Thursday, March 12, 2009

_____ Effectiveness

I tried to post this yesterday before a meeting. I got bumped from the web and was not able to post. Now, I'll post this and later today another entry thinking about different types of analyses.

I am about to attend an afternoon meeting on comparative effectiveness. For those who are not familiar with he medical terminology, here is a brief primer. I will try to explain the difference between clinical effectiveness, comparative effectiveness, and cost-effectiveness. The United States has historically largely relied on clinical effectiveness research for guiding policies about whether products like pharmaceuticals or medical devices should be approved and covered. I will argue that we need to be concerned more about cost-effectiveness. Comparative effectiveness is a nice in-between step.

Clinical effectiveness could be defined as the result of research in which a new drug, device, or intervention is compared with doing nothing. This is usually referred to as a placebo in drug research. The key here is that the product can then be called effective if it changes a clinical outcome. It becomes one of many things that are available for providers and patients to choose to use when a patient has a medical condition that needs to be cured or at least to have the symptoms controlled.

Comparative effectiveness has numerous definitions. The one that seems to be used by the National Institutes of Health in the United States at the moment focuses on figuring our which treatment (among many that many have undergone clinical effectiveness research) is most effective. This involves comparing treatments with one another rather than comparing treatments with nothing or a placebo.

Cost-effectiveness (and in a later entry I can provide details on the many interpretations of cost-effectiveness) allows us to address questions of which treatment provides the best value. This may be the most effective from a comparative effectiveness analysis. It may also be one that is among the effective but not most effective if the most effective product is also highly expensive. Some products may be so expensive that their added effectiveness is not worth the spending.

So we have relied on simply making sure that a product is effective to make drugs available. We need to move toward a system where the value is systematically assessed to ask whether we should be spending money on particular options. This is one way in which we might control costs. There are others. The key is that we need to control costs and head to head comparisons among alternatives to determine which is most effective is just the start.

Tuesday, March 10, 2009

Electronic Heatlh Record

An idea that is getting more attention is the electronic health records. I received an email today about a study suggesting that these are being "underused" in comparison with their potential. The authors raised four points, and I will focus on two: portability and who has control.

I have been with one employer long enough and my family has been satisfied with our health insurance long enough to say that we have been with the same health plan for 13 years and don't plan on changing any time soon. That situation is not unusual historically in the United States but may be more unusual in the future. If electronic health records are to be useful, there will need to be a degree of portability introduced. Even if not every insurer or health system uses exactly the same form, some way of exporting data from one system and importing it into another system would seem to be a necessity. As with many things in the health care system, this would require coordination. Either each insurer or system would have to find it profitable to provide portability or there would have to be regulation imposing portability. While all insurers and systems would presumably like portability into their systems they would seem to have little use for providing portability out of their system--unless they would see it as useful to attract people who might value potential portability--while always hoping to keep people in their own system. So, there may be a need for regulation in order to provide the impetus which self-interested incentives do not.

For the control over the data, many would argue that the consumer should have control of information about themselves. The key is to figure out what having control of their data means. Does it mean having control over who gets access? Does it mean having access oneself? Does it mean being responsible for keeping the data? While there are many problems that we have with data security as provided by (or failing to be provided by) commercial firms, it is easy to imagine that a person put in charge of their own data could be even more problematic. It could be lost. For password protection, people often make poor choices.

The key would seem to be to provide insurers, health systems, and individuals with economic incentives to collect, make transferable, and protect health information.

Sunday, March 8, 2009

Obesity Policy

The Governor of New York proposed a number of initiatives to try to decrease obesity. This, of course, is a reasonable thing to want to do. The key economic question is whether this is likely to help the state. Why would that be a question? Well, people who are health can spend more on health care in the long run. That has been shown in a number of studies. Of course, in any year when a person is healthier they will spend less—on average. However, people who are not overweight can live longer and die of things that take longer to kill them.

Second, even if the state were to save money on the care of these individuals, they still have to spend money to being about the changes. The key is that the spending on the solution has to be compared with the savings that will accompany the solution.

Posting calories at all chain restaurants is the most questionable recommendation. It has been pointed out by others before me that if consumers want this information it is available in some cases already. Further, if consumers want this information they could favor restaurants that already provide the information. Really, it is just not clear how closely people are thinking about calories when they go to chain restaurants. At some chains, they are mostly looking for speed. At other chains, they are looking for other aspects off the experience.

So, is this really what consumers want to think about when they go to chain restaurants? Interestingly, the governor suggested a tax on sugared beverages. If a public policy maker really wanted to try to shift people away from higher calorie foods, then maybe the suggestion should be to place an extra tax on chain restaurants. That would get people to think about how they use time and money together to get the nutrition they need and maybe shift them toward more homemade more nutritious choices. Although that is no guarantee. And, as an economist, I’d be just as concerned about how extra taxes on chain restaurant foods could lead to market inefficiencies. Yet another alternative would be to make people who are obese more responsible for their own health insurance and health care. But, then we return to the issue of people who can’t afford care in general.

Again, no easy solutions. We just go round and round wondering which solution will cause the fewest problems.

Friday, March 6, 2009

Public policy debate in the United States

I am now concerned that the current administration won't be making public policy much differently than the past administration. I never thought I'd say that. The President has several non-Democrats in his Cabinet. He campaigned on trying to move beyond partisanship. However, I still find myself concerned and here is the reason.

The President held his first health care summit meeting yesterday. It was not until the day before that Rep. John Conyers was invited. Rep. Conyers might have been labeled the "token" single payer representative. Without him being invited the day before, there would have been no representation of the view that a single payer system might be the right one for the country. That would have resulted in a discussion among those with similar views about how to make policy based on that view. Not much different from my take on the way the last administration worked most of the time. Can't we do better?

Now, there are many pros and many cons to a single payer system. We may or may not find that we end up with that as a society--and even if we experiment with that as the base for the system it is likely that those with enough money will always find ways around it.

However, excluding the single payer point of view from the debate is not a good way to make public policy in my opinion. I'm not saying that my own approach to leadership and idea development is perfect--and I'm sure my colleagues would be willing to share the imperfections in my approach. However, I always try to make it clear that I welcome all points of view to the table. I want to be forced to question my assumptions. I want to make sure I have access to all the best ideas. Eventually, some ideas will be set aside--that is a part of life. However, insulting oneself from new ideas before making a decision is not likely to every lead us to the best ideas in a time of crisis.

I hope that we can move toward a policy making process in which everyone gets to at least make their case and is welcome to the table--even if they must eventually be told that their ideas will be put on hold.

Thursday, March 5, 2009

Can we “fix” healthcare and the economy at the same time (assuming we can fix either one)?

On the news this morning, I heard the question asked, “Can we fix both healthcare and the economy?” Some people believe that the government can do little to fix either. But, let’s set that issue aside for the moment.

If we believe that the government has any capacity to fix either, it is critical to address both simultaneously. While the healthcare system is not the direct cause of the current financial crisis, it does account for more than one in every seven dollars in the economy. The system as it exists has been associated with astronomically increasing costs for 40 years. And, the obligations of the federal and state governments to pay for Medicare and Medicaid will only become larger. Even those who do not believe that the government has the capacity to “fix” the health care system have to recognize that the publicly funded obligations that are projected for all levels of government health care financing are not sustainable.

This country needs to make the provision of and payment for care more efficient and cut the growth in costs. Fixing the economy to return to even the rates of growth we had over the past eight years without also finding a way to contain health care costs would only result in delaying the need for dealing with health care. Dealing with both now is incredibly complicated. The present policy response would be shaped by the desire to respond to a combination of problems—a very poor economy and growing health care problems. It would seem better to deal with these in tandem than to deal with the economy now, and later deal with a health care system in greater crisis with less time to correct the incentives that have created problems for decades before the system is truly at a breaking point.

Wednesday, March 4, 2009

Fairness in the US Health Care System

In an earlier entry, I suggested that there might be a need for higher income individuals to pay more for certain aspects of their health care or health insurance. If those with higher incomes are paying more, then those with lower incomes would be paying less. In that case, we could apply the typical label and call health insurance and health care a "means tested" program. Some people may not like this because it implies that not everyone is facing the same price and in a free market the price is set at the market level and everyone faces the same price. I don't deny that is a legitimate concern. And, certainly, it could aruably limit the efficient operation of the market.

However, I offer something else for us all to consider. In the United States, the amount that I pay for health insurance depends on whether I get it through my employer and the rest of my income. An individual who gets health insurance through his employer pays for it with dollars that have not been taxed by the federal or state government. Those who purchase health insurance on their own still pay for it largely with dollars after taxes. So, suppose I get my plan though my employer and pay $100 per month. If I could get the same plan outside my employer (and aside from COBRA laws even that is questionable because groups almost always get a better buy than individuals), I'd have to earn more like $125 dollars, pay 20% in taxes (i.e. $25), and then pay the $100. So, if we can agree that health insurance is just part of compensation and that my total compensation should be the similar wherever I work (a basic idea in a free market system), I'd only use $100 of my compensation (perhaps $2000/month total) when I get insurance through my employer and $125 of my compensation if I have to get it on my own. So, is that fair?

Even among those who are employed, different people pay different tax rates. Higher income individuals pay higher tax rates. So, if one person is paying only 20% of the last dollar earned in taxes and another person is paying 40%, the person paying 40% gets a bigger break. In other words, if those two individuals had to obtain insurance outside their employers but had the same income, both would pay the same amount but the person with the higher tax rate would have had to earn more dollars before taxes to get the $100 after taxes.

In addition, the logic just applied to health insurance premiums can be applied to health care flexible spending accounts. Those with higher tax rates get a bigger break by putting money in these rather than using after tax income to pay health care expenses.

So, fairness is a good thing. In some senses, this is encouraged by the free market--although some would argue that the results of a free market are not fair, this is not the question here. The issue here is that if we think the free market promotes fairness (at least in pricing) then the US health care system right now has a lot of unfairness in it. Making pricing fairer in the US system will result in the advantages in the price of health insurance that are enjoyed both by individuals getting insurance through their employer (relative to individuals who have to purchase health insurance individually) and by higher income individuals (relative to lower income individuals) being taken away.

Tuesday, March 3, 2009

Spending $6 billion more on cancer research

When the President announced his plans for health care in his budget, he announced more spending on cancer research. He talked about his personal experience and the fact that nearly everyone has known someone who is affected by cancer. Providing an additional $6 billion funding for the National Cancer Institute has the potential to relieve a lot of suffering in the long run. The key question is whether this is a good way to spend the money--even if it is "only" $6 billion which seems like a drop in a much bigger bucket at this point in time.

To determine whether it is a good expenditure, we have to ask questions like:

What else could be done with the money?
For how many people will cancer be prevented, found earlier, or treated better?
How much of a difference will it make for those patients?
Will the new treatment/prevetion cost more than what is already available?

There are plenty of other things that could be done with the money--but that is always true. For $6 billion you could insure between 500,000 and 1,000,000 people for one year. We could also implement a number of public health progams that could be implemented aiming at the entire population for that price. Either of those options could have powerful short run effects but likely would not have the same long run effects as a spending money on cancer-related research.

The bigger concern is that cancer is only one type of disease. It affects many peopel and it is a important disease--but so are many others.

There are many ways that patients' quality of life could be improved by preventing cancer, identifying it earlier, or treating it more successfully. But the same could be said of many other conditions.

Finally, many new treatments are more expensive than old ones and may not be immediately cost-effective. If the findings from the proposed increase in reserach do turn out to be important clinical findings--will we have enough money available in the budget to support the implementation of the type of care?

I am not suggesting that we are spending the right amount on research now. I am only suggesting that as we allocate increased resources we consider the balance between (1) using resources for basic research on new prevention, identification, and treatment strategies that will help in the long run (which tends to be what is done at NCI) and (2) using resources to find more efficient ways to provide patient care technologies we already have in the short run.

Monday, March 2, 2009

Costs of Obtaining Blood Donors

What tradeoffs do blood donors face when they act as suppliers in the market for whole blood donation? Personally, I spend a little over an hour of my time. Fortunately, I face almost no risk of adverse events from the experience.

In return, the most obvious things I get are a drink of water while the blood is being drawn, a choice of an additional beverage and snack after I donate, and some type of “goodie”. Most often, the American Red Cross will provide a t-shirt, although I have also received other things including a bumper stick, an apron, a tote bag, and entry in a sweepstakes.

In addition, I receive the satisfaction of knowing that as many as three people will be helped by my donation. I was once told by a friend that she appreciated my donation because without people like me making donations it would have been impossible for her father to survive as long as he did.

The most interesting question is why the American Red Cross feels the need to give a small reward each time. Is that what keeps people coming back? I like to think that I (and most of my fellow donors) would come back simply because we are altruistic. However, the American Red Cross has an incentive to produce its output (whole blood that can be used for patients) at the minimum cost per unit of blood that is obtained assuming that a sufficient number are obtained. There are any number of steps with costs in the production process and donors can be attracted through a variety of forms of advertising as well as through small rewards. If they thought that they could obtain a sufficient number of units through advertising rather than through providing a small reward and it were cheaper to advertise, they would do so. Experience must have indicated that one way of obtaining a sufficient supply at minimum cost is to provide a small reward. Recent behavioral economic studies have indicated that people can be motivated by incredibly small rewards.

Sunday, March 1, 2009

More on the President's Health Policy

In the March 1 Baltimore Sun, an aspect of the President's health plan that I had not noticed previously was reported today in a public interest story. Here is a direct quote from Eileen Ambrose's column:

"Under the new stimulus law, unemployed workers like Kingsbury will get some help with so-called COBRA premiums. They will have to pay only 35 percent of the cost, while the government will pick up the rest through a tax credit to employers. This subsidy lasts nine months."

So, why do I bring this up? The plan that is described above will be critical for people who lose their jobs and their employer-provided health insurance with it. For anyone who hasn't been touched by or otherwise become familiar with COBRA, the law allows people to maintain access to their health insurance when they lose their jobs. The key is that the employer does not have to pay anything and the former employee must pay the entire premium.

The law seems to say that the former employees who are on COBRA will, for nine months, have to pay only 35 percent of the premium. That means that the government will be paying 65 percent of the premium. That is an important savings for people and a way to maintain access to affordable health insurance for more people than would be the case without the stimulus plan.

However, this means that tax money will be used to support status quo programs. The premiums for insurance plans that exist include a lot of inefficiencies. Thus, while I believe it is important to find ways to protect health insurance for more people than ever in this time of economic crisis, I wonder how the government paying to support the current system with its inefficiencies will provide any incentive for necessary change?

While I may be called a pessimist for this--I'd have to say, it probably will not.

Economics of Donations

This morning, my 12 year old noticed that on the calendar in the kitchen, I simply had “blood” written for yesterday morning. I was surprised that he had to ask about it since he and my four year old both knew that I had gone to the American Red Cross blood donor center nearby yesterday to donate blood. I do this every eight weeks (the maximum allowed) as long as I avoid certain international travel (which sometimes results in deferral) and as long as I am feeling well (as the American Red Cross will defer donors who may be ill).

This is a good example of a “market” that is completely voluntary that works fairly well but that seems like it is often at the edge of failure.

How can we think about the market for blood and blood donors? First, it is important to remember that the ultimate demand is for the blood products. There are many health care organizations and individual patients who demand blood products—although the patients can only express this demand through a provider. Donors are told that their whole blood donation of one pint can help up to three recipients. If there were a way to produce blood products without the donors, then there would not be a market for donors. As a result, the demand for blood donors is primarily a “derived demand”. This is a term economists use to describe something for which there is not an inherent value of the individual or good or service itself but there is a value for what that person or thing or service provides. So, the market for blood products creates a market for blood donors. The demand side of the market for whole blood donors (at least in central Maryland) is dominated by the American Red Cross. In some places there are other organizations that collect plasma, but, locally, whole blood is nearly the exclusive domain of the American Red Cross. The American Red Cross is an important intermediary between the suppliers of the blood and the demanders of the blood products. The potential suppliers are many—and no one dominates on the supply side.

With a lot of demanders and a lot of suppliers, it seems like the market could be reasonably efficient. One difference between this market and other markets is the lack of clarity for what the supplier gets in return for participating in the market. I’ll discuss that in my next entry. For the time being, suffice it to say that the market for blood products and what it takes to get blood products to patients is an interesting one to illustrate the concept of derived demand, to illustrate what can motivate suppliers other than money, and to eventually illustrate some cost effectiveness considerations.