Patients from quintile 1 had outcomes which were better than predicted [observed:expected risk ratio of 0.82 (range, 0.63-0.99)]. Patients traveling intermediate distances (quintile 2) had outcomes which were worse than predicted [observed:expected risk ratio of 1.18 (range, 1.00-1.42)]. Operations performed on patients from greater distances (quintiles 3-5) had an observed risk of severe complications which was similar to expected.

Discussion: The phenomenon of distance bias which has previously been documented in medical and oncologic treatment is not demonstrated in this study. An opposite phenomenon may be more pertinent, where patients who are treated locally are less likely to have a severe complication and have outcomes which are better than predicted.


Modeling the Impact of the Affordable Care Act and the Individual Mandate on Californians

Dylan Roby et al.
Journal of Family and Economic Issues, March 2013, Pages 16-28

The Patient Protection and Affordable Care Act (ACA) was designed to provide health insurance to uninsured or underinsured individuals. We used the California Simulation of Insurance Markets (CalSIM) model to predict the experience of consumers in California, who will be faced with new insurance options through Medicaid, employer-sponsored insurance, and the individual market in 2014 and beyond. We explored the response and characteristics of Californians who will and will not secure insurance coverage, with and without the "individual mandate" or minimum coverage requirement (MCR). We found 1.8 million Californians (38 %) of the 4.7 million eligible uninsured will secure coverage by 2019 with the MCR, while only 839,000 (18 % of the eligible uninsured) would obtain coverage without it.


Increased Risk of Death among Uninsured Neonates

Frank Morriss
Health Services Research, forthcoming

Objective: To estimate the contribution of health insurance status to the risk of death among hospitalized neonates.

Data Sources: Kids' Inpatient Databases (KID) for 2003, 2006, and 2009.

Study Design: KID 2006 subpopulation of neonatal discharges was analyzed by weighted frequency distribution and multivariable logistic regression analyses for the outcome of death, adjusted for insurance status and other variables. Multivariable linear regression analyses were conducted for the outcomes mean adjusted length of stay and hospital charges. The death analysis was repeated with KID 2003 and 2009.

Principal Findings: Of 4,318,121 estimated discharges in 2006, 5.4 percent were uninsured. There were 17,892 deaths; 9.5 percent were uninsured. The largest risks of death were five clinical conditions with adjusted odds ratios (AOR) of 13.7-3.1. Lack of insurance had an AOR of 2.6 (95 percent CI: 2.4, 2.8), greater than many clinical conditions; AOR estimates in alternate models were 2.1-2.7. Compared with insureds, uninsureds were less likely to have been admitted in transfer, more likely to have died in rural hospitals and to have received fewer resources. Similar death outcome results were observed for 2003 and 2009.

Conclusions: Uninsured neonates had decreased care and increased risk of dying.

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