The size of waste in health expenditure and what to do about it

Tackling Wasteful Spending on Health

OECD is preparing the annual meeting for next Tuesday, and this week has released a report on what to do with waste in health expenditures. Recognising that we have a problem is the first step to define a solution. The report shows the reasons, the categories of waste and the policy and management approaches. The agenda for health policy makers is getting larger. Highly recommended reading for this weekend.

Four main reasons can explain why individual actors might contribute to wasting resources:
● First, they do not know better: cognitive biases, knowledge deficits, risk aversion and habits lead to suboptimal decisions and errors and deviations from best practice.
● Second, they cannot do better: the system is poorly organised and managed and co-ordination is weak. In these first two situations, for the most part, actors do not intend to generate waste and are doing their best but the outcome is suboptimal
● Third, actors could stand to lose by doing the right thing; this occurs when economic incentives are misaligned with system goals – for instance, when clinicians are paid for providing services irrespective of whether the services add value.
● Fourth, all categories of actors might generate waste intentionally, with the sole purpose to serve their self-interest. This last driver is in fact a variation on the third (poor incentives) but it more  explicitly points to fraud and corruption.

Three categories of waste:
● Wasteful clinical care covers instances when patients do not receive the right care. This includes preventable clinical adverse events, driven by errors, suboptimal decisions and organisational factors, notably poor co-ordination across providers. In addition, wasteful clinical care includes ineffective and inappropriate care – sometimes known as low-value care, mostly driven by suboptimal decisions and poor incentives. Last, wasteful clinical care includes the unnecessary duplication of services.
● Operational waste occurs when care could be produced using fewer resources within the system while maintaining the benefits. Examples include situations where lower prices could be obtained for the inputs purchased, where costly inputs are used instead of less expensive ones with no benefit to the patient, or where inputs are discarded without being used. This type of waste mostly involves managers and reflects poor organisation and co-ordination.
● Governance-related waste pertains to use of resources that do not directly contribute to patient care, either because they are meant to support the administration and management of the health care system and its various components, or because they are diverted from their intended purpose through fraud, abuse and corruption

Four categories of policy levers are relevant:
● Economic and financial incentives that seek to influence the behaviour of patients,
clinicians or managers; these are most relevant when poor incentives are the root cause
of the wasteful behaviour.
● Behaviour change policies and information support – including education, persuasion
and training – to address barriers to optimal decisions.
● Organisational changes, which include policies that modify the location, role, number,
co-ordination and tools available to accomplish specific tasks of various stakeholders.
● Regulations to mandate changes in behaviour, organisation or information.

In my opinion this report has extremely useful hints for policy makers, and should be in their toolkit. 

 Hergé-Tintin Exhibition au Grand Palais jusqu'a dimanche

A review of 30 years of UK Health Policy

The Politics of Health Policy Reform in the UK: England’s Permanent Revolution

Three decades of health policy in UK explained in one book. This is what you'll find in the latest contribution of Calum Paton. It is a must read for any health policy maker, specially for those that considered UK NHS as a benchmark. There are hard statements to be considered. I have selected the following ones:

This book has been concerned with explaining politically why irrelevant solutions have been ‘the story’ in England, as regards health policy. So, at one level, the response could be, ‘So what? Yes, a lot of money has been wasted; now, let’s move on.’ This of course is the politician’s response.

Health policy in England over the last 25 years has been dominated by ideologically rooted policy salesmen, based either in think-tanks funded by private interests or operating as part of ‘sofa government’ in health policy (Paton 2012 ) and this has blurred the distinction between the public interest and private interests. There has been no countervailing advocacy of equal weight in defence of the public interest (defined here as an attempt to derive the interest of the whole community or nation rather than private beneficiaries).

The ‘rational’ interpretation of policy-making suggests to the present author, as described above, that policies are developed as means to an end, and that this ‘end’ consists in the solution to a problem which is generally accepted to be salient in the sense that a solution is necessary

Lens 1 Rationality
Lens 2 Pluralist Rationality
Lens 3 Power Elite; Structural Interests; Ruling Class
Lens 4 Garbage Can
Lens 5 Ideology; ‘radical’ power; ‘discourse’
Unifying lens: explaining 25 years

The political result of persistent English NHS upheaval is to weaken the legitimacy of the English NHS. The public, by a slow osmotic drip, comes to think that there must be something intrinsically wrong if the NHS is always being reformed, and if politicians, their advisers, and the media are persistently hand-wringing about it. As argued above, once an ill-thoughtout reform is set in motion and not ‘nipped in the bud’, it takes on a logic of its own. Reform begets reform—in part to repair mistaken initiatives from the previous round, and in part to make new initiatives, in the belief
common to both ‘managerialism’ and ‘market ideology’ that there is a better alternative out there.
This is not an argument against any reform at any time: it is an argument for more rationality in reform. Yet, it may plausibly be argued, I have presented a compelling case as to why such rationality has been absent from the trajectory of English health policy reform.

Taking politics out of the NHS would be to take politics out of politics. The answer is unspectacular and by no means a ‘silver bullet’ to solve the problem: the answer lies in a cultural change in terms of how politics, and in particular so-called public service reform, is viewed and practised.

The idea of taking politics out of the NHS has been shown to be a vain pursuit: every committee of the great and the good, and every report by an external ‘worthy’, proposing such comes to nought.

What is required to establish a health reform, or ‘anti-reform’, along the lines proposed above is something very different. It requires a consensus that health policy and the NHS do not benefit from market initiatives and ‘public service reform’ as a code for the market, whatever may be the case in the wider economy. In other words, one can be a believer in free markets and free trade, yet draw a line when it comes to health and some other public services, such as railways, which are either ‘natural monopolies’ or have other special characteristics.

I think that this kind of analysis is really welcome in a society that focuses on immediate issues and it is uncapable to understand the whole process that takes to long time to be built. For me, Calum Paton (for UK) and John McDonough (for USA) are my key references to understand health policy. Unfortunately, close health policy makers are far from using them.

PS. On the health reform industry:

The challenge for health policy analysis—which actually should mean the analysis of healthcare politics, an inconvenient truth which is itself often ignored—is often more to demolish fashionable, faddish, and foolish ‘new orthodoxy’ (if one can accept the oxymoron) than to propose some new policy ‘solution’. The problem is that ‘solutions’ are sexier, and also form the basis for an industry which sustains not only management consultants and private profiteers but also academics, think-tankers, and political advisers who combine punditry with policy proposals, to the delight of politicians
who are seeking their very own monument in the form of a ‘reform’.

The reform industry, including health policy academics, has in some cases spent more than 25 years proposing and advising on reforms which ‘dis-integrate’ the NHS only to come late to the table of integration.

Revisiting efficiency measurement

Health system efficiency: How to make measurement matter for policy and management

A new book by WHO Euro has been published about efficiency measurement. It seems that this is a topic that would need a review and update. Unfortunately you'll not find any new message. Regarding output measurement, you'll find this statement: "QALYs are in principle a widely accepted outcome measure". I'll not comment again about it. QALYs are controversial, and you may find many posts in this blog on this topic. Therefore, this is a book you can skip reading it. You have to revisit efficiency measurement but with a different book.  In order to make measurement matter for policy and management, we do need a robust measurement toolkit. Right now there is too much noise to understand the message.

The Voltaire of health economics

MAYNARD MATTERS
Critical Thinking on Health Policy

For any health economist, Alan Maynard is a reference. We've been reading his contributions for decades and now we can read a book (free to download) that has two parts. The first shows different views of his role on health economics and policy,  while the second is a selected collection of articles and book chapters.
I would like today to highlight what Rudolf Klein says about what he calls "The Voltaire of Health Economics":

I am sceptical about some of the claims to special policy wisdom of economists operating in
the health field. Too many, I find, seem to have a naive faith in QALYs, reflecting methodological innocence and an unreflective utilitarianism. Too many, in my view, appear to think that evidence should guide policy action in situations where only policy action can produce the evidence. Too
often I find myself bemused by statistical wizardry, wondering whether the inevitable simplifications required by modelling don’t exclude crucial dimensions of a complex world

The reasons for my admiration stem from Alan’s specialcombination of energy, moral drive and irreverence.  

Alan is a moralist. For him a failure to act on – or, if need be, generate – the evidence for a policy intervention is an ethical failure. So identifying what interventions give the “biggest bang for the buck” is the moral obligation of all policy makers. He sees a reform of the NHS, or indeed of any health care system, “as an experiment on fellow citizens”, which has to be justified and undertaken responsibly, and not on some ideological whim.

I agree absolutely on Rudolf Klein views.
In chapter 13 you'll find a book chapter "Health Economics: Has it fulfilled its
potential?" that is abstracted by the editor's with this words:

Whilst Maynard argued strongly for the importance of generating and using cost-effectiveness data in decision making, he was concerned that this had encouraged an industry of health economists rolling out economic evaluations. The victory of the health economics perspective in how to ration health care resources led to health economics becoming the slave of the cost-effectiveness industry, feeding regulators such as NICE and also the pharmaceutical and device manufacturers seeking to get their products approved and funded. This distorted the role of health economics and only used a small part of the full repertoire of perspectives and techniques that economics could apply to health and healthcare problems. He argued here that health economists need to keep a strong link with economics as a discipline and apply themselves to a wider range of problems such as supply and demand, the workforce, incentives and behaviour change, pricing and equity.

 As the front page says:

Brilliant, irreverent and almost always right – essays by a sceptical health economist who changed the way we think about policy

A must read.

PS. The best books of 2016 by FT

The two friends story

THE TWO FRIENDS WHO CHANGED HOW WE THINK ABOUT HOW WE THINK

Sunstein and Thaler provide an excellent review of a unique book by MichaelLewis in New Yorker. This is my suggestion for reading today.

Healthy lifespans are improving, do we know why?

Understanding the Improvement in Disability Free Life Expectancy In the U.S. Elderly Population

If you want to know the reason behind the improvement of healthy life expectancy in US, then you have to read this chapter.  Three fundamental conclusions:

First, we show that healthy life increased measurably in the US between 1992 and 2008. Years of healthy life expectancy at age 65 increased by 1.8 years over that time period, while disabled life expectancy fell by 0.5 years. Second, we identify the medical conditions that contribute the most to changes in healthy life expectancy. The largest improvements in healthy life expectancy come from reduced incidence and improved functioning for those with cardiovascular disease and vision problems. Together, these conditions account for 63 percent of the improvement in disability-free life expectancy. Third and more speculatively, we explore the role of medical treatments in the improvements for these two conditions. We estimate that improved medical care is likely responsible for a significant part of the cardiovascular and vision-related extension of healthy life.

And this is what I said two years ago in this post with Catalonia data:

Fortunately, new data about recent trends has been published and we can confirm that has increased over a period of 7 years, between 2005 and 2012 from 63 to 65.7 years for men and from 60.6 years  to 66.1 for women . In women the proportion of years lived in good health has gone up by 5 percentage points, from 72 to 77 % in men and has increased only one point from 81 to 82 %. In any case, in marginal and in absolute terms there is a substantial improvement . Nobody would have been able to foresee changes of this magnitude.

Unfortunately we don't know why.

PS. This is the post number 1.000 of this blog. Up to now, the visits reached 166.899. Thank you for your loyalty.

 Ramon Casas exhibition in Sitges

Simplistic arguments on healthcare cost growth

Technology Growth and Expenditure Growth in Health Care

After all these years of great recession, there is an argument that should be reviewed. There was a consensus that technology and ageing were forces that would increase costs. Today, we know that costs have stagnated and we are spending less resources over GDP than 7 years ago. Therefore, something has happened that requires an assessment. Maybe a delay on the introduction of innovation, maybe an increase in productivity, maybe a reduction in its costs/prices, we don't know it. Therefore health costs are not predestined to grow forever.
This is exactly what this article said about it:

Attributing cost growth and improvements in outcomes to “technology growth” is too simplistic and tells us little about where the cost growth is occurring, whether such growth should be tamed, and if so, how it should be done

 The key point is that U.S. growth in health care costs is neither inevitable nor necessarily beneficial for overall productivity gains. Instead, cost growth is the  aggregated outcome of a large number of fragmented decisions regarding the use and  spread of both old and new health technologies.

There is wide heterogeneity in the productivity of medical treatments, ranging from very high (aspirin for heart attacks and surfactants for premature births) to low (stents for stable angina), or simply zero (arthroscopy for osteoarthritis of the knee).

Why organizations are such a mess?

Many years ago I attended to a PhD course on Organizational Economics by Robbert Gibbons, from MIT. I still remember the title of one of his papers "Why organizations are such a mess". I found it really suggestive, because in a world of transaction costs the choice between organizations and markets is a difficult one, and Gibbons was trying to disentangle it. Later he coordinated the Handbook of Organizational Economics and contributed decisively to the development of the discipline. Last September he came back again at Universitat Pompeu Fabra and gave the annual lecture. It is an introduction to the key issues of organizational economics, highly recommended (starts at minute 12):

The farce of confidential drug prices

We are approaching the end of cost-effectiveness as we have known. If you can't use the price of the drug because it is confidential, then there is no possibility of cost-effectiveness analysis. As far as Pfizer has sued a public agency because its officials have leaked the prices, then everybody that uses such information is at risk of being sued. I had already said that some time ago, when in our country we moved to confidential prices. This trend is ridiculous, getting better discounts comes at the price of opacity. And opacity is an extraordinary arm to prevent competition and constrain prioritisation. Qui prodes? It's up to you to get the answer, for me it's clear. If money comes from taxes, the citizens have to know the final price paid. The time to finish such farce has come.

PS. On why external reference pricing is meaningless (p.36):

The practice of lowering list prices through discounts, rebates and similar financial arrangements15 between public payers and the MAH is wide-spread. 22 countries reported that discounts, rebates or similar financial arrangements (e.g. managed-entry agreements such as risk sharing schemes) – either statutory (i.e. based on a law) or confidential (based on agreements) – are in place. As will be discussed later in more detail (cf. Chapter 4.1.2), the widespread use of the discounts and similar provides financial benefits to the country using it, but the other countries referencing to that country do not benefit from the lower prices since they refer to undiscounted higher prices.

Rembrandt. Self portrait

Current exhibition in Caixaforum - Barcelona



In Memoriam of Thomas Schelling

Thomas Schelling: Game Theory, Cold War, Coordination, Leadership, Tipping, Focal point...

Eleven years ago, Thomas Schelling was awarded with the Nobel Prize, 4 days ago he died. It is not often that one man has such a profound impact on the world and the field of public policy. In this blog I have devoted some posts to him: Statistical life vs. identifiable life, Els pirates dels medicaments s'escapoleixen, Validesa i utilitat de les proves genòmiques.  Basically, all of them were related to his main contribution: The Strategy of conflict, a must read book for all people interested in negotiation. Today, the best thing you can do is to read Josep M. Colomer and his post on Schelling, it fits perfectly with his contribution and message, excellent post.

 Cubism and war. Picasso Museum exhibition in Barcelona

In search for the right approach to risk adjustment

Comparison of the Properties of Regression and Categorical Risk-Adjustment Models

Measuring risk-adjustment is crucial for avoiding risk selection incentives. Up to now, regression models have prevailed over categorical ones. However, such difference is often misunderstood or forgotten. A new article explains with all the details the comparison between both approaches.
The summary:

Regression and clinical categorical models represent very distinct approaches to risk  adjustment. Users must carefully choose the model that best suites the intended application. Although clinical categorical models have many advantages in terms of communication, transparency, and stability, their initial development requires a  significant effort and clinical input. Regression models usually require less initial development effort but are unstable in a changing environment and fail to provide the same degree of communication value and transparency

Great work by Fuller et al. Though I fully support the categorical approach, my impression is that beyond such options, there are also alternatives that may fit better with morbidity data: mixed models  (grade of membership). The following book explains the details (chap 17).

 

PS. R package

PS. Nowadays, unfortunately our government has lost its way regarding the design of the appropriate incentives in healthcare payment systems. The impact in the efficiency is huge, but nobody cares about it. There is a current effort to lie systematically in our post-truth era.

Hiding money in a neo-feudal world of concentrated wealth

The Panama Papers: Breaking the Story of How the Rich and Powerful Hide Their Money

There is a fight between State and wealthy people, and the outcome depends on the threshold of the cost-benefit of tax evasion. The Panama papers show that by now this threshold is quite low, benefits are higher than costs. My impression is that lobbys are successful in their effort to suggest rules that allow hiding money with a relatively low cost. After reading the book you'll be convinced about that. Therefore, it's a success of wealthy and a failure of the State. Is there are any alternative?

The more than 2.6 terabytes of data from the servers of the Panamanian law firm Mossack Fonseca provide an insight into the offshore world that is more detailed, immediate and up to date than anyone could have previously imagined. Over the course of many months we have seen with our own eyes how Mossack Fonseca has a tailor-made solution for virtually anyone with something to hide. The right loophole can always be found in one or other of the tax havens: if the company in the Seychelles can’t do it, then the Panamanian trust or the foundation in Bermuda probably can – or alternatively a combination of two, three or four of these elements. In our globalized world it seems there is hardly a single law that cannot be circumvented or have its impact lessened with the help of a few shell companies.

My impression is that Panama papers have increased the tax evading cost, but I'm not sure that this will be enough in our neo-feudal world of concentrated wealth.

Motivated bayesians or classical bayesians

Classical Bayesians will both seek out the most informative evidenceand process it in an unbiased way. However, motivated bayesians gather and process information before and during the decision-making process and they tend to do so in a way that is predictably biased toward helping them to feel
that their behavior is moral, honest, or fair, while still pursuing their self-interest. This is the definition in an interesting article in JEP, and this is the summary:

First, we argue that people often form self-serving judgments of what, exactly, constitutes fair or moral behavior or outcomes. When there is some flexibility in interpreting what is “right” and “wrong” or “moral” or “immoral,” people’s judgments of the morality of an act are often biased in the direction of what best suits their interests. Second, we argue that a similar but distinct phenomenon occurs when people actually alter their judgments of objective qualities—such as their own abilities or the quality of competing options—as a way of making egoistic behavior appear more moral. Finally, we argue that motivated Bayesian reasoning in moral decision making has important implications for many behaviors relevant for economics and policy. In domains including
charitable giving, corruption and bribery, and discrimination in labor markets, the ability of people to pursue egoistic objectives while maintaining a belief in their own morality has important consequences for their behavior.

We argue that an underexplored element in much of this research is the frequent tendency of decision makers to engage in motivated information processing—acting as motivated Bayesians—thereby resolving the apparent tension between acting egoistically and acting morally. Individuals’ flexibility and creativity in how they acquire, attend to, and process information may allow them to reach the desirable conclusion that they can be both moral and egoistic at the same time.

The article is full of examples and you can add more evidence with this case nowadays in the press. At the end of the article, ask yourself if you are a motivated or classical bayesian, or maybe both according to context...

PS. Must read post on private and public health in India.

Duchamp exhibition in Barcelona, until January.

Healthcare and financial markets

The next act in healthcare private equity

Mckinsey has released a short article that allows to understand recent profitability of healthcare in US financial markets. These exhibits speak by themselves: (Exhibit 1)

Exhibit (2)

and (Exhibit 3). 
Take a breath and think twice about what's going on.