medicare beneficiaries

Today’s Economist: Reader Response: Medicare Options and Quality of Care

Uwe E. Reinhardt is an economics professor at Princeton. He has some financial interests in the health care field.

My post last Friday explored the quality of care rendered Medicare beneficiaries under private Medicare Advantage plans and under the traditional, government-run Medicare program.

At the end of the post, I invited readers to apprise me of any study on the subject that my own search of the surprisingly thin literature on this issue might have missed.

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One reader was kind enough to alert me to such a paper, although he also had not come upon it by a general Internet search. It is a paper by Bernard Friedman, H. Joanna Jiang, Claudia A. Steiner and John Bott, titled “Likelihood of Hospital Readmission after First Discharge: Medicare Advantage vs. Fee-for-Service Patients” and published in the November 2012 issue of the health policy journal Inquiry.

The authors estimate the likelihood of a hospital readmission within 30 days of discharge from a 2006 database maintained by the Agency for Health Care Research and Quality. As I noted in my previous post, such readmissions have come to be known as one dimension of “quality,” with higher rates denoting lower quality.

Without adjusting their estimates for the age and health status of Medicare beneficiaries in the two options, the authors find a slightly lower likelihood of readmission under Medicare Advantage plans than under traditional Medicare. They note, however, that Medicare Advantage enrollees tend to be younger and less severely ill. After controlling for age and health status, enrollees in the Medicare Advantage plans are found to have “a substantially higher likelihood of readmission.”

The authors are well known and respected in the research community. Their approach is thoughtful and sophisticated and their findings persuasive. But they come to the opposite conclusion reached by the studies cited in my previous post.

So, to paraphrase Alexander Pope, who shall decide, when doctors (here, health services researchers) disagree, and soundest casuists doubt, like you and me?

The answer is that a single study of this sort is rarely conclusive, because it is extraordinarily difficult to tease the truth out of nonexperimental data — that is, data reported by operating entities for purposes other than the narrow purpose of a particular research study.

Medicare beneficiaries self-select into traditional Medicare or Medicare Advantage plans. They may differ systematically in characteristics that could indirectly affect readmission rates. Age and health status are two characteristics that can usually be measured and might be included in the available data set; but there may be others not included. Researchers try as best they can to make statistical adjustments for differences in the characteristics among self-selecting beneficiaries, as the authors of all of the studies cited in my previous post did. But the adequacy of these adjustments depends on the available data. Typically researchers acknowledge such limitation of their studies forthrightly in their reports.

A second point, perhaps not obvious to the uninitiated, is that a given data set can reveal different apparent “truths,” depending on the statistical methods used by researchers to tease out the truth. Dispassionate, objective researchers usually explore whether alternative statistical approaches would make a difference in their findings. On the other hand, researchers with an agenda can exploit this phenomenon to tease out of a data set the “truth” they may prefer. For that reason, scientific journals now go to great lengths to report researchers’ potential conflicts of interest, although the reported conflicts cannot and do not cover political ideology.

From which follows a third point, namely, that no one should ever take a single statistical study, or even a few, as a revelation of the truth. As I tell my students: “You can never trust a single statistical study in health policy. On the other hand, you can take the general thrust of many studies as in indication of what is likely to be true. And do check carefully who the authors are.”

All of which raises the overarching question: Given all these limitations of studies emerging from health services research, is it an effort worth the money spent on it?

First of all, the total sum the United States spends each year on health services research is trivial if compared to total annual health spending. If one plots it in a pie chart, health services research is not a visible slice but just a line. Probably no economic sector in the economy performs as little operations research as does health care – and it shows in the sector’s performance.

For the most part, health policy in this country is based on accepted folklore, forged from the legislator’s personal experience or information brought to him or her by acquaintances or lobbyists. One can view health services research of the sort cited in this and the previous post as a sincere attempt to limit the wide and often wild terrain over which the folklore on a particular policy issue would otherwise range.

It is illuminating to compare health services research with another effort to structure information for decision making: financial accounting. Modern economies spend a fortune on it. Throughout the year, the large accounting departments of enterprises assemble data for periodic reports on the financial condition and performance of the enterprise. External auditors are engaged to check the validity of these numbers. In the end, they usually attest that whatever is reported “fairly represents the financial condition of the XYZ Company, in accordance with generally accepted accounting principles.”

Yet, for all that effort and the money spent on it, does anyone believe that a company’s “statement of financial condition” (balance sheet) as of particular day of the year accurately summarizes its financial condition? For anyone who believes that, I would invite attention to the recent saga of Hewlett-Packard, not to mention the financial reports produced by investment banks in the past decade or so.

In fact, as someone thoroughly familiar with both financial accounting and health services research, I will offer this brash assertion: In terms of worrying over biases in their estimates and the overall sophistication and quality of their work, health services researchers tower over business accountants. Accountants cannot even state that their estimates are unbiased, because they do not even attempt to avoid bias in their estimates.

But that said, it also is surely true that the world is much better off with financial reporting, dubious as it sometimes can be. Would anyone want to rely merely on folklore to assess the performance of businesses?

Article source: http://economix.blogs.nytimes.com/2013/01/25/reader-response-medicare-options-and-quality-of-care/?partner=rss&emc=rss

Economix Blog: Uwe E. Reinhardt: Medicare Spending Isn’t Out of Control

Uwe E. Reinhardt is an economics professor at Princeton. He has some financial interests in the health care field.

It’s the season of holiday cocktail parties, demanding intelligent chit-chat over Chardonnay. In such data-free environments it is always safe to say, “Medicare spending is out of control!” Wise heads will nod, because it is a credo with wide currency.

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After all, as I explained in my previous post, traditional Medicare, which still attracts about 75 percent of all Medicare beneficiaries, affords its enrollees free choice of providers and therapy. In the jargon of health-policy wonks, it is “unmanaged.” Thus, it would not be surprising if unmanaged Medicare spending were, indeed, out of control.

But some caution is in order. A really wise guy in the crowd, one familiar with relevant data, might challenge you with: “Oh, really? In what sense is Medicare spending out of control?”

That query might have been prompted by the following data.

Kaiser Family Foundation

These data, most of which have been published by the Office of the Actuary, Centers of Medicare and Medicaid Services, of the Department of Health and Human Services (see Table 16), show that in most periods Medicare spending per Medicare beneficiary has risen more slowly than per-capita spending under private health insurance.

The exceptions are the period 1993-97, when private managed-care plans appeared to be able to hold down their outlays on health care better than did Medicare, and 2002-7, because there was a jump in spending as Medicare began, in 2006, to cover prescription drugs under the Medicare Prescription Drug, Improvement and Modernization Act of 2003.

So anyone claiming that “Medicare spending is out of control” can fairly be asked to explain on what data that assertion is based. The responses might be interesting.

Two objections might be raised to my interpretation of the data.

First, the benefit package of Medicare differs from those of private health insurers at any point in time. Worse still, benefit packages have varied over time in both sectors. This makes such comparisons difficult.

During the 1990s, for example, when Medicare’s benefit package remained relatively stable, those in employment-based private insurance expanded significantly, especially in their coverage of prescription drugs, which soon became the fastest-growing component of health spending among private insurers. In those years, Medicare did not cover prescription drugs.

Similarly, during the last decade or so, many private health-insurance policies have incorporated more and more cost-sharing by patients at point of service.

To control as best they can for differences in benefit packages, the centers’ actuaries also calculate comparative growth rates over longer periods of time for only those benefits that have been covered by both Medicare and private insurance plans. The two right-most columns in the exhibit present those calculations.

These columns, too, hardly support the assertion that Medicare spending is out of control. Relative to private insurance, the opposite appears to be the case, with the exceptions noted above.

A second objection to my interpretation of the data might be that Medicare is what economists call a “monopsonist,” a single buyer in a market with many sellers. In such a market, the monopsonistic buyer has considerable power over the level and the growth rate of prices over time.

With very few exceptions, Medicare pays prices to providers of health care below those paid by private insurers, which individually negotiate prices with each provider. I have already described Medicare’s pricing practices in several earlier posts and pricing practices in the private insurance market as well.

Critics of Medicare — notably private health insurers — contend that the higher prices for health care paid by private insurers can be explained by a “cost shift” from government, notably Medicare, to private payers. This view reflects the idea that the providers of health care are to be “reimbursed” for whatever costs they incur in treating patients, rather than budgeting backward from whatever revenue they are “paid,” like other sellers (e.g., hotels or airlines), which can charge different prices to different customers for the same thing.

The cost-shift hypothesis appears to have widespread, intuitive appeal, especially among employers and their agents, private insurers. Economists, this one included, do not find it persuasive, as can be seen in this review of the economics literature on the cost-shift hypothesis and this summary. Economists believe that what is denounced as “cost shifting” in health care is mainly just good old-fashioned, profit-maximizing price discrimination based on differential market power, which is not to be confused with cost shifting.

The economists’ skepticism aside, I would caution the proponents of the cost-shift hypothesis to think twice before injecting it into the health policy debate.

If private insurers cannot resist price increases for health care in response to lower Medicare fees, then presumably they cannot resist price increases in response to other factors — e.g., the medical arms race, for which hospitals are known, or the “edifice complex” to which many hospitals (and, it should be noted, universities) have succumbed.

In a nutshell, reliance on the cost-shift hypothesis to explain the data in the exhibit above strikes me as an open admission by private insurers that they cannot offer effective countervailing market power vis-à-vis the providers of health care.

It would imply that health-spending growth in the private sector can be constrained only through substantial reductions in the use of health care — either through higher cost-sharing by patients or other managed-care techniques — reductions that would be all the deeper because they would be partly offset by price increases.

So I would remind the cost-shift aficionados of this Roman adage: bis cogitare semper memento (remember to always think twice).

Article source: http://economix.blogs.nytimes.com/2012/12/21/medicare-spending-isnt-out-of-control/?partner=rss&emc=rss

Today’s Economist: Reader Response: Medicare Options and Quality of Care

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Economix Blog: Uwe E. Reinhardt: Medicare Spending Isn’t Out of Control

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