Health Econ Final

EMTALA

(1986) Emergency Medical Treatment and Active Labor Act. States that if you discharge a patient before he is medically stable, you could lose Medicare payments. The law has resulted in hospitals having to accept uninsured patients even if they can't afford to pay. Unfunded mandate.

Clinton healthcare reform

(1992-1994) Following up on the Rust Belt victory of a Pennsylvania Senator who campaigned on healthcare as a right, Clinton sought to reform America's healthcare issues. His reform effort was based on an employer mandate while Republicans supported an individual mandate. His reform effort failed without a vote.

Treaty of Marrakesh

(1994) requires that all signatory nations provide full patent protection for pharmaceutical products. Also increased patent lifetime to 20 years from 17 years.

21st Century Cures Act

(2016) bipartisan legislation that allows for less rigorous pre-approval testing in order to achieve faster drug approvals; in fact, some approvals can occur without randomized control trials (RCTs). It accelerated the pathway for full approval. It was tied to an increase in NIH funding and $1 billion to combat the opioid epidemic.

Pre-ACA Health Insurance

1 in 4 were uninsured at some point over a 2 year period. 2 million Americans lost health insurance every month prior to ACA. Prior to reform, coverage options could change with the loss or changing of a job, a change in family status, a birthday (19 years old vs. 26 under the ACA), moving, a change in health status (pre-existing conditions). No pre-existing conditions protections (could be denied for cancer, HIV/AIDS, Diabetes, MS, Pregnancy, etc.).

Summary of major healthcare challenges

1) Cost: the high cost of healthcare today creates public finance and private market impediments to global competitiveness. 2) Access: there exists a large population of uninsured and underinsured people in this country with accompanying access problems (have trouble getting in to see a doctor). 3) Quality: quality is uneven--differs for poor vs. rich and across geographical regions.

Insurance Product

1) Expected payout of insurance (medical care costs, including payments to hospitals, physicians, etc. for care) make up 80-85% of price of insurance 2) Load factor (net cost of insurance, including marketing, medical management, processing, price negotiation) makes up 15-20% of the price of insurance

Types of hospitals

58.9% not-for-profit; 21.4% investor-owned; 19.8% government (state and local) Inpatient: acute-care hospitals, assisted living facilities Outpatient: laboratories, imaging centers, outpatient; urgent care centers

High Deductible Health Plan

A plan with a higher deductible than a traditional insurance plan. The monthly premium is usually lower but you pay more health costs yourself before the insurance company starts to pay its share (your deductible). You can see almost anyone under these plans. They are sometimes paired with HSAs, which can be used to cover copayments. They sometimes provide preventive care benefits, such as flu shots and screenings, to promote health.

Orphan Drugs

A special category of drugs that have been identified to help treat patients with rare diseases. In 2017, 21 orphan drugs were introduced to the market.

Health Savings Account (HSA)

A type of savings account that lets you (or your employer) set aside money on a pre-tax basis to pay for IRS-qualified medical expenses, including deductibles, copayments, coinsurance, Medicare premiums, and some other expenses. An HSA can only be used if you have a high deductible health plan. Unlike HRAs, you can take it with you even if you change employers. And unlike FSAs, money rolls over. These plans benefit employers who save money if they don't increase HSAs even as the premium they would pay if the employee opted into the non-high deductible plan increases from year to year. HSAs benefit low-spenders who can save money and have greater control over their money.

Two basic models for physician compensation

Both models either incentivize volume directly (FFS) or indirectly (by demanding certain throughput) 1) True salary model: At the VA and state-run facilities as well as Kaiser Permanente and other staff-modeled HMOs, doctors are paid a competitive salary as opposed to paid for the volume of their work. Incentives, such as docked pay for long service delays and bonuses for fast service, are used to promote productivity. Risks: lines for service may form due to shirking as incentives to improve how quickly doctors get to patients are not always in place. 2) Fee-for-service: paid for the volume of the services doctors perform. It's how a majority of practices are paid. In this model, it is easier to see productivity incentives--enhanced pay for seeing more patients. Some capitated payment models may pay a set amount for a population to a larger practice or to an organization of providers but pay individual doctors on a fee-for-service basis. However, capitated payment models may incentivize reduced service utilization.

Capitated payments vs. patient-structured medical home

Capitated payments are full risk. Healthcare providers receive a capitated payment for the full population (payment per capita). Providers are then on the hook: they make money if they spend less than the capitated payment they receive and lose money if they overspend. Patient-structured medical home: provider could receive bonus payments for meeting certain quality standards

Why there are hurdles for physicians to practice

Cynical reason: Physicians have incentives to create barriers to credentialing in order to protect the guild and reduce competition Non-cynical reason: hurdles ensure quality of care and assure patients

Pricing Practices

Extensive price discrimination by income (with an extreme of zero for sufficiently indigent patients). Fee-for-service, though Medicare is trying to move toward a value-based model. Ideal insurance would involve paying for results but instead we pay for service.

FDA Device Regulation

In 1976, Congress extended the FDA's regulatory authority over the marketing of medical devices and therapeutic apparatus. The decision does not seem to have stifled sales or innovation. However, it has probably resulted in more consolidation of drug and device companies.

# of physicians per 1,000 in U.S.

In 2013, there were 2.9 physicians per 1,000 patients in the United States. Thus, we do not have a shortage of physicians in this country but we do have a shortage of practitioners (there are a lot of activities that we could hire less expensive, non-physicians to carry out

Problems with Access to Care - Medicaid

Just because states cover something does not mean that they cover it well. 17 states report significant problems with access to primary care. 36 report significant problems with access to specialty care. 39 report significant problems with access to dental services. Because Medicaid pays significantly below cost in many cases, dentists will not see Medicaid patients and so people may be forced to go to Federally Qualified Health Centers. Medicaid enrollees are more likely to report problems with getting care but not being able to due to cost than privately insured ones. It is most difficult for uninsured individuals to get access to care even when they need it.

Large vs. small molecules

Large molecules are protein-based. They are very expensive to prepare and denature, so generic drugs are often not much less expensive than brand-name ones. Small molecules are easy to store and produce. Once they go generic, they cost significantly less than their brand-name counterparts.

Specialty Pharma

Large molecules or biopharmaceuticals. They are typically high cost (expensive to produce). They typically require a different delivery format.

Ways doctors contribute to rising costs

Medicare patients receive low-value care, including unnecessary tests, that adds cost and does not lead to health benefits. Defensive medicine: better to overprescribe than under prescribe, over-test than under-test; want to avoid being sued. Continue to carry out procedures that may do more harm than good (heart stents); patients trust their doctors' recommendations and may even push for more care, increasing costs.

Demand-Side Price Distortions

Moral Hazard: presence of insurance leads to moral hazard (more likely to take risks/behave differently when have insurance-visit doctor more often) and decreased price sensitivity. Price distortion due to tax exemption of insurance premiums: people will try to get more insurance in order to get a greater public subsidy. Consumer's lack of information (Asymmetric and Imperfect): patients rely on physicians for information (asymmetric) and patients rarely direct their own care. Adverse selection in individual market: the people who are the most likely to require health insurance in the future are the most likely to purchase it, increasing costs for everyone else.

Are residents productive or not?

Payment for residents does not account for their value added. Instead, it merely reimburses hospitals for the overhead costs for residents. But residents also add value to the firm by drawing blood, checking lab work, being available overnight, etc. The United States funds almost no other training to this degree. Until 1997's Balanced Budget Act (BBA), incentives encouraged hospitals to add more residents because they would be compensated very handsomely for it, which created a distortion in the market. The BBA capped residency funding and yet, because residents add value, some hospitals have begun privately funding extra residents.

Population-based payments

Payment is not directly triggered by service delivery so volume is not linked to payment. Instead, clinicians and organizations are paid and responsible for the care of a beneficiary for a long period of time. The goal of the program is to incentivize quality care of a patient, including physical therapy and preventative measures like social workers, and reduce hospital admission lengths and readmission rates. They receive a lump sum for a particular condition/disease and then it's up to them whether they can treat that person effectively and efficiently and so save money. Examples: Kaiser and the VA and some Medicare Advantage plans

Demand for Healthcare

People value their time and even when treatments are relatively inexpensive, they may not take them up because of time. Effect of health insurance: increases demand for any given price and price elasticity of demand becomes lower.

Supply-Side Price Distortions

Provider monopoly power: limited entry, private medical information result in higher fees than in a competitive market.

Essential Health Benefits (EHB)

Required benefits that must be offered by metal plans as well as some other insurance plans. An Essential Health Benefits package must be greater than 60% of actuarial value, limit cost-sharing, and be no more extensive than a typical employer plan. The Essential Health Benefits are: 1) Ambulatory patient services 2) Emergency services 3) Hospitalization 4) Maternity & newborn care 5) Mental health services 6) Prescription drugs 7) Rehabilitative services 8) Laboratory services 9) Preventive and wellness care 10) Pediatric services

Solutions to market failures

Results of market failures: contribute to our failure to achieve good health, prevent disease, and provide health insurance to everyone. Market solutions: healthcare IT can improve informational issues; capturing externalities via novel approaches (Apple Watch monitoring of exercise, obesity prevention programs, wellness programs). Government solutions: Basis for many tax and regulatory policies; basis for some educational campaigns (public goods, imperfect information)

Alternative Payment Models

Still built on the fee-for-service architecture. Some payment is linked to the effective management of a population or an episode of care. Payments are triggered by delivery of service but there are opportunities for shared savings or 2-sided risk, meaning that care deliverers receive a share of their savings. Examples: Accountable Care Organizations and Bundled Payments.

Subsidy for Employer Insurance

Subsidy = marginal tax rate x amount of employer-sponsored health insurance. By making employer sponsored insurance tax free, the government effectively subsidizes high-wage earners who would be paying a higher marginal tax rate than low wage earners and likely receive more generous employer-sponsored health insurance plans.

Imperfect Information

The absence of full knowledge concerning product characteristics, available prices, and so on. This occurs when neither doctors nor patients have a clear idea of the costs of a particular procedure or treatment option.

balance billing

The practice of billing patients for any balance left after deductibles, coinsurance, and insurance payments have been made.

Medical Loss Ratio (MLR)

The ratio of healthcare costs to revenue received. Calculated as total medical expense divided by total revenue. For insurance companies, this number is usually around 80-85%.

Pharmacy Benefit Manager (PBM)

The third-party administrator of prescription drug programs that processes and pays prescription drug claims. They have been steering more and more people toward generics, holding down overall costs.

Employer Insurance

Took off during WWII with wage freezes forcing employers to increase their benefits plans to attract workers.

Market failure: negative externalities

When a consumption or production activity has an indirect effect on other consumption or production activities that is not reflected directly in market prices. For example, tobacco is overused.

Surprise Billing

When a hospital accepts an insurer but doctors within the hospital do not accept the insurer, patients may be surprised to receive huge bills by doctors who contract with the hospitals but don't accept their insurer. Solutions: hospitals could demand that their doctors accept insurer payments or insurers could make hospitals responsible for surprise bills from doctors who do not accept insurer payments. Thus, either make hospitals responsible for ensuring everyone accepts insurer payments or make insurer responsible for paying for the fees of everyone who contracts or works within a hospital.

Private sector

Why rise up: respond to profitable opportunities from private payers, government payers, or consumer out-of-pocket opportunities Not-for-profit: community owned; still can earn a profit but can't pay it to investors. In fact, not-for-profit entities in many cases do need to earn a profit in order to make investments to compete and provide the best care. They are not permitted to attempt to influence elections or legislation. They must have a mission and are required to provide certain levels of charity care. For-profit: investor-owned

Beth Higa Guest Lecture

Works at the Office of Management and Budget (OMB), a branch of the White House. They weigh in on budget issues, fact check speeches, track legislation and formulate cost projections, and respond to crises and events.

Nursing market

a mostly functioning market that is sometimes subject to employer monopsony (when there is a single buyer, often entailing price-setting ability) power. While physicians typically work for themselves, groups, or similar entities, nurses typically work for facilities. Shortages are relative and dependent on the definition of need. While most nurses today have gotten college degrees, being a nurse does not require a bachelor's degree, which produces a relatively heterogeneous work force. There are very few men. The pool for nurses is now drawn from a similar pool of personnel that become physicians. Income disparities and a desire to care for individuals tend to shift qualified women from becoming physicians, making the pool smaller than in the past. Nurses have similar incentives to physicians to maintain shortage in the market. Nurses are increasingly doing more complicated tasks as other professionals and non-professionals do more menial work (like replacing patient sheets, etc.).

Load Factor

administrative costs, marketing, profit. Usually makes up about 15-20% of the total premiums the insurer collects.

Flexible Spending Accounts (FSA)

employer-sponsored plan from which an employee can withdraw money to spend on co-pays, deductibles, or IRS-approved healthcare items (including glasses and other items not covered by insurance). The employer asks the employee how much pre-tax dollars he wants to put aside in the account. This allows employees to take advantage of tax subsidies on what would otherwise be out-of-pocket spending and so not tax-deductible. Downsides: it's employer owned and you have to use it within a year or the money goes back to the employer. These have been replaced first by HRAs and now HSAs.

Patents

exclusive rights to make or sell inventions. Utility patents - may be granted to anyone who invents or discovers any new and useful process, machine, article of manufacture, or composition of matter, or any new and useful improvement Design patents - may be granted to anyone who invents a new, original, and ornamental design for an article of manufacture Plan patents - may be granted to anyone who invents or discovers and asexually reproduces any distinct and new variety of plant

Community Rating

insurance rating system which allocates risk evenly across a community. It looks at the total cost of a population and asks each member to pay an equal rate to cover that cost--with an additional profit for the insurer--regardless of whether an individual is sick or healthy. This means that everyone pays the same regardless of age, gender, health, or wellness. Early hospital insurance (Blue Cross Blue Shield) was community rated but later entrants began using experience rating, which was a more attractive proposition for healthy people who would pay less under experience rating.

Value Model

model for moving health care away from a system where doctors are paid based on the volume of the services they provide (fee-for-service) and toward one where doctors are paid based on the quality of those services (value-based care and alternative payment models). Medicare is seeking to move in this direction with gradual implementation.

Indemnity Insurance

plans that pay a predetermined amount for any qualified medical services you receive. These have been around for 150 years but have been supplanted by other types of plans.

Price elasticities

the ratio of the percentage change in quantity demanded to the percentage change in price. With healthcare, consumers are not very price sensitive for care. At the firm level, price elasticities tend to be more negative, indicating that there's some competition between firms so that individuals will get their necessary care but not without regard to price. Evidence suggests that competition is greater for physician services while it is lower for hospital competition.

Market failure: Positive externalities

total output (consumption) is less than would be expected if each party is truly responsible for their 'fair' share. For example, vaccinations are often underutilized and so less likely to achieve herd immunity. U.S. R&D, which has positive externalities for the rest of the world, is below the socially beneficial level.

Self-insured

when the employer assumes the role of the insurance company and assumes some or all of the risk. The firm may still hire an insurer to set the plans, negotiate the rates, and structure the options, but it is the large employer that takes on the risk and is liable to pay. Unlike insured arrangements self-insured arrangements are subject to annual nondiscrimination testing requirements to ensure that the plan is not discriminating in favor of highly compensated employees.

Orphan Drug Act

(1983) a law that provides incentives to develop drugs for diseases that affect fewer than 200,000 people. The law was a response to the fact that in the wake of Kafauver-Harris drug development was almost exclusively targeted towards blockbuster drugs that treated a massive market. The Act provides a 50% tax credit for clinical research and testing expenses and a waiver of user fees. It provides pharmaceutical manufacturers with 7 years of marketing exclusivity, even in the absence of patent protection. Pharmaceutical manufacturers can charge huge sums to niche markets for a longer period of time thanks to their 7 years of marketing exclusivity. Measured by approvals--up by a factor of 25 from 1983 to 2017--the program has been highly successful. The law stimulated markets to develop drugs in a space that it would otherwise have ignored. Many drugs, including Humira, started off as orphan drugs before they expanded to treat a wider array of diseases.

Hatch-Waxman Act

(1984) law that encourages the manufacture of generic drugs and established the modern system of generic drug regulation in the United States. Before 1984, there was virtually no generic pharmaceutical industry in the U.S., there was no mechanism to receive FDA product approval, there was no process to prove substitutability of a generic for a brand-name drug, and legacy products had exclusive claim to data for approval (forcing generic manufacturers to conduct their own tests). Before Hatch-Waxman, pharmaceutical companies needed to go through the duplicative process of undergoing the full 3 phases of drug approval, submitting data, etc. in order to get generic approval. This was a very expensive process and did not particularly incentivize the entry of generic drug manufacturers, which is why there was next to no competition from generic manufacturers. The Hatch-Waxman Act set out to foster innovation, increase competition and consumer access, and assure competition after a finite period. It compensated brand companies for their R&D spending by patent extensions and market exclusivity (by extending up to 5 years for the original drug approval process). It established the Abbreviated New Drug Application (ANDA) regulatory pathway for the approval of generic products, which created incentives for generic companies to challenge brand-name product patents and allowed litigation to proceed prior to product launch. Lastly, it created incentives for R&D into new patented therapies.

COBRA (Consolidated Omnibus Budget Reconciliation Act)

(1985) former employer could be forced to offer continuation coverage after one lost job-based insurance. Under qualifying events--the death of the covered employee, an involuntary termination, layoff, strike, lockout, or medical leave, divorce or legal separation that terminates the ex-spouse's eligibility for benefits, a dependent child reaching the age at which he or she is no longer covered--individuals could qualify for continuation coverage, which was more expensive than before because people went from paying ~20% of total cost to 102% of cost. The American Recovery and Reinvestment Act of 2009 included a 65% subsidy for up to 15 months after COBRA-qualifying event, such as losing a job.

Expanded Access - FDA

(1987) Partly in response to the HIV/AIDS epidemic, it permitted manufacturers to provide unapproved drugs to patients who meet specific criteria when no other therapies are available (compassionate use). As long as Phase I had been completed, manufacturers were permitted to offer these drugs to certain patients. Well over 40 drugs have been approved for the Expanded Access program, primarily cancer and HIV drugs. Downsides to the program: a manufacturer could lose patients for clinical studies if they expanded the program too much and drugs are more expensive at this point in their development because they are not yet produced at scale. Why bad for clinical studies: if someone is going to die in a few months, they would rather receive the drug than take the 50% chance that they will receive a placebo drug in a study.

SCHIP

(1997) State Children's Health Insurance Program. A piece of bipartisan legislation--Kennedy and Hatch--it's intended to cover children not eligible for Medicaid but at or below 200% of the poverty line. It's an example of a capped entitlement beyond which the program will no longer pay. Hence, the government is able to lay out an exact budget. States haven never actually run out of money but they have had to be careful. It was expanded in 2009 with the federal government's share increasing. It requires more cost-sharing and premiums than Medicaid.

2007 FDA Amendments Act (FDAAA)

(2007) law that required better post-marketing surveillance of drugs in the wake of the Vioxx scandal. The law expanded the importance and value of phase IV studies. The FDA would like pharmaceutical companies to perform more but because pharmaceutical companies are already making a lot of money, they have little incentive to conduct studies that could hurt sales and risk their blockbuster drug status. However, it remains very difficult to remove a drug once it's been approved.

HITECH Act

(2009) Health Information Technology for Economic and Clinical Health Act. The law sought to promote the adoption and meaningful use of health information technology. The goal is to increase care coordination and reduce costs. Healthcare providers are given monetary incentives if they can demonstrate meaningful use of healthcare IT. Downside: has encouraged healthcare consolidation as big hospitals can offer to install expensive IT software in doctors' offices.

Simpson-Bowles Commission

(2010) deficit and debt reduction commission. The commission looked at reducing the federal subsidy for training. It proposed reducing direct payments to 120% of the national average salary and cutting indirect payments as well. Had the plan been passed, total annual federal savings would have been $6 billion in 2015 and progressively more over time. It also sought to redirect training to primary care. Powerful lobbies, including the hospital lobby, would have strongly resisted these reforms.

Aims of the Healthcare Reform Effort

1) Address the challenges of healthcare cost growth and its impact on public and private finances. 2) Make health insurance available and affordable to everyone. 3) Provide publicly financed healthcare to the poorest and subsidies for private market coverage to the near poor and lower middle class. 4) Change incentives to improve and even out the quality of healthcare delivery.

Successes of the Affordable Care Act

1) Coverage of children up to 26 years of age has expanded pool of insured individuals (a very popular portion of the law) 2) Overall uninsured rate has been dramatically reduced 3) People with pre-existing conditions who previously would have been uninsurable are now eligible for insurance on the exchanges 4) Medicaid expansion has been met with appropriate access (new Medicaid recipients have not faced long lines that would have prevented them from getting care) 5) Subsidies have mitigated costs on the exchanges so that 10+ million individuals now have subsidized health insurance (11.8 million, overall, are on exchanges) 6) Federal definition of health insurance with essential health benefits have taken substandard policies off the market (now must cover essential health benefits--less cherry picking) 7) The Center for Medicare and Medicaid Innovation has been a genuine success--we have learned a great deal about what does and doesn't work in healthcare delivery innovation. 8) Costs have (overall) been held down compared with expectations 9) Employers have barely moved more workers to part-time work in order to avoid some of the new requirements 10) Employer-based market is either unchanged or slightly more affordable (some had predicted that it would collapse and be replaced by the individual market) 11) Hospitals have continued to be profitable despite decreasing reimbursement (some had predicted that lots of hospitals would go out of business due to changes in hospital reimbursement) 12) Medicare coverage of prescription drugs has been expanded. 13) Medicare's Sustainable Growth Rate has been replaced by MACRA, which changed how physicians are reimbursed and tries to incentivize value over volume. 14) The law has promoted a lot of private sector innovation 15) Quality of care has improved, readmission rates have declined, and thanks to financial penalties hospital-acquired conditions have declined.

ECI (Employer Cost Index) Responses From Major Players

1) Employers: however much employees are ultimately affected, employers must compete for employees based on wages and benefits. Thus, they have little room to reduce salaries and are left with reducing the increase of healthcare spending/benefits. 2) Employees: rarely perceive the cost of their benefits except now that employers will seek to pass along more of the cost to them through increased cost-sharing or fixed benefit support with employee additional cash. 3) Unions: take a hard line on benefits and as a result make union-run entities less competitive. Union members are also more likely to resist increased government involvement in healthcare because they've already negotiated better healthcare coverage than non-unionized or unemployed individuals. 4) Providers: increased cost sharing, at all levels, will lead to increased reliance on collections from individuals. They may increase non-covered services and try to decrease moral hazard. 5) Pharma: cost containment as a result of increased cost sharing and increased pressure on PBMs (Pharmacy Benefit Management companies).

Ideas to Improve Medicare Sustainability

1) Increase revenues by raising taxes or increasing the deductible for rich people or increasing co-pays/deductibles for elective as opposed to non-elective surgeries. 2) Decrease costs: -raise the age of entitlement above 65 for Medicare to 67 (like Social Security. However, unlike the substantial savings for Social Security from making this change, you save far less by increasing the age of entitlement for Medicare since end-of-life spending is so high and they are the main source of Medicare costs. -Reduce hospital reimbursements or cut drug prices -Choose not to cover ineffective treatments: require evidence to pay for certain types of surgeries that either don't work or make people worse off -Reduce end-of-life care

Why Health Insurance Matters

1) It improves healthcare delivery 2) It improves health: people are more likely to follow good health behaviors 3) It makes it easier to see a doctor or get treatment 4) It reduces barriers to care and increases access 5) The financial consequences are lower for the insured

Potential Solutions for Creating Healthcare Spending Sustainability

1) Leave it to the markets and grow the economy: consumer-directed solutions (reduce regulation, allow consumers to make decisions); improve market but accept that some don't want health insurance and shouldn't be forced to buy it; ensure that safety net financing and delivery is intact 2) Interventionist Viewpoint argues that healthcare spending needs to be controlled: target areas where spending is out of control (crack down on monopolistic profits and prevent entities from seeking excessive rates of return; provide insurance where market seems incapable (public option); rely on evidence and seek to prevent inappropriate utilization/spending; use government as payer to exert effect on broken markets (negotiating power). 3) Areas of agreement: importance of healthcare IT investments (such as electronic health records); some subsidies required to overcome market inertia; HITECH Act

Why prescription drug market is different from other industries

1) Most require a licensed script writer: physicians can bring people into their offices just to offer prescriptions 2) Very often covered by insurance: moral hazard as people do not feel the costs 3) Demand is fairly inelastic particularly for life-saving treatments like chemotherapy: people will often still buy drugs no matter how expensive they are 4) Heavy R&D spending and patents: in order to produce a single drug, it can cost more than $1.3 billion in research to get it to market.

Drivers of Healthcare Expenditures

1) Policy changes: reimbursement by public payers (can increase or decrease spending, significant negotiating power); coverage (ACA expanded coverage and reduced uninsured rate); manner of payment (individuals pay higher rates than private insurers or health systems do) 2) Utilization per person (people with health insurance likely to get more care than others) 3) Population growth (~1%) 4) True inflation (healthcare inflation generally greater than GDP growth rate) 5) Population shift: aging population requires more care

Value of Health Insurance

1) Pre-paid health benefits: covers drugs, doctor visits, etc. 2) Promise of insurability in the future: before the ACA, people worried that if they didn't have insurance today and got sick tomorrow, they wouldn't be able to get insurance in the future 3) Negotiated rates and access: management of care; pay less than uninsured; advice/guidelines steer you toward right physicians 4) Covers catastrophic events 5) Tax deductible

Assumptions of a Perfectly Competitive Market and why healthcare doesn't resemble a competitive market

1) Sufficient Number of Buyers/Sellers so that all are price takers: in HC, however, large hospital chains basically have free rein to set prices. Moreover, patents lead to temporary monopolies in the pharmaceutical industry, distorting the market (but also encouraging R&D). 2) Homogeneous Goods: buyer does not care which seller he uses if all sellers charge the same price. With healthcare, though, people care about who their doctors are. 3) Perfect information: Both buyers and sellers know all the prices being charged by other sellers. With HC, patients often lack for information about costs before treatment or whether certain treatments are necessary. Moreover, doctors often don't know the price of the drugs they prescribe or the treatments they recommend and aren't in a position to advise on costs. Thanks to different levels of medical knowledge, consumers are reliant on the advice of physicians and so doctors can induce demand by recommending more treatments and tests to their patients. 4) No barriers to entry or exit: certificate of need laws make it difficult for competitors to enter certain markets and regulation also increases the cost of entry. Moreover, licensing and educational standards limit entry but do alleviate uncertainty. 5) Consumers are rational: however, HC consumers may value treatment even if it won't improve outcomes and some of their behaviors may be irrational. 6) Providers will maximize profit: There are many nonprofit entities in the healthcare space, though many of them do earn profits in order to maintain their mission. Moreover, because healthcare is viewed as a human right, patients who can't afford to pay aren't denied coverage.

Which parts of the Affordable Care Act haven't worked?

1) The mandate and other efforts to ensure a broad risk pool have been struck down or proved ineffective beforehand because the penalty was insufficient. 2) Young healthy people are being asked to bear a much larger burden (3:1 rather than 5:1. Young are effectively subsidizing older people) 3) But they aren't actually bearing the larger burden. Instead, many are opting to remain uninsured (especially without the mandate tax) rather than pay high premiums. Going forward, we should expect the adverse selection problem to get worse 4) Rates on the exchanges for people who are >400% above the Federal Poverty Line are hugely varied and in some areas are unaffordable due to adverse selection. 5) Health plans have found the exchanges almost uniformly unprofitable and have been pulling out, lowering competition and potentially raising rates even more. 6) Still 5 million people eligible for subsidies who are seemingly still choosing not to sign up. 7) Failed to solve the problem of increasing annual deductibles, though this problem existed before the ACA.

Dr. Wilensky on the ACA

1) Why the ACA has been so resilient: the bill's coverage of pre-existing conditions is popular and Republicans have never been able to agree on an alternative. 2) Policy mistakes: Allowing children under age 26 to stay on their parents' insurance plan (means fewer young, healthy people in insurance pools); age band ratings are too narrow (3:1 instead of 5:1, which means that young people are effectively subsidizing old people on the exchanges or else choosing not to buy insurance at all); individual mandate as enacted by the ACA (the penalty was too weak even before it was repealed); guaranteeing future issue (of insurance) with no penalties (means that you can free-ride until you develop a pre-existing condition and then buy health insurance without having to pay more) 3) Why ACA troubled: passed only with Democratic votes

Medicaid Work Requirements

10 states, including Indiana and Arizona, are seeking work requirements. In the states seeking work requirements, roughly 60% are already working but don't receive insurance from their employers. ~20% are not working due to a disability or illness that prevents them from working. Roughly 10% are not working for other reasons while another 10% are not working because they are serving as caretakers for family members. Medicaid work requirements may reduce the Medicaid population by confusing people. Republicans, though, argue that work requirements would encourage people to work towards their healthcare and bolster their sense of dignity.

Medicare: Physician Payment Reform

1992: introduction of a Resource-Based Relative Value Scale (RBRVS), which attempted to rationalize the relative payments for services provided. It decreased fee-for-service payments for surgeries and "relatively" increased increased fee-for-service payments for primary care. RBVRS accounts for the complexity of service and expenses (intensity, time, and training for work; # of nurses required; liability insurance) and geographic differences. Services are reimbursed as long as they are deemed medically necessary and meet certain criteria (harder for private plans). The service does NOT need to be successful and the outcome does not matter. So even if a physician makes a mistake, he will be reimbursed fully by Medicare.

Skilled nursing facilities

70% for-profit; 25% not-for-profit; 5% government-owned

Unemployment, State Budgets and Medicaid and SCHIP Enrollment

A 1% increase in the national unemployment rate leads to a 3-4% decrease in state revenues while at the same time increasing Medicaid and CHIP enrollment by 1 million and increasing the number of uninsured individuals by 1.1 million. The decrease in state revenues combined with the growth in the partially state-funded SCHIP and Medicaid programs puts significant budgetary pressure on state governments, potentially leading to education cuts and other difficult budgetary decisions. During the Great Recession, the federal government boosted the FMAP (percentage rates to determine federal matching funds to state Medicaid programs) conditional on states not cutting their programs in order to alleviate problems of lost revenue and ensure states did not cut Medicaid. Some have argued that this caused states to cut education instead. In 2012, when the increased FMAP expired, federal Medicaid spending temporarily declined.

Medicaid

A federal and state assistance program that pays for health care services for people who cannot afford them. The threshold to qualify for Medicaid differs by state. The federal government sets certain rules by which the Medicaid program must operate within states but the programs are often run by states themselves. Government also pays the FMAP, which differs by state (income, cost of healthcare, size of program, etc.). Medicaid is focused on access and so it often pays below cost, though this differs across states. The federal government on average covers 57% of the cost, though this has increased with the ACA expansion. The program is administered by states. There are only nominal co-payments ($3), no premiums, and no deductibles. Depending on their FMAP, poorer states like Georgia and Alabama receive more federal matching dollars while rich ones like California receive less.

Medicare

A federal program of health insurance for persons 65 years of age and older. It was enacted in 1965 and patterned after private insurance products (traditional indemnity insurance). It originally consisted of two parts: Hospital Insurance (Part A); Supplemental Medical Insurance (today Parts B and D). Medicare is funded by taxpayers through the federal government. It also covers people with disabilities or with end stage renal cancer. Unable to negotiate drug prices. Also includes the Medicare Part B program. It makes up 15% of the federal budget. Because of the large share of national health expenditures that Medicare makes up, most doctors and providers need to accept Medicare patients. Medicare is legally bound to pay hospitals and providers at cost. Medicare's patient pool is more at risk and generally less healthy.

Average Physician Compensation

A graph of average physician compensation shows vast disparities across specialties. Orthopedic surgeons were paid almost $600K per year while pediatricians were paid $250K per year. Evidence shows that high-paying specialties attract candidates with higher USMLE scores to match, implying that we are pushing our best talent into highly specialized fields Why physician salaries vary: 1) Intensity of training: maybe day-to-day training experience is harder for specialties like radiology 2) Intensity of work: maybe work of surgeons is more intense and difficult 3) Length of training/work day: neurosurgery, for example, requires ~6-8 years of training compared to ~3 for pediatrics. 4) Utility of practice: perhaps pediatricians and family practitioners enjoy their work more (interact with more people, get more first-hand feedback and demonstrations of the importance of their work) and so require less income 5) Requirements for practice: special skills reduce available pool; for example, surgeries and procedures may require extra skills and radiology may require the ability to visualize things in 3 dimensions, which not everyone has. 6) Relative surpluses of certain specialties: market forces conspire to underpay certain specialties; for example, there may be an excessive # of people willing to go into pediatrics 7) Reimbursement scheme compensates for services and some specialties have the ability to increase productivity faster than reimbursement can decline 8) Physician specialties with shortages have incentives to maintain the shortage in order to keep pricing power: though doing so can open them up to more competition from other specialties which can carry out similar procedures and treatments

Cadillac Tax

A provision of the Affordable Care Act (not implemented) to put a 40% tax on expensive (annual premiums over $10,000) employer-based health insurance plans. This plan is unpopular with union members because it would disproportionately penalize low salary workers with expensive health plans regardless of their overall income.

Health Maintenance Organization (HMO)

A type of health insurance plan that usually limits coverage to care from doctors who work for or contract with the HMO. It generally won't cover out-of-network care except in an emergency. HMOs often provide integrated care and focus on prevention and wellness. Make up roughly 14% of the market today. Yale Health is an example of a staff-modeled HMO. Kaiser Health System is a staff model HMO, has held down utilization of healthcare in California, owns doctors, clinics, and hospitals, and can provide the highest level of care. However, in the late 1990s there was a backlash against HMOs because they were seen as limiting care and stopping people from speaking to specialists and getting the care they thought they needed. Unlike traditional fee-for-service models, Kaiser pays physicians a salary and hospitals a global budget, thus reducing incentives to overprescribe and over test. In order to see a specialist in an HMO plan, you will need to get the approval of your primary care physician. All care is owned by one entity and you have a narrower group of physicians from which to choose.

Preferred Provider Organization (PPO)

A type of managed health plan that contracts with medical providers, such as hospitals and doctors, to create network of participating providers. Individuals pay less if they use providers that belong to the plan's network and pay an additional cost to see doctors, hospitals, and providers outside of the network. They are charged only negotiated rates. They make up 48% of the market today--the most of any kind of individual plan. Unlike HMOs, where individuals need to get the approval of a primary care doctor to seek further treatment and see specialists, there is no gatekeeper for a PPO, though you still need to go through the plan to get treatments. You are They may provide incentives to providers to provide care they want and believe is beneficial and reduce the provision of care they deem wasteful.

Point of Service Plan (POS)

A type of plan in which you pay less if you use doctors, hospitals, and other healthcare providers that belong to the plan's network. POS plans also require you to get a referral from your primary care doctor in order to see a specialist. They have a very large network and you can see almost anyone with no gatekeeper. Rates vary depending on which doctor you see. An example of managed care, meaning that the insurer may help decide which treatments it will pay for and may take part in your decision-making.

Cost-Benefit Analysis (CBA)

All benefits and costs are measured in monetary units, allowing you to then compare programs with differing objectives. Limitation: measuring benefits in dollar terms is more ethically challenging and politically challenging (how do you value a human life?); if unadjusted, it may be distributionally unacceptable (benefit only the richest) Decision rule: if benefit-cost is positive, then do it

How other countries decide which treatments/services to cover?

All countries face limited resources and must make decisions about which treatments/services to cover. UK: The National Institute for Health and Clinical Excellence (NICE) mandates that treatments should be less than $50,000 per QALY. Germany: payers can set 'reference prices' or upper limits on payments for branded pharmaceuticals (you can choose to pay more but you have to pay the difference) Other possibilities: pay for new innovations only if they offer a clear advantage over existing treatments US: charges of 'death panels' in the healthcare reform debate led Congress to explicitly not use cost-effectiveness to make these decisions

Osteopathic vs. allopathic

Allopathic medical schools are traditional medical schools. Osteopathic medical schools have a different mission and focus on more holistic care. Allopathic schools are competitively advantaged compared to osteopathic schools--people choose allopathic schools whenever possible. Practically speaking, there is no difference in accreditation, though it is more difficult to get into competitive specialties from osteopathic schools than allopathic ones.

Bolar Amendment

Allows generic developers to use raw material for product development prior to patent expiry. Enables generic developers to file ANDA to assure launch upon date of brand patent expiration. Effectively advances competition to brand patent expiration.

Tax Exemption Distortion

Because employer spending on health insurance plans is tax deductible, employees prefer employer insurance because they take home more money at the end of the day (assuming they would spend an equal amount on health insurance as the employer does for their plan). Thus, the government effectively subsidizes your health insurance purchased by your employer. The subsidy is greater for richer people and is highly expensive ($250 billion a year). Subsidy = Tax Rate * Cost of Insurance There are no limits on how much subsidy you can receive, so people with the most expensive health plans, often the richest, receive the greatest tax subsidy.

Adverse Selection

Because insurers don't have complete information about patients, they cannot distinguish between high-risk and low-risk patients. People with pre-existing conditions are the most likely to seek out health insurance. In the current situation, a healthy person may logically choose not to buy health insurance in the individual market because the cost far exceeds the expected payout. Thus, insurers face pools with increasingly high-cost patients and so have to raise rates. The problem of adverse selection can be decreased when people are highly risk-averse (healthy people understand there's a chance they will become unhealthy and don't want to take the risk that they are uninsured when that happens) or with the individual mandate, which forces healthy people to get insurance and so makes insurance pools healthier. Another example of adverse selection is that when a spouse decides to take their spouse's plan, they are more likely to be out of work and less healthy and so it will usually be more expensive to add them to the plan.

Retiree Health Benefit

Before Medicare, when someone retired, he might have gotten a health benefit from his employer until he died. Now most employers turn insurance over to Medicare though some companies offer supplementary wrap around coverage to their retiring employees (known as Medigap).

Farzad Mostashari, CEO and Founder of Aledade

Bio - former National Coordinator for Health Information and Technology at HHS. Aledade offers its tech services to independent primary care providers forming Accountable Care Organizations (ACOs). Public health: How do we save the most lives/prevent the largest number of premature deaths? In NYC, it was sanitation and then the development of penicillin, and then the reduction in smoking as a result of a tax on cigarettes, ban in bars, and ads. What can medicine do to save the most lives? Invest in controlling blood pressure (getting more people to comply would result in a large number of lives saved). Why don't we spend more on preventative measures? Lack of immediate results. Bundled payments- better coordination (doctors, nurses, etc. all in one) The problem with hospital ACOs: one-sided risk--if costs go up, hospitals aren't penalized but if costs go down, hospitals share in savings. For hospitals, it makes the most sense to invest in bundled payments, which encourage people to move out of hospitals more quickly. Physician ACOS have produced more savings than hospital ACOs.

Blockbuster Drugs

Blockbuster drugs are essential for pharmaceutical companies given their high research costs. It costs $1.3 billion for the average drug to get to market ($350M for discovery/preclinical-->$100M for Phase I--> $170M for Phase II--> $370M for Phase III--> $70M for approval--> $170M for pharmacovigilance--> $70M uncategorized). In order to recoup their substantial costs and invest in future blockbuster drugs before their drug can become generic, pharmaceutical companies must hope that their drugs will reach a massive market.

Over-the-counter drugs

Characteristics: their benefits outweigh their risks; the potential of misuse and abuse is low; the consumer can use them for self-diagnosed conditions; they can be adequately labeled; and health practitioners are not needed for the safe and effective use of the product (most products fit this description). Professor Forman only thinks people should be required to have prescriptions for addictive drugs or antibiotics. However, because drug manufacturers can charge more for prescriptions and because prescriptions benefit doctors' bottom line by increasing patient visits, some drugs that should be over-the-counter are not.

Accountable Care Organizations

Combination of one or more hospitals, primary care physicians, and possibly specialists who are accountable for total Medicare spending and quality of care for the Medicare patients they serve. Bonuses and penalties are tied to overall Medicare spending and quality measures. Medicare Shared Savings Program: Varying financial risk with the potential to reap rewards for improving quality and holding down overall costs and readmissions. However, in most cases, the savings that can or will accrue to ACOs will be partially offset by reduced overall revenue whereas, under the current system, the penalties for increased spending may not be as large as the additional revenue. Results for Shared Savings Programs have been mixed: quality of care improved in many categories and in many cases hospitals have managed to keep spending below targets

Cost-Utility Analysis vs Cost-Effectiveness Analysis

Cost-utility analysis - cost per Quality-Adjusted Life Year (QALY). Distinguishes between a year in a coma or paralyzed and a year completely healthy. Cost-effectiveness analysis - cost per year of life saved, etc. It counts all years the same--even if you are paralyzed, are immobile, have debilitating pain, etc.

Generic drugs

Drugs sold by their generic name; not brand (or trade) name products. Generic manufacturers can begin manufacturing drugs when FDA market exclusivity and patents are up. Because generic manufacturers did not have to invest in R&D, they can sell drugs more cheaply than their brand-name counterparts. Today they make up 90% of prescriptions in the United States compared to 72% in 2008. However, they make up a much smaller share of total spending--only 25%--as brand-name drugs are significantly more expensive. Once a brand-name drug becomes generic, the brand-name loses substantial revenue and market share and so contracts. Thus, pharmaceutical companies need to extract as much revenue before their drugs enter the generic market in order to fund future drug development.

Medicare Actuaries

Economic growth -- with the passage of the ACA--especially its non-indexed upper tax bracket--economic growth and inflation now benefit the program, increasing tax revenues and increasing the lifetime of the program. High real inflation (CPI) relative to healthcare inflation reduces Medicare costs and allows Medicare to last longer. Since tax brackets aren't indexed, inflation moves more people into higher tax brackets and so increases Medicare revenues. Moreover, if healthcare inflation is more in line with real inflation (CPI), the American economy can better sustain health spending and health spending as a share of the economy will not grow so rapidly. Real interest rate - higher real interest rate increases Medicare sustainability since the trust fund is invested in securities and so earns higher returns when the real interest rate grows. Fertility rate (children per woman--today 1.8 even though replacement rate would need to be greater than 2) - higher fertility rate increases the sustainability of Medicare because we need more young people to pay in to support a smaller group at the top (like a pyramid scheme) Net immigration - higher net immigration increases the sustainability of Medicare because many will not qualify for benefits but will pay into the system regardless. Introducing younger people into the system improves the sustainability of Medicare. Preventive medicine makes Medicare more expensive because it makes the population healthier, allowing people to live longer and so cost more since everyone dies expensively anyways.

Flaw with Electronic Health Records Incentives

Electronic health records have allowed hospitals to maximize reimbursement, choosing diagnoses with the largest associated payments.

Medicaid Population

Enrollees are on average sicker and more disabled than the privately insured. The top 5% of enrollees account for 53% of program spending. 15% are disabled and account for 42% of program spending. 9% are elderly and account for 21% of program expenditures. 27% are adults and account for 15% of expenditures (generally healthier and less costly). And 48% are children, who only account for 21% of program expenditures (generally healthier and less costly).

ERISA (Employee Retirement Income Security Act)

Federal law that establishes minimum standards for pension plans in private industry. It established disclosure requirements, fiduciary standards (need to prove that employers can fund the plan), and claims standards. It preempts state regulation of employee health benefits. Self-insured plans (employer uses third party administrator) - only regulated by ERISA. It protects employers, allowing them to avoid complying with individual state's mandates. It means that employers can provide the same benefits across different states. However, it does not mean that those benefits will cost the same in different locations.

Government subsidies to train physicians

Financing for medical schools was broken; only the rich and elites could afford to go to medical school. Direct subsidies- more efficient means to provide treatment to indigent; is it justified due to care-giving done by medical students? Graduate Medical Education funded by Federal (CMS Medicare Part A), state, and local governments as well as the VA and the military. The payments exceed $100K per resident. Medicare subsidies alone average more than $80K per resident for $9.7 billion total. History of Medicare Graduate Medical Education spending: initially included in cost-plus accounting; in 1983, prospective payments and direct and indirect payments were introduced (indirect payments are a small bonus for every admission that accounts for small additional cost incurred by having residents and were justified on the basis that resident-staffed hospitals cost more partly due to presence of residents and partly due to the acuity of patients); in 1997, the Balanced Budget Act passed and a cap was placed on Medicare-funded resident slots (17,000 additional residents today are now being trained without Medicare funding. Simpson-Bowles proposed reducing federal subsidies. Others have proposed expanding the number of residency slots. Efforts are also underway to redirect training away from specialties to primary care.

Ryan Plan

Fixed Voucher/Premium Support that adjusts upward by set amount to continue to be budget saving. Like Medicare Part D, it would have allowed people to buy the Medicare plan they want. People could have used their vouchers to buy Medicare on exchanges, though the vouchers' value would not have kept up with healthcare inflation over time, which could hurt Medicare beneficiaries. It would dramatically help the federal budgetary issue but at the same time shift future health cost risk onto beneficiaries since it is not cost-indexed. It also sought to block grant Medicaid. Republicans argued that it would increase competition among plans and reduce costs by increasing negotiating power with hospitals and leading to healthcare innovation like telemedicine. Criticism - it could lead to underfunding of future healthcare costs and unfairly burdens most at-risk population. Wyden-Wilensky compromise position: Let people buy fee-for-service plans if they want to or buy private plans on the market. Tie premium/voucher support to a more reliable benchmark cost of health insurance (never less than 80%) rather than an arbitrary, budget-saving one.

Cost Effectiveness Analysis (CEA)

Formal analytic technique for comparing the negative and positive consequences of alternative uses of resources. Objective: compare relative costs AND outcomes (effects) of at least 2 alternatives to find which alternative provides the maximum health benefit for given resources; alternatively, which provides a given level of health benefit at lowest cost. Problem: how do you define outcomes? Studies have used mortality (death) and morbidity (sickness) as defined outcomes. Mortality is easy to define but the cause is frequently not. (E.g. more than 20% of hip fracture patients will die in the next year but is the death caused by fracture, treatment, complication, or something unrelated?) Morbidity is very difficult to define because there is tremendous variation in impact and perception of sickness. It can be difficult to imagine constant nausea and other symptoms and it is near impossible to imagine phantom limb pain and psychosis, so how do you measure them? Outcomes are measured in non-monetary units, such as $/QALY (Quality Adjusted Life Year); $/Life saved; $/Cancer averted; $/PKU prevented) Other difficulties: objectives may be complex; distributional and efficiency effects; measuring outputs and inputs in $ terms; market prices, when available, may be inappropriate; discounting. Also politically challenging (Sarah Palin's "death panels" speech) Decision rule: prefer the alternative with the lower cost effectiveness other things being equal

Public Sector

Funded with taxpayer money from private households. Provision: VA Hospitals, Community Health Clinics Financing: Medicare, Medicaid, SCHIP. Types of funding: vouchers (premium support), capped entitlements, open-ended entitlements (open-ended enrollment, open-ended budgets) Mixed programs: Tri-Care (military healthcare system) Regulation: patents on technology, regulation of entry (certificate of need laws in some states limit when competitors can enter), monitoring, public health

Market Exclusivity

Granted by the FDA, it gives private entities that submitted data to FDA the exclusive right to use that data while the firm seeks FDA approval. A patent, on the other hand, is respected domestically and by trading partners and gives a company the right to sell its product exclusively.

Patent Challenge Process

Generic files ANDA (Abbreviated New Drug Application). The generic company receives notice from FDA that its ANDA filing has been received. The generic company then sends the patent holder a notice of infringement, which explains in detail why the generic company believes the patent is invalid, unenforceable, and not infringed. The patent-holder then counter files within 45 days, triggering a 30 month stay while the merits of the dispute are sorted out in court. Because this process is expensive, usually only one company will go through it. Since companies have become better at knowing when a patent will expire, this process has become less common. When a generic is successful in court, the 30 month stay expires and the generic product reaches the market. The generic manufacturer receives 180 days of generic exclusivity, which allows the challenger to recoup investment and build market share. As more and more generic manufacturers enter the market, the price for the drug falls substantially (though not by much until after the generic exclusivity is up).

Value-Based Programs

Goal is to reward providers and health systems that deliver better outcomes in health and health care at lower cost to the beneficiaries and communities they serve. Principles 1. Define the end goal, not the process of achieving it. 2. All providers' incentives must be aligned. 3. Correct measure must be developed and implemented in rapid cycle. 4. CMS must actively support quality improvement. 5. Clinical community and patients must be actively engaged. CMS is increasingly linking fee-for-service payment to value. What this means is that while payment is still volume-based, providers receive a bonus for doing a good job or punishment for poor performance. Or at least a portion of payments vary based on the quality and/or efficiency of health care delivery.

Employer Sponsored Insurance

Health insurance coverage provided to employees, and, in some cases, their spouses and children, as benefits as part of their jobs. It is up to employers whether they want to offer it. It is less likely to be offered to employees of small (vs. large) firms, part-time/seasonal workers (vs. full time), low wage workers, newly hired workers (waiting periods), dependents (vs. employees), retirees. Eligibility cannot be based on health status. Everyone receives the same policy and there are no pre-existing condition exclusions, which is possible thanks to the size of the employer pools.

Hospital Payments

Historically, Medicare paid on a per diem and cost-based system while private payers negotiated per diem rates with adjustments for incremental procedures, which remains the case to some extent for private payers. Thus, hospitals were incentivized to lengthen hospital stays. In 1984, hospital payments under Medicare changed dramatically with the introduction of prospective payments. Under the prospective payment system, Medicare pays hospitals a predetermined amount for care of a patient based on their Diagnostic Related Grouping (DRG), of which there are 999 unique ones. Based on econometrics, hospitals are paid the predictive cost for delivering care to patients with specific disease categories, medical histories, and age groups. This means that hospitals have an incentive to care for a patient as efficiently and effectively as possible so as to avoid hospital readmissions, shorten hospital stays, and maximize savings. Unlike per diem payments, the prospective payment system incentivizes short hospital stays. Private payers today continue to pay on a per diem basis--at a higher rate than Medicare--but generally with concurrent review, which means that they get to review a patient's medical records and treatment in a hospital and decide whether that individual should remain in the hospital. It remains difficult for commercial insurance to adopt a DRG method because care for people in their 20s vs. for people in their 50s is very different and cannot be equalized.

Chargemaster

Hospitals' internal price list listing the price of different procedures and aspects of hospital stays and visits. It is used merely to begin negotiating. Medicare and Medicaid patients pay lower because their size allows them to set prices (in Medicaid's case, the cost of the procedure and in Medicare's case, the usual price). Insurers pay lower prices as well due to the size of their pools though still more than Medicare and Medicaid (and hospital mergers are decreasing insurers' negotiating power). Uninsured patients, however, may be charged the full amount, which can lead to shockingly large bills and bankrupt patients. Moreover, the chargemaster is a private document, the prices of which are often divorced from reality. During their hospital visit, patients do not have access to accurate price information due to a lack of price transparency. In many cases, the hospitals will end up covering the expenses of the uninsured through charity care, thus increasing the cost burden on insured patients.

Thalomide

In 1961, drug regulation was still lax. If a drug was not opposed within 180 days, it could be commercially sold. Thalomide was intended to treat pregnant women's severe morning sickness. The drug had already been used in Europe and it seemed like a routine approval. Dr. Frances Oldham Kelsey, however, spotted some data on the drug's safety that worried her. She recognized that Thalomide might result in a debilitating birth defect--the reduction of a baby's limbs. Kelsey's efforts to find out more prevented the drug from being approved, as more evidence that demonstrated the dangers of the drug from elsewhere around the world poured in. The Thalomide case is an example of why the U.S. needed to be more vigilant in its drug approval process and resulted in reform--the Kafauver-Harris Act of 1962.

Capitation Payments

In 1980s and 1990s, some began paying physicians capitated payments for specific populations. The idea was that doctors would make the same amount of money whether patients saw them frequently or not. This movement failed in the 1980s and 1990s because it was difficult to keep track of patient health and there was no telemedicine. Accountable Care Organizations today try to pay based on value rather than volume. Under these plans, Medicare pays physicians like fee-for-service but, assuming patient satisfaction remains unchanged, if spending goes above a certain limit, then Medicare penalizes that physician; and if spending is below a certain limit, then Medicare gives that physician a bonus

Market failure: incomplete or asymmetric information

In order to have a perfectly competitive market, both buyers and sellers need to have perfect and symmetric information about quality, price, etc. However, prices are rarely transparent in healthcare--think charge master--and both patients and doctors lack perfect information about treatment prices. Only 1/3 of healthcare decisions are reasonably informed. If symmetric (e.g. employer-based market), even though imperfect with regard to information, it will clear (why insurance works). Asymmetric information: where one party has more information than the other. For example, individuals may know about their pre-existing conditions that will likely increase the spending required on them and hide that from insurers in order to get less expensive care (less of a problem today than before the ACA).

Kafauver-Harris Amendment of 1962

In response to the Thalomide drug for morning sickness that caused babies to be born with deformed, flipper-like arms, the Act mandated that drugs go through an approval process to demonstrate that they are both effective and safe. It eliminated the 180 day loophole, which required that a drug be opposed within 180 days or it could go to market. It also gave the FDA more power over testing and marketing. 3 phases of testing: 1) Small group of healthy volunteers 2) A few dozen sick patients 3) Double-blind large sample testing with long-term toxicity testing in parallel. Median time = 75 months and less than 1/4 that enter emerged with an NDA (New Drug Approval). Once the NDA is filed, it used to take 30 months for final approval but now only takes 8-10 months. Effects of regulation 1) Increased costs (studies, time, etc.) 2) Decreased innovation or increased sales due to better, more reliable information? Because drugs now require a higher expected return, pharmaceutical companies may only choose to invest in drugs that reach the widest market. However, FDA approval may act as a gold star of approval, assuring consumers that the drug is both effective and safe. 3) Overall evidence suggests consumer loss initially (slowed entry of new drugs into the system early on; modified with increased funding of FDA that sped up approval process and made it less expensive (incentivized pharmaceutical companies to produce blockbuster drugs). 4) Fewer new chemical entities approved at the outset.

Change in Medicare Payments

In the 1970s, Medicare paid doctors a set fee schedule depending on an individual's diagnosis. Medicare would pay what doctors charged other patients, thus incentivizing doctors to increase their prices. In the 1980s, Medicare transitioned to paying set fees below what doctors charged their other patients and set according to the cost of treatment. However, new reimbursement policies were introduced in the 1990s, reversing the trend of decreased costs.

Backward-Bending Supply Curve of Physicians and the tradeoffs for leisure

Increased physician fees may have the effect of decreasing physician service supply in the market. When one increases compensation, one may raise the supply of labor up to a certain point. But past that point, physicians may start working less. This is because physicians begin income targeting--working to get to a certain income level and then engaging in more leisure--as opposed to income maximizing--working as much as they can to maximize their income. Thus, policymakers need to beware paying physicians too much. That is, unless physicians can substitute non-physician providers and still carry out as much or more care.

Second generation HMOs

Independent Practice Association (IPA): a network of physicians who agree to participate in an association for purposes of contracting with HMOs and other managed care plans. Integrated Medical Group: groups in which physicians no longer own their practices and office assets but become employees of an organization that owns and manages their practice.

Experience Rating

Insurance rating system the premiums of which are adjusted based upon the health history of those covered. Premiums are typically lower for healthier groups and individuals. It asks that sicker individuals, who will likely require more healthcare spending, pay a higher premium to reflect their health status. It involves evaluating pre-existing conditions and distinguishing between healthy and sick populations and charging them differently. Obamacare plans are slightly experience-rated in that younger people pay a lower rate than older individuals (3:1). However, there are pre-existing conditions restrictions, so insurers on the ACA markets can no longer charge people with pre-existing conditions such exorbitant rates that they would rather forego insurance. Experience rating helps insurers attract healthier individuals to their pools, reducing costs and making their pools less risky.

Ethics and Physician Compensation

Is an incentive to do more better than an incentive to do less? In the 1990s, people used to say that it was unethical to withhold care, calling out HMOs like Kaiser Permanente for undertreating. Professor Forman argues that there's no ethical difference between withholding care or giving too much because, like withholding care, excess health service delivery may be associated with increased risk, increased cost, and sometimes worse outcomes.

SCOTUS Rulings on the ACA

June 28, 2012: It ruled that the individual mandate "tax" is constitutional (despite the Obama administration's claim that it was not a tax). It ruled that the federal mandate for states to expand Medicaid is unconstitutional. The Obama Administration had tried to argue that, because Medicaid was already an optional program, states which did not want to implement the expansion (which would be 100% paid for in the first years and 90% paid for in the following years) could opt out of Medicaid. The Supreme Court, however, said this was coercive and so unconstitutional. June 25, 2015: it ruled that subsides available on the federal exchanges were constitutional. The bill itself had been vague about "state" exchanges, but the SC determined that lawmakers intended for the subsidies to be offered on federal exchanges. Had the SC ruled the other way, subsidies would not have been available to a vast majority of Americans. Texas v. United States: 18 GOP Attorneys General and 2 GOP governors have sued, arguing that without the penalty, which was eliminated in the 2017 tax bill, the mandate is unconstitutional and so the whole bill is unconstitutional. The judge agreed. This could be a major blow to the ACA.

Direct-to-consumer (DTC) advertising

Kafauver-Harris specifically authorized the FDA to regulate pharmaceutical labeling and advertising. In 1969, the FDA mandated that ads present fair and balanced information about the risks and benefits of drugs. The FDA regulates prescription drug advertising while the Federal Trade Commission regulates over-the-counter advertising. While advertisements do not have to be submitted to the FDA ahead of time, some companies choose to do so anyways in order to solicit advice. Companies spend the most on advertising in the first few years of a drug's lifecycle in order to build awareness and market share while they still enjoy market exclusivity rights. More money is spent on advertising drugs to doctors than on advertising them directly to consumers. Moreover, more drugs are advertised to doctors than are advertised directly to consumers. However, direct-to-consumer advertising has increased by 330% in real terms while its share of total promotion expenditure has more than doubled (1.2% in 1996 to 2.6% in 2005. Why DTC advertising has been criticized: encourages consumers to use certain drugs inappropriately (increasing inappropriate use); may encourage consumers to purchase more expensive brand-name drugs when less expensive, non-brand name drugs are available, increasing total drug spending.

Graham-Cassidy Bill

Last version of repeal effort that was more a restructuring of budget financing for Medicaid and did not offer a clear plan to continue to cover people with pre-existing conditions. It wanted to take expansion and subsidy money and put them in block grants to states, allocated according to low income, which would have disproportionately harmed rich states and those that had expanded Medicaid. Block grant funding would have ended in 2026, after which new legislation would be required. Medicaid would have been converted to a per capita cap below current growth levels, which would have resulted in major savings. Pre-existing conditions protections would have been much more limited: in some states, insurance for people with pre-existing conditions would have become prohibitively expensive. Essential health benefit flexibility may have resulted in substandard insurance. Failed without a floor vote.

2014 Institute of Medicine (IOM) Report

Led by Gail Wilensky, the IOM recommended realigning residency funding to match desired outcomes while holding constant current funding levels. The goal of these reforms was to encourage innovation and slowly move GME funding to match workforce needs (i.e. convince more people to enter primary care). It also sought to improve diversity and cultural competence of the match program.

Problems with the ACA

Limiting the age band to 3:1 instead of 5:1. This means that plans on the insurance exchanges could only charge the oldest people on the verge of qualifying for Medicare 3 times what the plans could charge young people even though older people require about 5 times as much healthcare spending. Thus, the plans penalize younger people and may encourage younger people to not get insurance, worsening the insurer pools. Guaranteeing future coverage with no penalties: since people can get insurance at a future date without having to pay a higher rate, they are incentivized to free ride by not getting insurance until they need it and then getting it, raising costs for everyone else. Weak mandate (now eliminated by tax reform).

Main Themes of the Course

Market not perfectly competitive: information disparities between patients and providers; hospital consolidation Government as payer: Medicare and Medicaid can demand lower rates Uninsured: pay the highest rates and when unable to pay, costs are borne by insured patients

Walmart Example

Massive company with 1.3 million employees, most of whom are low-wage, part-time, or temporary workers. Since many of them (2%) work less than 30 hrs a week, they lost health coverage due to the ACA. Around 9% of Walmart's employees are uninsured. Around 50% get their healthcare coverage from Walmart, a number which Walmart is very proud of. 40% get health insurance from Medicaid, spouses, the private marketplace, the VA, another employer, or Medicare. Walmart is particularly vulnerable to adverse selection where people get sick, get a job at Walmart, and then try to get coverage, which is why Walmart requires you to work a certain number of months before you become eligible for health insurance. This is not uncommon. In fact, some firms offer benefits to individuals who don't use employer coverage. Main takeaways: Walmart is an example of a company that has done everything it can to free ride on others, encouraging people to get healthcare from their spouse's employer or from the government, not giving people care until they've worked for a certain number of months (adverse selection problem), and only offering health insurance to full-time employees, not part-time.

Residency Match

Matching system between medical school students and residency programs. It has become more competitive over time though graduates have a very high likelihood of matching. ACGME/COGME sets limits on residency spots based on supply, demand, and quality of teaching capability. The limit does not necessarily match clinical or institutional need.

Employee Cost Index (ECI)

Measures year-over-year growth of wages and benefits. Benefits growth driven by healthcare spending. When health benefits growth is high, wage growth is low. This is because we're assuming that employers pay employees their marginal productivity (Marginal productivity=wages+benefits) in wage/salary and benefits, so when benefits grow but marginal productivity doesn't, then wages are crowded out. Compensation is increasingly in the form of benefits. Effect on competitiveness: global cost competition is fierce. Even if a company feels obliged to offer health insurance, it may not be sustainable. May use benefits to attract workers. However, in recent years, wages have been growing at similar rates as benefits.

Medicaid Benefits

Medicaid covers most everything but not well as access remains an issue. Mandatory services: inpatient and outpatient hospital services; physician and nurse practitioner services; early and periodic screening for children up to age 21; laboratory and x-ray services; family planning services and supplies; home health services; non-emergency transportation to medical care; and more. Selected Optional Services (up to the state): Prescription drugs; dental care; durable medical equipment; personal care services; home and community based services.

Medicaid Expenditures

Medicaid covers most everything but not well--access remains an issue. Medicaid makes up roughly 20% of state budgets. Roughly 11.6% of expenditures go toward nursing facilities and 28.1% (including nursing facilities) of spending goes towards long-term care.

Medicaid Payment to Hospitals

Medicaid payment rates to hospitals are similar to Medicare rates at roughly 90% of cost. Thus, hospitals charge private payers significantly more (~140% of cost).

Medicare Part C

Medicare Advantage plan. Medicare Advantage plans are health plans offered by private companies that contract with Medicare. They serve as a substitute for Parts A and B. Different types of plans include: Health Maintenance Organizations (HMOs)--2/3--Preferred Provider Organizations (PPOs)--26%--Private Fee-for-Service plans, Special Needs Plans (SNP), and Medicare Medical Savings Account (MSA) plans. 33% of Medicare enrollees are enrolled in Medicare Advantage plans. Medicare Advantage has been spending more for beneficiaries than traditional plans. Moreover, they have been accused of cherry-picking healthy enrollees by advertising gym memberships and advertising dental benefits, prompting the Clinton Administration to reduce payments. The prevalence of Medicare Advantage plans varies across states, representing 42% of plans in Florida and only 10% in New Hampshire. Transitioning to more competitive bidding--had previously set spending high in order to encourage migration to the plans--and presently beneficiaries are getting more coverage than FFS plans.

Parts of Medicare

Medicare Part A is a hospital insurance plan for the elderly financed largely through Social Security taxes from employers and employees. Medicare Part B insures the elderly for physician services and is paid for by federal taxes and monthly premiums from beneficiaries. Medicare Part D, enacted in 2003, offers prescription drug coverage to beneficiaries in both traditional Medicare and Medicare Advantage programs. It is paid for by federal taxes and monthly premiums from beneficiaries. It accounts for 14% of Medicare spending. Medicare Advantage - Medicare Part A, B, and D administered by private insurers. It covers some things not covered by traditional Medicare, such as dental care. It accounts for 30% of Medicare spending.

Medicare Advantage

Medicare Part A, B, and D administered by private insurers. Eligible Medicare beneficiaries may choose to receive their health care through a qualified managed care plan, which in turn receives capitation payments from Medicare for each enrollee. They are much like point of service (POS) plans. They are not required to establish a provider network and they are not required to report quality measures. Grew very quickly early on but now stable, maybe even shrinking. The plans are very popular with the people that hold them partly because their prices are not commensurate with their costs. Makes up about 1/3 of Medicare enrollment. They may also offer benefits not offered by traditional Medicare, such as dental care. Compared to traditional fee for service plans, Medicare Advantage plans offered lower cost sharing, more coverage, and a tighter network. For healthy individuals who don't want to pay large copays and deductibles and are willing to accept a tighter network, it's a very good option. The plans are often paid on a capitated basis, so insurers are at risk if costs come in more than reimbursement. When it was first created, Medicare Advantage paid capitated payments to health plans that are actuarially equal to FFS to start; then $0.95 per every dollar and progressively lower until insurers exited because they couldn't make money on the plans. In order to encourage plans to offer Medicare Advantage plans again, the Bush Administration offered to pay more for each plan (110-115% of cost). The ACA introduced competitive bidding and reduced overall payment in an effort to make Medicare Advantage plans competitive with FFS. Mixed Performance -Good: the plans are very popular with enrollees and outcomes have been relatively good (though potentially biased by population that chooses them). -Bad: cost more than traditional fee-for-service Medicare plans.

Market failure: market power

Monopolistic or oligopolistic power (e.g., large hospital chains) reduces competition, reduces production to a lower level than society truly desires, and raises price above marginal cost.

Moral Hazard and Insurance

Moral hazard: change in behavior in presence of insurance. Pooling of risks leads to reduced marginal costs for services. People are more likely to seek out care and get expensive treatment when they are covered. This raises overall costs. Moreover, people may be less likely to pay attention to their health and more likely to take more risks if insured (smoking, drinking, etc.). Leads to behavioral changes (would not see a doctor without insurance but would with it). Ways to reduce moral hazard: limit insurance coverage to less than 100%; place active limitations on health benefits

Cost Identification and Minimization

Objective: identify costs and choose the least expensive option. Do not measure outcome; just assume equal outcomes and choose the least expensive one. Example: Is drug A or B a cheaper one for treating an illness? Problem: How do you define costs? Should you include the cost of prevention, cost of treatment, opportunity costs, medical and non-medical alternatives, sunk vs. incremental costs, direct vs. indirect costs, and discounting (taking the present value)?

The Affordable Care Act (ACA)

Original aim: expand coverage to 32M additional individuals by 2019. However, thanks to the SC decision ruling the mandatory expansion of Medicaid unconstitutional, this has been revised down to 25M. $938B over first 10 years--fully financed by taxes, revenues, and cost reductions though bill includes some deceptive budgetary allocation of the same dollars to two different expenses. Medicaid expansion: to cover poor people (<138% of the Federal Poverty Line) Exchanges: to create a true marketplace Subsidies: to help near poor afford healthcare Guaranteed issue/guaranteed renewability/community rating: so that everyone will be allowed to buy health insurance Mandate: so that pool of beneficiaries is not composed of only high cost beneficiaries

Impact of Extensions on Brand Exclusivity

Over time, brand manufacturers have been able to extend their brand drug exclusivity from 8.1 years (1980-84) to 15.4 years (beginning in the late 1990s). They have done this by making small improvements to their drugs (Prilosec case) and discouraging generic competition so that they can recoup their investment.

Medicare's "Dedicated Financing Sources"

Payroll taxes to the Health Insurance Trust Fund. Income from taxation of Social Security benefits that is transferred to the Health Insurance Trust Fund. Part A, Part B, and Part D premiums. Medicare premiums were supposed to cover 50% of cost but Congress repeatedly intervened to stop premium hikes. The 1997 Balanced Budget Act, however, mandated that Medicare premiums cover 25% of cost. State transfers for the Medicare prescription drug benefit. Gifts to the trust funds.

Healthcare spending highly concentrated

People with catastrophic illnesses spend the most. Bottom 50% of healthcare spenders account for less than 3% of healthcare expenditures. This disparity demonstrates that health insurance spreads risk. Moreover, there is very little variation across income.

Eligibility for Medicaid before the ACA

Predominantly pregnant women and children. -All poor children below the age of 19 (<100% FPL) -All children under age 6 and pregnant women up to 133% of the federal poverty line. -Parents below 100% of the FPL -Most states have expanded coverage for children up to 200% of the federal poverty line through SCHIP -Parents in families eligible for TANF/cash welfare (below 100% of FPL) -Adult non-parents could only be made eligible through a state waiver. Most states, however, did not choose to cover adult non-parents because it would be too expensive. Mandatory vs. non-mandatory groups: some states could choose to cover adult non-parents or cover non-mandatory benefits like prescription drugs (which all states have chosen to do) and hearing aids. Mandatory services, which include ambulatory care, make up only 40% of Medicaid's cost.

1997 PDUFA II (FDA Modernization Act)

Prescription Drug User Fee Act reauthorization, which increased funding to the FDA, decreased the backlog on the drug approval pipeline, and decreased the time to decision on the pipeline. The 1992 law had required the industry to pay an initial fee to the FDA to pay for regulatory staffers to work on the drug approval process, boosting FDA funding and speeding the approval process. While the law has sped up the approval time for drugs under review by the FDA, some evidence suggests that the reduced approval time has resulted in more adverse outcomes for patients, suggesting the program had rushed the approval process and allowed flaws and adverse reactions go undiscovered.

Medicare Part D

Prescription drug coverage. It's a competitively bid product with some government reinsurance, meaning that private contractors that meet certain minimum standards compete to offer their own plans. 5% co-insurance for non-poor and less for poor. In 2017, more than 44.5 million people were enrolled and the average benefit per enrollee was $2252. The plan consists of an initial $405 deductible. Beyond $405 and below $3,750, the plan pays 75% of expenses and the individual pays 25% in order to discourage high use. Above $3,750 and below $8,418, the enrollee pays a higher rate for brand-name drugs and the plan covers a smaller share of drug costs. Above $8,418--the catastrophic coverage threshold-- the enrollee pays 5%, the plan pays 15%, and Medicare pays 80%. The ACA negotiated with drug manufacturers to offer discounts on drugs to eliminate a donut hole wherein individuals paid the full drug costs above $3,750 and below $8,418. The donut hole and the significant cost-sharing in the program existed to reduce moral hazard, keep budget down, and discourage spending. The majority of Part D spending comes from 25% of Part D enrollees --the highest spenders. It is paid for by premiums and general tax revenues. Firms compete through an auction process over how much funding they need to make their plans work. Government provides rebates for high-cost beneficiaries. Otherwise, insurers are on the hook.

Obamacare Exchanges

Present multiple options with robust information so that consumers can compare plans for what they offer and what the requirements are. Adjust for income and citizenship status. Pass information to insurers and federal government while protecting privacy. States given the option of federally subsidized state-run exchanges or federally-run option (most states have opted for federally-run exchanges). The exchanges offer plans along different benefit tiers. 1) Catastrophic: "young invincible" plan for those up to 30 years of age and exempt from mandate. 2) Bronze: MINIMUM creditable coverage; cover 60% of benefit costs; out-of-pocket limit may not exceed the legal limit ($6750 for individuals and $13,500 for families in 2019), so individuals will not be financially devastated by healthcare incidents, which may have been the case before the passage of the ACA. 3) Silver: 70% of actuarial value with out-of-pocket limits like above 4) Gold: 80% of actuarial value with out-of-pocket limits like above 5) Platinum: 90% of actuarial value with out-of-pocket limits as above In 2017 and 2018, the premiums for these plans went up dramatically, though they have stabilized to an extent this year. For those making less than 400% of the Federal Poverty Line, out-of-pocket limits reduced by government cost-sharing subsidies. Hence, insurance premiums are very manageable for people who qualify for subsidies. However, for middle-income individuals making between 400$-800% of the FPL who don't qualify for subsidies, health insurance is extremely expensive and possibly outside of their budget. Moreover, in some areas, there has not been sufficient competition and there have not been a sufficient number of plans available for individuals to choose from. Markets Guaranteed issue and renewability (meaning that if you develop a pre-existing condition, you are still permitted to renew your plan next year and not at a significantly higher price). Ratings variation based only on age (3:1 ratio or less if state mandate is less); premium rating area; family composition; tobacco use (1.5:1 ratio allowed); risk adjustment; many requirements on insurance companies.

Prilosec Example

Prilosec was a drug that treated acid reflux. When its patent was running out, AstroZeneca invented a new drug that was 5% more effective (Nexium) and moved patients over to the new drug. Even though Nexium was only minimally more effective, most patients transitioned to Nexium and the company was able to extend the life of its patent and fend off generic competition.

Medicare and the ACA

Prior to the passage of the ACA, Medicare was expected to run out of money by 2017 thanks to growth in the number of beneficiaries and fast economic growth. After the ACA was passed, Medicare is expected to run out of money in 2026 instead of 2017. Because the ACA implemented a non-indexed higher tax bracket, economic growth and inflation increase tax revenue by making more people eligible for that tax and so extends Medicare's lifetime. The ACA reduced the difference between program costs and program income. The ACA also reduced payments and increased revenues. However, long-term sustainability is still reliant on an as-yet unrealized revolution in healthcare delivery to reduce spending.

Community Health Centers

Private, nonprofit organizations that directly or indirectly (through contracts and cooperative agreements) provide primary health services and related services to residents of a defined geographic area that is medically underserved. They act as an alternative to fee-for-service, emphasize primary and preventative care, and strive to take responsibility for the health status of the community.

Richard D'Aquila on the Challenges of Running an Academic Medical Center

Richard D'Aquila is the president of the Yale New Haven Hospital. An academic medical center provides patient care, clinical care, and teaching and research and confronts a high case complexity. Challenges faced by academic medical centers: 1) balance teaching, research, and clinical missions; 2) labor intensive and high cost (duty hour regulations and handoffs cause care fragmentation and yet, for every $1 of expense, 83% goes into patient care); 3) high fixed costs (land, capital, etc.); 4) safety net hospitals (take people regardless of their ability to pay). Changing competitive landscape: 1) competition for patients with insurance (pay more and subsidize care of poor); 2) hospital consolidation (some hospitals are failing) Breakdown of patients at YNH: 22% Medicaid (35% of cost); 41% Medicare (90% of cost); 34% commercially insured (100-150% of cost) Aim for operating margin of 4%, money which is used to fund capital expenditures, pensions, and debt management and is a cushion for payment interruption

Physician

Someone who has graduated from an accredited osteopathic (holistic care) or allopathic medical school. The title confers some value but not necessarily the right to practice anywhere. US citizens who go to non-US medical schools are IMGs. These physicians are regulated by a nonprofit entity and are important in ensuring there is no physician shortage. International citizens who go to US med schools are NOT IMGs; they are US-MGs. What allows a physician to practice medicine: degree; certification by national authority; state licensure; DEA (Drug Enforcement Agency) number; privileging by a healthcare organization (usually a hospital; usually referred to as admitting privileges; usually requires malpractice coverage; usually limits practice to an area of specialty; may require board certification; may require disclosure of malpractice and other actions); credentialing by managed care or other insurance entities

Health expenditures compared to other countries

Spend almost twice as much per capita than other industrialized nations ($10,500). However, our outcomes aren't sufficiently better, and in some cases besides cancer care, are worse than other nations'. We have higher infant mortality rates and lower life expectancies than competitors. We have the highest rate of preventable deaths and higher rates of medical errors. Health expenditures have been growing faster than GDP since the 1990s, though costs settled a bit during the recession. 55% of U.S. spending is private. 45% is public (28% federal, 17% state and local). This increases costs to employers and decreases American workers' competitiveness. Important to note that these comparisons don't take into account other factors of healthcare satisfaction we value, such as comfort.

Summary of major problems with U.S. health outcomes

Spend more per capita on healthcare than peers. In many cases, in fact, just our government spending per capita is as much as other countries' private and public healthcare spending per capita combined. Rank among the least well-developed of our OECD partners on infant mortality. (Worse than the Slovak Republic and just ahead of Chile) A small percentage of individuals account for a vast majority of our health care expenditures (top 5% of spenders account for 50% of healthcare expenditures while the top 1% of healthcare spenders account for more than 20% of all healthcare spending). Generally, however, only 20% of the top 1% of healthcare spenders remain in the top 1% the next year because they either die or get better (while those who remain are usually disabled or have chronic conditions). Average employer premiums for family coverage have grown to be nearly equal with the incomes of minimum wage earners. This endangers our economic competitiveness.

Sponsor vs. payer

Sponsor - financier of healthcare who is actually using their own money to pay for healthcare. E.g., most Medicare funding is government as financier but in some cases government serves as a payer and people pay premiums for supplemental coverage. Payer - who is writing the check. E.g., workers compensation is government run but privately financed (government serves as payer but not sponsor). Also, when Medicare uses people's premiums to pay for insurance, they are acting as payer.

St. Vincent's Hospital Example

St. Vincent's Hospital is an example of a not-for-profit. The hospital was committed to its mission of treating AIDS patients in NY. However, its commitment to earning a profit was less strong and so they went out of business and were unable to continue carrying out their mission. "No profit, no mission"

Medicaid Managed Care

State decides to assign certain populations to managed Medicaid. Unlike Medicare Advantage, this is not the choice of the beneficiary. These plans are managed by private insurers. Most states are full risk: if costs come in very high, insurers bear the burden; if costs come in low, insurers keep all the money. Some states have "medical homes": create incentives for insurers to operate private practices and pay bonuses for good performance. 47 states have moved from fee-for-service Medicaid to managed Medicaid (CT one of 3 that hasn't). Today managed Medicaid enrollment has risen to ~75%.

Medicare Part B

Supplemental Medical Insurance (SMI). A voluntary program open to all Part A enrollees and most Americans over the age of 65, it covers physician services, home healthcare, durable medical equipment, outpatient medical services (clinical lab tests, PT/OT, emergency room service), ambulances, vaccines, screening (pap smear, mammography, colon, cholesterol, diabetes, glaucoma, prostate cancer), and prescription drugs which cannot be self-administered (including certain anti-cancer drugs). 53.4M out of 58.4M Medicare enrollees are enrolled in Part B. 95+% of Part B enrollees received services. Administrative costs for the program are 1.6% compared to 1.1% for Medicare health insurance. The average benefit per enrollee is $5780 (2017). The annual deductible has not kept up with growing costs: if deductibles had kept pace with actual costs, the deductible would be $2500 now compared to the $183 that it actually is. Since 2003, the deductible has been indexed to health care costs. Co-payments make up 20% allowed charges. Beginning in 1997, the premium for the program has been set to 25% of program expenditures. There are also income-related premiums for 2018 that require wealthy individuals to pay higher rates. Moreover, the ACA ended indexing, so that more people would qualify for the higher premiums. The ACA also reduced SMI benefits by increasing cost-sharing, reducing hospital and home healthcare spending, and reducing payments to certain physicians.

Effect of Medicare Advantage Plans on Health Care Spending

Supplemental coverage makes health care more affordable for beneficiaries but also makes beneficiaries insensitive to the costs of their care, thereby increasing the demand for care. Additional financial protection for beneficiaries comes at a cost to the Medicare program, which is responsible for paying the majority of provider fees that are not paid for by beneficiaries or supplemental insurers.

Sustainable Spending

Sustainable - growth rate below that of GDP Want to avoid healthcare spending crowding out growth in the rest of the economy. Unclear what the right level of NHE as a share of GDP is, which one would produce the best outcomes. Goal - get growth down to GDP +1% rather than historical average above GDP +2%

How the ACA contributed to consolidation of hospitals

The ACA created stronger insurance markets, created incentives for hospitals to reduce costs, and created incentives for the transition to electronic health records. In response to the insurance markets, hospitals wanted to consolidate to increase their negotiating power with insurers. In response to incentives to reduce costs, hospitals have merged to take advantage of economies of scale. In response to electronic health records, hospitals have acquired physician practices and other hospitals in order to cheaply install record systems.

The Individual Mandate (ACA)

The Affordable Care Act requires nearly everyone to have health insurance who meets minimum standards. With some exceptions, people who do not maintain health insurance coverage will have to pay a penalty starting in 2014. However, this penalty was eliminated with the 2017 tax cuts. The goal was to encourage healthy people to enter the exchanges so that insurance pools would be less risky and insurance premiums would be less expensive, countering the problem of adverse selection. For those without qualifying coverage, they would qualify for a tax of $695 or 2.5% of household income per year--whichever is greater. However, this often proved too low to compel people to purchase health insurance. Wilensky and Forman both argue that for the mandate to be effective, it must be strengthened, including by not allowing people who missed the deadline to enroll later and making people who haven't signed up in the past pay more to compensate those who did.

Dartmouth Atlas Takeaways

The Dartmouth Atlas compares healthcare utilization rates across regions, showing that there is enormous variations in healthcare spending without enormous variation in outcomes. 1) Systematic underuse of effective care such as beta-blockers after heart attacks or diabetic eye care. 2) Misuse of preference-sensitive (in some areas, people may have a preference for surgery as compared to radiation and in others the opposite could be the case) care such as discretionary surgery 3) Overuse of supply-sensitive care such as physician visits and hospitalization rates among chronically ill patients

Medicare population

The Medicare population has higher rates of chronic illness than the population at large. They are more impoverished than the national average. They are generally low-income and have only modest savings. 1/8 of the Medicare population over 85.

U.S. Pharmaceutical Market vs. the world

The U.S. will account for 41% of worldwide spending on medicine by 2020. The U.S. spends the most per capita on pharmaceutical products ($892 vs. $644 for Japan). Other markets are growing but because the U.S. wants to get drugs first, we allow pharmaceutical companies to charge much more in order to incentivize research and development.

Medicaid and the ACA

The basic nature of Medicaid remains unchanged: state managed, funded as a joint venture of state and federal government, and part of safety net. In places that chose not to expand, old Medicaid remains in place. The ACA expanded eligibility for the program, offering it to everyone up to 138% of the poverty line in states which chose to expand irrespective of whether they are children, pregnant women, etc. It created a universal entitlement based on poverty, not family status. New Medicaid has steadily expanded. The ACA covered 100% of the cost of the expansion in the first years with a gradual reduction to 90% of expansion costs, though critics fear that the federal government will reduce its share even further, placing pressure on state budgets and leading to more education cuts. A Supreme Court ruling mandated expansion of the program unconstitutional; instead, states have slowly expanded.

Comparative-Effectiveness Research

The conduct and synthesis of systematic research comparing different interventions and strategies to prevent, diagnose, treat, and monitor health conditions. The purpose of this research is to inform patients, providers, and decision-makers about which interventions are most effective for which patients under specific circumstances. Notably, it does not look at cost; hence, it's less politically polarizing--not putting a value on a human life. It merely asks which therapies are more effective. Sometimes, this can reduce costs because there are times when doctors recommend treatments that are both more expensive and less effective, though it will not always decrease costs. However, the Patient-Centered Outcomes Research Institute (created by the ACA) is NOT allowed to use comparative-effectiveness research to decide which prescription drugs Medicare will reimburse.

Medicare Part A

The part of the Medicare program that pays for hospitalization, care in a skilled nursing facility, home health care, and hospice care. To qualify, you need to have paid Social Security taxes for a certain number of years. Funding - It is paid for by a 1.45% tax on total income, matched by employer (so effectively 2.9%). This money flows into the Trust Fund and there is no cap. The ACA modified this so that individuals making $200K + and couples making $250K+ pay 3.8% tax on income and 3.8% on unearned income (carried interest, etc.). This new tax is not indexed, meaning that it does not adjust as inflation kicks in, so more and more people will become eligible to pay these higher rates. This makes Medicare more sustainable but will increase taxes on more people. There are no restrictions on spending (from current income and trust fund). Thus, changes in medical practice may result in huge increases in spending which have no influence on budgeting of any given year but will increase Medicare spending. Not a catastrophic plan - co-pays rise the longer one stays in the hospital. Thus, long hospitalization can have substantial costs to an elderly patient (if no medi-gap insurance is owned). Moreover, stays in skilled nursing facilities are only totally covered for first 20 days and then patient must pay $167.50 from day 21-100 and stops paying after day 100.

medical underwriting

The process by which an insurer decides whether to offer coverage to an individual or a group, and at what premium. The process often involves examining past medical history and reviewing health-related risks such as smoking and dangerous occupations. It can also include a physical exam, blood test, and a questionnaire. Prior to the ACA, insurers wouldn't cover people with pre-existing conditions. However, they wouldn't rewrite someone's plan if he developed a pre-existing condition. This means that people were incentivized to purchase insurance early so that they would be covered and their rates would be locked in should they develop a pre-existing condition. This system was good for relatively healthy people and people who were responsible enough to buy insurance at a young age. However, it penalized people who became uninsured from losing a job, developed a pre-existing condition between employment, and could no longer get insurance.

Healthcare a luxury good at trans-national level

This means that across nations, healthcare acts as a luxury good. The percent of GDP a country spends on healthcare increases as national income (GDP per capita) increases. Developed countries spend higher percentages on healthcare than developing countries, showing that healthcare spending grows at a faster rate than income when compared across countries. However, within a country, healthcare mostly functions as normal, even a necessity, good, meaning that spending increases as income grows but at a lower rate than income growth.

Administrative spending

Under the ACA, private health insurance plans must spend at least 80% on healthcare. Medicare and Medicaid spend a smaller percentage on administrative expenses than do health insurers. However, this does not mean that care is better or more efficient than private insurance, which may be better at catching fraud.

Virtually Integrated vs. Vertically Integrated

Virtually - usually national for-profit (dispersed). For example, Cigna may create a national network, contracting with pharmacy providers, physician groups, and hospitals. Vertically - usually regional nonprofit (more integrated). For example, Kaiser owns its own hospitals, nursing facilities, and electronic health records system and acts as its own insurer, keeping care in-house. Advantages of integrated organization models - tend to rank higher on various measures of quality of care; tend to adopt tools for quality improvement, such as more structured systems for planning and following through on care of patients with diabetes and other chronic illnesses; better care coordination Advantages of dispersed model - satisfaction from receiving care from a small practice in which patients feel as if clinicians and staff know them personally

Deductible

a form of cost-sharing where the patient is required to pay a specific amount before the insurance kicks in

Vioxx

a nonsteroidal anti-inflammatory drug that has now been withdrawn over safety concerns. It was seen as safer than Motrin but more expensive since it was not sold over the counter. It gained widespread acceptance among doctors treating arthritis and other conditions causing acute pain. Its manufacturer, Merck, discovered that the drug in high doses was associated with heart attacks and strokes. Merck withdrew the drug from the market in 2004 after it was revealed that the manufacturer had withheld information about the drug's risks from doctors and patients for 5 years, resulting in 88,000-140,000 cases of serious heart disease. In response to the scandal, Congress in 2007 passed the 2007 FDA Amendments Act, which gave the FDA more post-approval regulatory powers. However, it remains very difficult for the FDA to remove a drug from the market once it's been approved.

Cost Utility Analysis

cost per quality adjusted life year; it distinguishes between a year of life in a coma and a year of life fully healthy. It is only applicable if outcomes are in comparable units. It can rank alternatives more easily and determine a $ threshold to set policy.

Health Reimbursement Account (HRA)

employer-funded group health plans from which employees are reimbursed tax-free for qualified medical expenses up to a fixed dollar amount per year. Unused amounts may be rolled over to be used in subsequent years. However, it's not portable, meaning that you cannot take it with you if you move jobs. These have been replaced by HSAs, which can be rolled over and taken with you to another job.

Market failure: Public Goods

non-rivalrous in consumption and exclusion is costly; a good that can be provided to many consumers but once the good is provided to some consumers, it is very difficult to prevent others from using it. Private markets under-supply these goods. For example, medical research will benefit everyone but will require a lot of expensive lab work and, barring patents, potentially little private benefit.

multispecialty group practice

organization of physicians from different specialties joined to share income, expenses, facilities, equipment, and support staff. The group practice tries to better provide comprehensive care. For example, the Mayo Clinic paid its physician staff by salary but billed patients and later third-party insurance plans on a fee-for-service basis.

RAND Health Insurance Experiment

study of the impact of cost sharing on utilization and health outcomes. Participants were randomly assigned into HMOs (health maintenance organizations) or FFS (fee-for-service) plans. Conclusions - cost sharing reduces spending. However, inappropriate use remains constant, which means that cost sharing reduces both important and inappropriate health care utilization equally (high value and low value). Moreover, the study found that outpatient and inpatient care are complementary rather than substitutes, which means that increasing spending in one space increases it in the other and vice versa (spending begets more spending). This is troubling for proponents of shifting care to less expensive outpatient facilities. The effects on rich and poor are equal from cost-sharing. The harshest effects are on mental health service use because people are more likely to try to ride out depression and other mental illnesses than seek care when they have to bear some of the cost. It also showed that health service utilization increases as a result of increased health insurance coverage.

Supplier-induced demand

the amount of demand created by doctors, which exists beyond what would occur in a market in which consumers are fully informed. Supplier-induced demand exists when the physician influences a patient's demand for care against the physician's interpretation of the best interest of the patient. Because most patients have next to no understanding of their medical condition, which results in asymmetric information between the physician and patient, physicians may be able to increase demand beyond levels that would occur in a functioning market. Doctors have a financial incentive to do more and suffer from an agency issue--they are in charge of your care but are also making money off your care. Thus, physicians may suffer from moral hazard: ordering an extra test or recommending too many treatments will not be penalized, so why not?

Income elasticities

the ratio of the percentage change in quantity demanded to the percentage change in income. Normal goods: positive income elasticities for which demand increases as income increases. Inferior goods: negative income elasticities for which demand decreases as income increases. Luxury goods: income elasticities greater than 1 for which quantity demanded increases at a faster rate than income. Necessity goods: income elasticities between 0 and 1 for which quantity demanded increases at a slower rate than income. Healthcare is income inelastic, meaning that richer individuals don't spend much more than poor individuals on healthcare. Healthcare is a normal good, meaning that healthcare use increases as income increases. However, healthcare is also a necessity good, so it increases at a slower rate than the rate at which income grows.

Not-for-profit

type of business organization that typically uses revenue for charitable or religious purposes. To be a tax exempt 501(c)(3) organization, 1) none of the earnings of the organization may inure to any private shareholder or individual, 2) it may not attempt to influence legislation or participate at all in campaign activity, 3) it must have a mission, and 4) if it is dissolved, its assets belong to the community which it serves.

Federally Qualified Health Centers

where people go when they don't have health insurance and can't see a doctor. They are part of the safety net. They provide care to people who would otherwise not be able to receive care.