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Ben Bernanke’s address was not the only one to make news at Jackson Hole. (Rohan can tell you all about Bernanke and QE3.) Jordan Rau over at Kaiser Health News’s Capsules Blog reports on the presentation from Harvard economists Katherine Baicker and Amitabh Chandra (from their related paper) in which they discussed how health spending is affected by technology. They questioned whether we could slow the growth of health costs by shifting away from low value (high cost, minimal benefit) treatments to higher value alternatives. The title of their paper succinctly highlights the tradeoff: “Aspirin, Angioplasty, and Proton Beam Therapy: The Economics of Smarter Health Care Spending.” As a means to that end, they proposed better use of patient cost-sharing and provider payment incentives to encourage more efficient use of healthcare. They call for more information about the cost-effectiveness of treatments. With that, providers and patients could make better judgments about the value of their healthcare spending.

The choice among therapies was not the only trade-off they highlighted. They connected the technology trade-off with the growth of accountable care organizations (ACOs), which were expanded by the Patient Protection and Affordable Care Act for use in Medicare. In an ACO, doctors coordinate to provide efficient care for their shared patients. If they save money while achieving good outcomes, the doctors get to keep some of the savings. If their treatment is poor, however, those doctors may have to absorb some of the financial loss involved. Baicker and Chandra’s two main concerns about ACOs are whether they can resist the excessive use of technology, even given incentives to do so; and whether their growth in market share will push prices up, offsetting any savings for Medicare.

On the one hand, an ACO might not achieve savings as expected if it will continue to use more expensive and only marginally better technology. On the other hand, an ACO could achieve savings, grow in market share, and leverage its position to command higher prices. Chandra will present these views on health spending here at AEI on September 9, in an event titled: “Solving the Healthcare Quadrilemma: Technological Change, Insurance, Outcomes, and Costs.” He will be joined by Tomas Philipson (an AEI visiting scholar) and Sheila Smith. Be sure to join us for this lively discussion as they debate the merits of technology and cost-effectiveness in healthcare.

A survey released by the National Business Group on Health has made some waves in the healthcare world. The group found that 83 large employers expected health benefits costs to increase by about 7 percent in 2012, and that most of those costs will be passed on to employees. (Costs went up about 7 percent this year as well.) Employers will alter health benefits in a number of ways including increasing deductibles (in- and/or out-of-network), out-of-pocket maximums, and premiums. This news is obviously unfortunate and undesired for employees, especially in light of the rising cost of living.

The survey results had one bright light for policy wonks and others who have advocated more consumer control and involvement in health spending:

According to the survey, nearly three in four employers (73%) will offer employees at least one consumer-directed health plan (CDHP) in 2012, a sharp increase from 61% that offer a plan this year…The most common type of CDHP plan is a high-deductible health plan with a health savings account (75%).

Consumer-directed health plans have higher deductibles than traditional insurance plans but are tied to health savings accounts (or similar arrangements) from which consumers can pay health bills. Money going into the account and used for health expenses is untaxed, which encourages saving. Generally, for non-preventative care consumers will pay 100 percent of their bills until they meet their deductible. Employers often contribute significantly to employee health savings accounts.

Because they have more control over their health dollars, consumers with these plans have to think more about how they spend money on healthcare. Sometimes those questions center on whether even getting medical care is worthwhile, and other times the focus is on which doctor/hospital offers the best value for a certain (non-emergency) procedure. The result is savings: less spending on frivolous or marginally beneficial procedures and office visits and decreased health spending overall.

Some critics raise objections about whether it’s right for consumers to have so much responsibility. For example, some people will forgo getting necessary medical care because they don’t want to spend the money. Others may not save enough in their health accounts to cover their bills, which often will be higher than those under traditional plans when still below the deductible. Consumer education about these possibilities will certainly be necessary to minimize downsides. Information available to consumers on health outcomes and prices will also need to increase dramatically to improve their capability in decision-making (see more from AEI’s Joseph Antos on this point).

Still, CDHPs are a valuable tool for many consumers (not all). These types of plans will be instrumental in taming our nation’s health spending. Their proliferation is a welcome sight despite increasing costs of benefits overall.

Last Thursday, Health and Human Services Secretary Kathleen Sebelius answered questions from viewers of the PBS program “NewsHour.” The Hill’s Healthwatch has a brief summary of her interview.

Of particular intrigue is Sebelius’s response to a question on insurance portability:

[Sebelius] also noted the nationwide policies when asked about the difficulty of maintaining coverage after moving to a new state.

“The health care law requires national plans be offered in each Affordable Insurance Exchange in every state and will be available to both individuals and small employers,” she said.

Sebelius tries to shine light on the requirement in the Patient Protection and Affordable Care Act (PPACA) that exchanges offer at least two national health insurance plans. Those plans might certainly provide some security to consumers, which is commendable. However, she didn’t highlight what the health bill could have done to provide even more freedom and reassurance to consumers, who are largely still subject to the whims of their employers.

Health exchanges are a positive component of the law (though the regulations placed on them are burdensome), but only some consumers will gain access to them. Most (below age 65) will still obtain insurance from their employers. PPACA did nothing to move us away from employer-provided health insurance. In many ways, it even expanded the influence that employers have over our health insurance.

In a more perfect, simpler world, Sebelius would have answered something along these lines: “The healthcare law broke our chains of bondage to employer-sponsored health insurance provision and provided a tax credit available to all. People can take their tax credits and use them in the new exchanges to purchase a plan of their choice, many—even most—of which are available nationally since the bill promoted interstate competition.”

Moving away from the employer-based provision of insurance would be exceedingly beneficial. One of the most-discussed ways to do that is to close the tax exclusion on employer-sponsored health insurance, which is worth about $260 billion annually, and to replace it with a tax credit available to all individuals and families to purchase health insurance. AEI’s Joseph Antos and Thomas P. Miller have each discussed this proposal previously (Antos here and Miller here and here with James C. Capretta).

This idea is neither new nor partisan (see the proposed Healthy Americans Act from 2008, for example). Consumers would have more control, freedom, and securityto obtain health insurance. The government could more accurately manage how much money it injects into the health sector. And we would avoid the unfortunate gaming that will soon ensue as employers navigate PPACA’s hurdles and requirements (see this recent post from Avik Roy for more on this point).

Back in April, I wrote that AARP could use its platform and clout to help its constituents as they make many healthcare decisions. (I referred specifically to drug choices.) AARP’s most recent issue of its magazine has a column that provides seniors with important reasons to reconsider going through four over-performed medical procedures: stents for stable angina, complex spinal fusion for stenosis, hysterectomy for uterine fibroids, and knee arthroscopy for osteoarthritis. The column’s author writes, “Evidence shows that all [of these procedures] have questionable long-term outcomes for treating certain conditions, and some may even cause harm.”

Some seniors will choose to undergo one or more of the procedures despite the risks, poor outcomes, and costs, while others might use the information to avoid all three. Either way, this kind of information will empower patients to have open and important conversations with their physicians, who aren’t always able to judge accurately a patient’s desire to accept risk or cost in return for certain outcomes. Patients will be in a better position to judge the marginal benefit of every additional dollar they spend. In many cases, as with these four procedures, the benefit is not as high as a patient may initially believe.

(H/T Gary Schwitzer)

A new GAO survey out last week shows that many children in Medicaid programs across the country have limited access to physicians and some are even slightly worse off under Medicaid (and CHIP) than children not covered by any form of insurance. GAO also surveyed physicians participating in Medicaid. In addition to receiving low reimbursements, physicians highlighted a number of reasons they limit their treatment of Medicaid patients. The following graph (from Avik Roy’s Apothecary blog) summarizes the data well:

As Roy points out, the Affordable Care Act (known to most as “ObamaCare”) seeks to expand health insurance coverage by adding 16-25 million people nationwide to Medicaid starting in 2014.  The Act bars states from downsizing their Medicaid rolls, which has forced many to cut their reimbursement rates to even lower levels. Some Republicans have proposed giving states more flexibility to administer their Medicaid programs under federal block grants, an idea which many Democrats have refused to entertain. Currently, states have to check a large number of boxes and satisfy other requirements mandated by Congress to receive federal funds. They also game the system, leading to inefficient spending and administration. Flexibility under block grants (or other reforms) would allow states to address at least some of the above limiting factors without having to navigate Congress’s web of red tape.

The results from the survey would have looked similar before Congress passed ObamaCare, as would the list of issues plaguing the program. These are reasons many seriously question the wisdom of adding up to 25 million new patients to an already broken program.

John Goodman highlights an interesting New York Times article over at his blog. The article summarizes a recent Cochrane Library study that looked at how presentation of clinical trial data affects the perception of health professionals and consumers. One conclusion was that people find relative risk data more persuasive than absolute risk data. For example, I could say that X drug cuts your risk of disease from 2 percent to 1 percent—the change in absolute frequency—or I could say that X cuts your risk in half, the change in relative risk. The latter data point—the relative risk reduction—sounds better and is more influential, even though the change in absolute risk change is small. (News articles and press releases certainly capitalize on this observation.)

That’s not a groundbreaking conclusion but is still worth dwelling on. That faulty perception can lead us to make decisions that are out of line with our values and economic preferences. In receiving healthcare, some people would be willing to forgo taking a drug if they knew that the expected benefit was really much smaller than originally perceived (e.g., taking risk from 2 percent to 1 percent).

As comparative effectiveness becomes a bigger presence in health policy—in part due to the nonprofit Patient-Centered Outcomes Research Institute created by the Affordable Care Act and funded by a fee on every health insurance policy—relaying information that actually helps patients to ask questions of their doctors and to make choices in line with their values and preferences should remain a key goal. How new data is framed will make all the difference, for consumers and health professionals.

Debates in the world of health policy have continued in the last few weeks, some loud and others quiet. Here’s a snapshot of what has been going on and what AEI scholars are saying:

Medicaid: States are still looking for ways to manage their Medicaid budgets in spite of the Patient Protection and Affordable Care Act’s onerous maintenance of effort requirement, which largely prevents states from downsizing their enrollments. Cuts to reimbursement rates, which are already lower than those for Medicare, are a principal option for most. Florida and Washington state, among others, have passed significant pieces of legislation that dramatically reform their programs, recognizing that the status quo is unsustainable. Florida is transforming its system entirely from fee-for-service to managed care. Washington state’s government—in an overwhelmingly bipartisan decision—will ask the feds to convert the state’s Medicaid funding into a block grant, providing the state greater flexibility with the money. As part of AEI’s Beyond Repeal and Replace series, former New Hampshire Health and Human Services Commissioner John Stephen will write a paper highlighting state “best practices” and offering a new vision for a patient-centered Medicaid program.

Medicare: No real political action and conversation has occurred in the wake of Representative Paul Ryan’s budget plan, which would establish a premium support model to help beneficiaries pay for Medicare. In May, Richard Foster, chief actuary of CMS (the agency that runs Medicare) spoke at AEI about the 2011 Medicare Trustees Report. The report shows that a key component of Medicare’s funding would be depleted in 2024, five years earlier than previously expected. AEI Scholar Joseph Antos (on Twitter: @joeantos) reviews and criticizes the current atmosphere of political irresponsibility over at the American Square.

State exchanges: Many states have moved forward with legislation authorizing the establishment of state health exchanges, as mandated by the Affordable Care Act. The exchanges will play a key role in 2014, the mandated deadline for implementation. Failure of a state to establish its own health exchange would prompt the feds to do so. Look for a Health Policy Outlook on state exchanges from AEI’s Thomas Miller.

FDA and pharmaceuticals: The agency continues to receive significant flack for its 510(k) medical device approval process (which was a key topic in AEI/Brookings’ November 2010 medical technology conference). A report released two weeks ago contained the same stats about the process that have damned the program repeatedly in the last year. In other news, AEI Fellow Scott Gottlieb raised concern earlier this week about the feds limiting the free speech of pharmaceutical companies in promoting academic research.

An interesting report was released last Friday by Advamed (Advanced Medical Technology Association) comparing medical device recalls in the European Union and the United States. The report’s findings may appear to be anticlimactic to those unfamiliar with the medical device climate: class I safety recalls (the most urgent kind) happen at about the same rate in the European Union and the United States. A 2010 study of U.S. medical device recalls by Ralph Hall, presented at IOM in July and AEI in November, came to similar conclusions. The similarity of our safety records doesn’t necessarily merit attention. But the Food and Drug Administration (FDA) approves the most novel devices years behind the EU, in part due to significantly greater clinical requirements that take years to fulfill. You have to wonder why the FDA takes longer to approve devices if the result is not greater safety.

These and other reports are continuing to draw attention to this intriguing and important sector, which is vastly different from that of pharmaceuticals (see the latest Health Policy Outlook by John E. Calfee and Gabriel Sudduth). Small businesses and entrepreneurs are key drivers of innovation in the device world. They have to respond to technological changes that can have lifecycles of two to three years, one of the reasons that blockbuster devices don’t exist as big drugs do. Competition is never far behind.

Over the last year, FDA has done well in many ways in seeking to streamline one branch of the device review process. This process (called 510(k), after its legislative origin) encompasses nearly all devices entering the market, including dental implants, some cardiology equipment, and most laser devices. Among the agency’s recommendations are better guidance to help businesses wade through the bureaucratic categorization, better staff training, and (yet more) guidance on labeling requirements. The process is still very expensive, involving $30 million or more in total R&D costs per device.

Patients and health consumers should hope for similar improvements in the “PMA” (“pre-market approval”) FDA approval process through which novel high-risk devices pass. These devices must be tested in large clinical trials that in the United States can easily take five years or more to complete (remember: technological life cycles can be well under five years) at substantial cost. In the European Union, a clinical trial can be completed in a year.

Excess requirements and regulation for medical devices increase the cost and lengthen the timeline of innovation and development, with little benefit for patients. The FDA needs to work on reducing its risk aversion, to the benefit of American patients.

Look for more on this comparison of novel device approvals in the European Union and United States from AEI’s John E. Calfee later this year.

Gabriel Sudduth is a research assistant at AEI.