Efficient health insurance as a first best

 Sick Insurance: Adverse Selection and Regulation of Health Insurance Markets

When heterogeneity in consumer tastes and needs, and in cost and quality of products, are publically observable, markets can price, sort, and match these variations, and product choices made by consumers yield demand signals that foster efficient resource allocation. These conditions hold, roughly, for a broad swath of economic activity, allowing lightly regulated private markets to successfully approximate allocative efficiency. However, in health care systems around the globe today, participants do not necessarily see the big picture of lifetime health costs and quality of life, and in many systems the incentives that consumers and providers face do not promote efficient allocation of health care resources. Information asymmetries are the fundamental source of difficulties in health insurance markets and in efficient provision of health services. Additional factors contributing to poor performance of health markets include (1) government regulation that is intended to protect the disadvantaged and promote equity, but creates incentives antagonistic to allocative efficiency, (2) inefficient provider organizations and non-competitive conduct, sometimes sheltered by government policies, and (3) behavioral shortcomings of consumers in promoting their own self-interest, including inconsistent beliefs regarding low-probability future events, myopia, and inconsistent risk assessment.

The seminal contributions to economic analysis of Kenneth Arrow, George Akerlof, Joe Stiglitz, Mike Spence, Mike Rothschild, and John Riley establish that when there are information asymmetries between buyers and sellers, adverse selection, moral hazard, and counter-party risk can result, causing markets to operate inefficiently or unravel. Asymmetric information between buyers and sellers, or market regulations that restrict competitive underwriting and force common prices for disparate products, can induce adverse selection. Moral hazard occurs when effort to avoid risks cannot be observed by sellers and stipulated in insurance contracts, and buyers have less incentive for risk-reducing effort when some of their potential losses are covered. When the productivity and cost of medical interventions is not known to all parties, then buyers and third-party-payers may not make informed decisions on therapies. Counter-party risk occurs when sellers evade payment of benefits for losses, or fail as agents to respect the interests of the consumers who are their principals. Adverse selection of buyers with high latent risk or low risk-reducing effort, or sellers with high counter-party risk, make insurance less attractive to buyers, and may cause insurance markets to unravel. Administrative overhead will induce less than full insurance. By itself, this does not make insurance market outcomes inefficient, but increasing returns to scale in administrative costs may lead to an inefficient concentrated market.

In principle, the problems of asymmetric information can be overcome by government operation or regulation of health services; in practice, there remains a major mechanism design problem of designing incentives that handle the asymmetries; e.g., “single payer” systems permit additional levers of control, but information asymmetries cause principal-agent problems even in command organizations. Legal mandates and regulations can make adverse selection worse. Government policy on private health insurance markets often reflects a social ethic that individuals should not be denied health care because of inability to pay, expressed for example in requirements that hospitals admit uninsured patients with life-threatening conditions, and a social ethic that insurance contract underwriting should not be based on risk factors such as gender, race, and pre-existing conditions. When these requirements are not publically financed, they are implicit taxes on insurers and providers that are at least in part passed through to consumers as higher premiums that increase the effective load for low-risk consumers. Both the higher loads and the prospect of public assistance as a last resort reduce the incentive for consumers to buy insurance and to pay (or copay) for preventative care.

The United States has, more than any other developed country, relied on private markets for health insurance and health care delivery. These markets have performed poorly. Denials and cancellations, exclusion of pre-existing conditions, and actuarially unattractive premiums have left many Americans with no insurance or financially risky gaps in coverage. Administrative costs for health insurance in the United States are seven times the OECD average. These are symptoms of adverse selection. Delayed and inconsistent preventative and chronic care, arguably induced by incomplete coverage, have had substantial health consequences: the United States ranks 25th among nations in the survival rate from age 15 to age 60. This impacts the population of workers and young parents whose loss is a substantial cost to families and to the economy. If the U.S. could raise its survival rate for this group to that of Switzerland, a country that has mandatory standardized coverage offered by private insurers, this would prevent more than 190,000 deaths per year.

Given the damage that information asymmetries can inflict on private market allocation mechanisms, the obvious next question is what regulatory mechanisms can be used to blunt or eliminate these problems. This involves examining closely the action of adverse selection and moral hazard, and the tools from principal-agent theory and from regulatory theory that can blunt these actions. There is an extensive literature relevant to this analysis that can be focused on the regulatory design question. Less well investigated are the impacts of consumer behavior, particularly mistaken beliefs. This paper examines these issues, and studies the impacts of regulations intended to promote equity and efficiency. More practically, this paper investigates these issues with reference to the private market in the United States for prescription drug coverage for seniors, introduced in 2006 and subsidized and regulated as part of Medicare.

The efficient regulatory design is mandatory universal insurance, this is the answer. But it has to be eficient, otherwise appears duplicate insurance, paying twice for the same. This is the worst second best, a combined failure of mandatory and private coverage.

Unwarranted variation in clinical practice

 Understanding unwarranted variation in clinical practice: a focus on network effects, reflective medicine and learning health systems

Variation is not bad or unwarranted per se. To some extent, variation should always exist, because patients are unique and different. Care could be called appropriate when decisions reflect such differences, especially differences in informed patient preference [1].

Variation may be unwarranted when it cannot be explained by sensitivity to patient characteristics or well-informed preferences. In this perspective, we propose alternative hypotheses for mechanisms underlying unwarranted variation in healthcare and  propose new target points for research to better understand, reduce and improve unwarranted variation in care quality in daily medical practice.

 A key element in this new focus in research should be on the complex cohesion of network effects, reflective medicine, patient beliefs and objective criteria for treatment choices.

After all these years and the large amount of research on variations in medical practice, it's time to act. 

Shara Hughes

 

The opportunity costs of excessive medical practice variations

 Atlas de utilización de procedimientos de dudoso valor. Actualización datos 2017

From the new report on practice variations:

La literatura científica abunda en estimaciones de la proporción de asistencia sanitaria cuyo valor para el paciente es cuando menos escaso. Este cuerpo de evidencia no ha hecho sino crecer en la última década, dando origen a varias iniciativas tanto académicas como gubernamentales para identificar y abordar lo que se considera uno de los principales problemas de los sistemas sanitarios modernos. Hay consenso: se trata de un fenómeno altamente prevalente que pone en cuestión el buen uso de los recursos sanitarios.
La actividad sanitaria de dudoso valor incluye tanto la utilización de procedimientos escasamente efectivos o para los que existen alternativas superiores, como el uso de intervenciones efectivas en indicaciones en las que los beneficios para el paciente son prácticamente nulos y en ocasiones incluso generan efectos negativos. Obviamente, para el sistema sanitario y la sociedad que destina los recursos necesarios, el coste oportunidad derivado de este tipo de actividad es sustancial.

So many years talking about it and nothing happens...

Great report, something should be done.
 Angulo-Pueyo E, Seral-Rodríguez M, Ridao-Lopez M, Estupiñán-Romero F, Martínez-Lizaga N, Comendeiro-Maaloe M, Ibañez-Beroiz B, Librero-López J, Millán-Ortuondo E, Peiró-Moreno S, Bernal-Delgado E, por el grupo Atlas VPM. Atlas de variaciones en la práctica médica en utilización de procedimientos de dudoso valor en el Sistema Nacional de Salud, 2017. Marzo 2020; Disponible en: www.atlasvpm.org/atlas/desinversion-2017

PS. Some books I'm waiting for.

Fighting against techno-eugenics

A Chinese scientist who shocked the medical community last year when he said he had illegally created the world's first gene-edited babies has been sentenced to three years in prison by a court in southern China.
He Jiankui announced in November 2018 that he had used a powerful technique called CRISPR on a human embryo to edit the genes of twin girls. He said he modified a gene with the intention of protecting the girls against HIV, the virus that causes AIDS. Many scientists expressed concerns about possible unintended side effects of the genetic changes that could be passed down to future generations.
Last fall, He also indicated there might be another pregnancy involving a gene-edited embryo. The court indicated that three genetically edited babies have been born.
The closed court in Shenzhen found He and two colleagues guilty of illegal medical practice by knowingly violating the country's regulations and ethical principles with their experiments, Xinhua news agency reported. It also ordered He to pay a fine of about $430,000.

Such unethical medical behavior is the worst news of 2019. And this article explained last June the reasons:

The link between CCR5 and HIV is fairly well studied. Disabling CCR5 removes the doorway HIV uses to enter and infect cells, but it does so only for some strains of HIV; there are others that don’t need CCR5. Further, the genetic sequence He’s edits produced does not match this well-studied variant of CCR5; in fact, it has never been observed in humans or animals. In other words, no one has any idea whether the variant with which Lulu and Nana are now living will affect HIV immunity or anything else.
That’s a key issue: Genes don’t do just one thing. Most illnesses and traits are influenced by dozens, hundreds, even thousands of DNA variations. Each of our roughly 20,000 genes is linked to many different aspects of our physiology and health. So what else does CCR5 do? A variant that provides protection against HIV also seems to increase susceptibility to a number of more common diseases, like flu and West Nile virus.
CCR5 has also been linked to brain function, which led to some sensational headlines and media speculation that the gene-edited babies might have enhanced brains. There are likely myriad other processes to which CCR5 contributes that we don’t know about yet. To that point: before the recent study, no one had researched whether the CCR5 mutation resulted in better or worse health over a person’s lifetime.
The CCR5 story illustrates a flaw in the logic that underlies gene editing. Efforts to change one gene to affect one illness in a future person ignore the fact that health is the result of infinitely complex interactions within and outside a person’s body. In most cases, the presence or absence of a particular genetic variant is not the sole determinant of a disease or condition.

And this article reminds us that, despite the appearance of agreement, ethical questions that have surrounded human germline editing for years have yet to be properly addressed.

Unnatural Selection: Season 1 | Main Trailer | Netflix

The challenges of medical practice variations

Medical Practice Variations

The title of this post is not original, it is really from a book published in 1990, 27 years ago! And Wennberg started such research on the 70's. What is new is the book "Medical Practice Variations" released last year. After all these years concerns have spread, methodological improvement is huge, and unfortunately evidence says that practice still shows wide range of variability. This is the main concern, what to do about it.
The description is excellent, 23 chapters and 527 pages reflect an effort of many years of several projects on the issue. A must read is the chapter 4, p. 53 by Enrique Bernal and his team: Medical Practice Variations in Elective Surgery. Variations may harm and produce waste, therefore understanding how to prevent low-value care is crucial. They say:

Two key steps in reducing low-value care, proposed by García-Armesto et al. (García-Armesto et al. 2013), are the following:
• Identifying those technologies ineffective in their usual indications or less effective than alternatives
– Dropping them from the benefits basket or making them subject to avoidable copayments
– Restricting indications to certain types of patients (choice guided by evidence of positive benefit/risk balance)
– Specifying and limiting the types of providers more suitable to offer each service (therefore substantiating indication becomes a requisite, discouraging irrelevant use)
– Capping the frequency or length of treatments
• Producing and making available guidance on a regular basis to reduce inappropriate use of procedures
– Highlighting and tackling unwarranted variations in elective surgery (naming and “shaming” to prompt query and change)
– Fostering best practices and improving coordination of care

As I said, a must read. Congratulations to the authors. Unfortunately the barrier is the price: $279. Notwithstanding that, health policy makers and managers should have it as a key reference for their decisions.

PS. If you want to know more about current projects, check the ECHO  website.

Practice makes perfect

Comparing hospital performance within and across countries: an illustrative study of coronary artery bypass graft surgery in England and Spain

My concern over variations in clinical practice relies on a specific issue. Once you've describe it, you need to understand its implications. Thus, somebody should assess whether variations cause poor health outcomes. Before starting such a task, somebody has to measure relative performance, and this is precisely what a recent article in EJPH does on CABG surgery in England and Spain. I would like to highlight this statement:

In this article, we use patient-level data within and between two countries to assess the added value of pooling administrative data across countries and to explore hypotheses that may explain differences such as those reported in cardiac care. These may be driven by a small number of hospitals with unacceptably high mortality rates (perhaps due to coding differences or under-performance). Otherwise, country differences in outcomes may be explained by the concentration of services into specialist centres with differences in clinical facilities and staff experience, as reflected by hospital volume of surgery. These hypotheses cannot be tested adequately using within-country data or national aggregates, but lessons may potentially be learned from hospital-level comparisons across countries using comprehensive administrative data.

If we focus on performance, national aggregates confound. And this is focus of the article:

Unadjusted mortality rate following CABG surgery demonstrates a considerable difference between hospitals (particularly in Spain) and between countries (average mortality is 2.3% in England, 5.0% in Spain)

After adjusnting and pooling data from both countries, then results look different:

First, the hospitals’ performance contrasts substantially with the traditional within-country findings. Nine Spanish hospitals are identified as ‘alarms’ in the pooled assessment compared with five in the country-specific assessment. Thirteen Spanish hospitals are additionally identified as ‘alerts’ that were within the normal range when considering Spain alone. Four English hospitals are now identified as alerts and none is assigned alarm status. Second, there is a clear separation in the number of expected deaths between English and Spanish hospitals, reflecting differences in volume across countries. The median hospital surgical volume in Spain is 154 patients a year, compared with 690 in England, and the highest volume hospital in Spain treated 337 patients in 1 year, whereas the lowest volume hospital in England treated 327. Third, despite the large overall between-country difference, the vast majority of hospitals in England and around a third of those in Spain lie within or below the 95% funnel and are largely comparable in terms of their SMR.

This is an excellent explanation of "practice makes perfect" argument. And, if this were the only factor, there is a compelling reason to concentrate CABG surgery in certain hospitals and close services in others. We know that some concrete hospitals may have high adjusted mortality rates and deserve a concrete action. Urgent decision is needed, just to reduce mortality ratio by half.

PS. The whole issue on variations in EJPH represents a milestone in health services research. Congratulations to the authors and the ECHO project.

PS. GCS blog on the same topic.

PS. New book available: The Triple Aim for the future of health care by Núria Mas and Wendy Wisbaum

Unwarranted variations, what's next?

Geographic Variations in Health CareWhat Do We Know and What Can Be Done to Improve Health System Performance?

We all know that there are unwarranted variations in health care. Unfortunately we haven't the same analysis about the drivers and its impact on health outcomes for such variations. OECD has just released a report on this topic, and suggests the following:

Eight types of policies might be envisaged:
• Public reporting on geographical variations, in order to raise questions among stakeholders and prompt actions, particularly in “outlier” regions.
• Setting targets at the regional level can support public reporting and help promoting  appropriate use.
• The re-allocation of resources to increase (or reduce) supply of resources (e.g., beds, doctors) in regions with low (or high) utilisation rates.
• Establishment and implementation of clinical guidelines in order to promote greater consistency in clinical practice.
• Provider-level reporting and feedback to improve clinical practice and discourage unnecessary provision of health services.
• Changes in payment systems to promote higher (or lower) use when there is high suspicion of underuse (or overuse).
• The measurement of health outcomes, to promote greater consistency in clinical practice that ensures improved patient outcomes.
• The utilisation of decision aids for patients, to promote more informed decisions about benefits and risks of various interventions, and to better respond to patient preferences.

These proposals fall short in my opinion. After a decade of publishing information on variations, public reporting has not raised deep questions for "stakeholders", at least as far as I know. Incentives have not changed substantially in order to reduce differences in utilization. Current payment systems require a redefinition from scratch in order to take into account such issues. Any citizen should be concerned about the results of the report. Something should be done.

PS. By the way, regarding OECD recommendations, they have not explained clearly what Wennberg suggested: shared decision making

PS. Bad journalism at LV. Why CAC doesn't care about complaints on written press.

Ferrando at Galeria Barnadas

Drivers of health cost variation

Variation in Health Care Spending:Target Decision Making, Not Geography

Variations in medical practice are well known and documented. Variations in costs, not so much, at least in our country. Now you can check what happens to geographic cost variations in US. Have a look at IOM report and you'll get the right approach to the issue:

Geographically-based payment policies may have adverse effects if higher costs are caused by other variables like beneficiary burden of illness, or area policies that affect health outcomes. Further, if there are substantial differences in provider practice patterns within regions, cutting payments to all providers within a region would unfairly punish low cost providers in high-spending regions and unfairly reward high cost providers in low spending regions.

A clear alert for any designer of payment systems. The Economist adds more details on this topic and finishes with an additional alert:

The transition from fee-for-service will inevitably be slow. In the meantime, it would help if the millions of Americans with private insurance had any idea what hospitals charge. In May CMS published hospitals’ price lists, showing huge gaps from one hospital to the next. But few patients pay these charges—it would be more useful to know the rate negotiated with their insurers. This transparency does not require restructuring the health system. It just requires hospitals to lift the veil on prices. If they don’t, a regulator may do it for them.

PS. For those that claim that our tax pressure is low. Have a look at taxes over labour costs (41,4%)  OECD average 35,6% (2012), why this figures are not broadcasted? The medium is the message? Who controls the medium? Does anybody consider that competitivenes is possible with such rates?

El professionalisme en la seva màxima expressió

Choosing Wisely. Helping Physicians and Patients Make Smart Decisions About Their Care
Fa poc em demanaven que m'expliqués millor sobre el professionalisme. Els que llegiu aquest blog ja sabeu que em refereixo a tres grans opcions per a millorar l'eficiència: Estat, mercat i professionalisme. Es tracta d'opcions no excloents, sino que són complementàries, només cal triar tant sols la dosi acurada. I precisament en la dosi és on ens podem passar de frenada o quedar-nos curts.
I en referència al professionalisme, ara fa 10 anys que l'American Board of  Medicine va publicar Medical Professionalism in the New Millennium: A Physician Charter. Cal recordar el que diu al principi:

Professionalism is the basis of medicine's contract with society. It demands placing the interests of patients above those of the physician, setting and maintaining standards of competence and integrity, and providing expert advice to society on matters of health. The principles and responsibilities of medical professionalism must be clearly understood by both the profession and society. Essential to this contract is public trust in physicians, which depends on the integrity of both individual physicians and the whole profession.

At present, the medical profession is confronted by an explosion of technology, changing market forces, problems in health care delivery, bioterrorism, and globalization. As a result, physicians find it increasingly difficult to meet their responsibilities to patients and society. In these circumstances, reaffirming the fundamental and universal principles and values of medical professionalism, which remain ideals to be pursued by all physicians, becomes all the more important.

The medical profession everywhere is embedded in diverse cultures and national traditions, but its members share the role of healer, which has roots extending back to Hippocrates. Indeed, the medical profession must contend with complicated political, legal, and market forces. Moreover, there are wide variations in medical delivery and practice through which any general principles may be expressed in both complex and subtle ways. Despite these differences, common themes emerge and form the basis of this charter in the form of three fundamental principles and as a set of definitive professional responsibilities.

I els tres principis:

Principle of primacy of patient welfare. This principle is based on a dedication to serving the interest of the patient. Altruism contributes to the trust that is central to the physician–patient relationship. Market forces, societal pressures, and administrative exigencies must not compromise this principle.

Principle of patient autonomy. Physicians must have respect for patient autonomy. Physicians must be honest with their patients and empower them to make informed decisions about their treatment. Patients' decisions about their care must be paramount, as long as those decisions are in keeping with ethical practice and do not lead to demands for inappropriate care.

Principle of social justice. The medical profession must promote justice in the health care system, including the fair distribution of health care resources. Physicians should work actively to eliminate discrimination in health care, whether based on race, gender, socioeconomic status, ethnicity, religion, or any other social category.

Doncs bé, ara més que mai crec que el professionalisme ha de suplir l'ineficàcia de l'Estat i els desequilibris del mercat per tal de resoldre les dificultats del sistema de salut. Ho ha de fer ajustant-se a aquests principis i cal aplicar-los en totes les seves implicacions. Quan el dilluns a Els Matins de TV3 preguntaven sobre els pacients que demanen als metges que els precriguin medicaments, la resposta ha de ser només una, aplicar els tres principis, i si no afegeix salut, no cal prescriure perquè ja s'ha saltat el primer. Una actitud condescendent o que hi ha poc temps per visita, esdevenen excuses allunyades d'aquests principis.
Des del JAMA, m'han donat la pista per aquesta reflexió, i aquest primer paràgraf el podeu aplicar també per al nostre país, encaixa la mar de bé:

The polarizing political environment makes it difficult to conduct rational public discussions about this issue, but clinicians and consumers can change the nature of this debate to the potential benefit of patients, the medical profession, and the nation. The initial focus should be on overuse of medical resources, which not only is a leading factor in the high level of spending on health care but also places patients at risk of harm.

PS. En economia de la salut aquest tema del professionalisme es tracta malauradament d'esquitllada. L'econometria cau lluny i per parlar d'eficiència és més còmode pensar en metodologies (DEA et al.) que en decisions clíniques professionals que resulten difícils de modelitzar. Ens caldrà fer un esforç a tots plegats per canviar la situació.

PS. Per tal de conèixer millor què són les Health Insurance Exchanges, mireu aquest blog, el dels estudiants de la BGSE.

PS. Aquells que no vau poder seguir la meva intervenció a Els Matins de TV3, la trobareu aquí.