Recommended Reading: Russell Korobkin’s “Bounded Rationality, Moral Hazard, and the Case for Relative Value Health Insurance”

February 9, 2012 by · Leave a Comment
Filed under: Recommended Reading 

kate-greenwood_high-res-2011-compEarlier this week at The Incidental Economist, Austin Frakt asked the following question:

“Is it still the case that US and state laws make it impossible for insurers and hospitals to control the use of health technologies? If so, this is a substantial problem for translation of comparative effectiveness research (CER) into practice. It seems that physicians, as well as hospitals and insurers, would need some legal safe harbor to put CER to use. Who is thinking or talking about this? Anyone?”

In an interesting new article, Bounded Rationality, Moral Hazard, and the Case for Relative Value Health Insurance (posted last month to SSRN), Russell Korobkin identifies a way to incorporate learnings from comparative effectiveness research into insurance contracts without running afoul of the laws to which Dr. Frakt refers.  If a dispute arises over coverage of a medical treatment that is not clearly excluded under the terms of a health insurance policy, the law favors the insured individual over the insurance company. But, as Professor Korobkin explains, “there is no impediment, in theory, to insurers excluding from coverage treatments that fail to satisfy a cost-benefit analysis, as long as the exclusions can be adequately specified at the time of contracting.”

Professor Korobkin contends that an adequate level of specificity could be achieved if insurers sold policies that varied in just one way: the cost effectiveness of the treatments they cover.  “Under this framework,” he explains, “the function of government-sponsored CER would be to evaluate different treatments for medical conditions and rate them on a scale of 1 (low) to 10 (high) in terms of cost effectiveness.”  Insurers could then offer less expensive plans that cover only relatively cost effective interventions (e.g. those rated 7 or above) and more expensive plans that also cover less cost effective interventions (e.g. those rated 3 or above).

In choosing an insurance plan, consumers would be asked to “trad[e] off price against a general level of medical care coverage[.]“  Professor Korobkin argues that this is “a better approach to rationalizing the amount of resources allocated to medical care” than either (1) “consumer directed health care” — which is founded on the unrealistic assumption that consumers are able to make “complex cost-benefit tradeoffs at the point of treatment” — or (2) “proposals to pay physicians based on the efficient use of resources that rely on them to compromise their fiduciary duties and undermine professional norms[.]“  The (relative) simplicity of the 1 to 10 scale would enable consumers to make sound — and legally-binding — decisions about how much of their money to spend on health care and how much to allocate to other priorities.

Professor Korobkin acknowledges that there are impediments to putting his “relative value health insurance” proposal into practice — including the dearth of information on the effectiveness, never mind the comparative effectiveness, of many, if not most, medical interventions, the difficulty of making the value judgments inherent in “measuring the benefits side of the equation,” and the risk that the ratings process would be captured by industry — but suggests that they are not insurmountable.  He also reviews and responds to some of the issues that might arise in a “ratings-based market,”  including the effect of relative value health insurance on the Patient Protection and Affordable Care Act’s health insurance exchanges and premium subsidies.

I highly recommend Professor Korobkin’s thought-provoking article to everyone with an interest in our notorious health care cost curve and how to bend it.


Reform Rodeo

April 27, 2011 by · Leave a Comment
Filed under: Reform Rodeo 

800px-california_rodeo_salinas_lasso_bull_p105054411. The NYT reports on how Florida is retooling their Medicaid system by, among other things, channeling some Medicaid patients into for-profit HMOs.

2. reports on the role of patient-driven in creating the first clinical trial from social network data.

3. Health Data Management reports on J&J’s acquisition of device maker Synthes for $21.3 billion.

4. Health Affairs has a piece on how comparative effectiveness research can change the practice of medicine.

5. Becker’s Hospital Review has a piece on the 6 technology building blocks of ACOs.


Recommended Reading: Recent Legal Scholarship on Health Reform

kate-comp-for-blogIn recent months, the first law review articles on the Patient Protection and Affordable Care Act (PPACA) have begun to appear. I highlight here two very recent contributions to the legal literature that are well-worth reading.

In Setting National Standards for Health Plans Under Healthcare Reform (published in the October 2010 issue of the UCLA Law Review) Jessica Mantel argues persuasively that the notice-and-comment rulemaking procedure set forth in PPACA for defining “essential health benefits” will result in politically-driven decisions that do not serve the broad public interest, using as one case study the controversy over the U.S. Preventive Services Task Force’s recommendations regarding routine screening mammograms.  Professor Mantel proposes that the power to define essential health benefits be vested not in the Secretary of Health & Human Services, as PPACA provides, but instead in an independent commission — modeled on the Base Realignment and Closure Commission — that “could give more careful consideration to the relevant empirical evidence on clinical efficacy and cost-effectiveness, showing sensitivity to the concerns of all individuals impacted by its decisions, correct for fallacies or biases in public opinion, and exercise moral powers of persuasion in evaluating the various policy options.”  The commission’s proposed package of essential health benefits would be subject to an up-or-down vote in Congress and any subsequent changes Congress wished to make would be subject to an “actuarial offset requirement,” i.e., if Congress wanted to expand coverage in one area it would have to contract it in another.  Professor Mantel considers the possibility that the resultant benefits package would tilt in favor of well-organized, wealthy special interest groups but ultimately discounts it, in part because “groups defending the status quo have important advantages over those seeking new mandated benefits legislation.”  Even if Professor Mantel’s proposed reform to healthcare reform is not adopted, her article’s thoughtful analysis of the potential for politics to interfere with the establishment of fair and reasonable national coverage standards is a very valuable contribution.

Richard Saver’s Health Care Reform’s Wild Card: The Uncertain Effectiveness of Comparative Effectiveness (forthcoming in the University of Pennsylvania Law Review) similarly addresses a weakness in PPACA — in this case, its “fail[ure] to bet smart and play the [comparative effectiveness research (CER)] wild card effectively.”  Professor Saver highlights a number of what he calls “translation barriers” that “jeopardize making productive use of governmentally funded CER.”  Included among these is vagueness in the statutory definition of comparative effectiveness that leaves unclear the extent to which cost effectiveness can or should be evaluated and creates the potential for “misson-creep.”  Other barriers include the fact that comparative effectiveness studies are (1) costly, (2) pose design and execution challenges, (3) may raise more questions than they answer, (4) fail to account adequately for patient and provider differences, and (5) fail to keep pace with innovation.  Surpassing all these in importance, Professor Saver argues, is the simple fact that physicians lack “strong incentives . . .  to adapt to CER.”  He concludes his article by laying out a number of concrete steps to address these translation barriers, including rewarding physicians who follow evidence-based practice recommendations with enhanced reimbursement and liability safe harbors, deploying academic detailers to persuade physicians to conform their practices to CER, and systematically studying what implementation methods work and what do not.   I recommend this article for its comprehensive and insightful analysis of the comparative effectiveness research component of health reform and also for its fascinating discussion of the reasons (some legitimate and some less so) underlying practicing physicians’ resistance to CER.


Orszag Proposes Evidence-Based Standards for Malpractice Reform

October 21, 2010 by · Leave a Comment
Filed under: Medical Malpractice 

800px-evidence_of_toronto_peopleOn October 20, the New York Times published an op-ed piece Peter Orszag, the director of the White House Office of Management and Budget from 2009 to 2010.  According to Orszag, the threat of medical malpractice liability leads to the practice of defensive medicine and a departure from the use of evidence-based guidelines.  To correct this pattern, Orszag proposes that medical liability laws be reformed to create a safe harbor for physicians who follow evidence-based guidelines.  Let’s break it down.

Defensive Medicine

Orszag posits that “too many doctors order unnecessary tests and treatments only because they believe it will protect them from a lawsuit.”  But what impact to defensive spending have on the bottom line?  Researchers and economists question the financial impact of medical malpractice litigation and defensive medicine.  As the HealthReformBlog published, Bloomberg reported the following:

[A] March 2003 study by the U.S. Department of Health and Human Services that estimated the direct cost of medical malpractice was 2 percent of the nation’s health-care spending… A 2004 report by the Congressional Budget Office also pegged medical malpractice costs at 2 percent of U.S. health spending and “even significant reductions” would do little to reduce the growth of health-care expenses.

Malpractice is “a big issue for doctors but whether it’s a big issue for the American health-care system is another question,” [Robert Laszewski, an Alexandria, Virginia, consultant to health insurers and other companies], said in a telephone interview. “There are studies that indicate that medical malpractice reform would not have a huge impact on costs, but that is not what doctors think.”…

However, Orszag focuses not on the waste created from litigation, but the waste created from perceived threat of litigation.  He states, “[t]he academic literature tends to play down the role of medical liability laws in driving up health care costs. Doctors themselves, however, almost universally state that malpractice statutes lead to extraneous testing and treatment.”

Could physician fear be a larger problem than the perceived threat?  According to the same March 2003 study (as reported by Bloomberg), “defensive medical practices accounted for 5 percent to 9 percent of the overall expense.”  However, more recent research (nod to Jordan Cohen’s Reform Rodeo) reports that “annual medical liability system costs, including defensive medicine, are estimated to be $55.6 billion in 2008 dollars, or 2.4 percent of total health care spending.”

Therefore, reductions in defensive medical practices may, but will likely not, make a significant impact on health care spending.

Evidence-Based Safe Harbor

Orszag then argues, “[w]hat’s needed is a much more aggressive national effort to protect doctors who follow evidence-based guidelines. That’s the only way that malpractice reform could broadly promote the adoption of best practices.”  He explains the current problem with the law, and proposes a solution:

It is also conceivable that because [medical liability] laws usually focus on “customary practice” — that is, a doctor who has treated a patient the way most other doctors in the area would is considered safe from accusations of malpractice — they create a strong contagion effect among doctors. The laws, no matter how weak or stringent, may therefore explain why doctors in some parts of the country generally adopt much more intensive approaches than those in other areas do.

The traditional way to reform medical malpractice law has been to impose caps on liability — for example, by limiting punitive damages to something like $500,000. A far better strategy would be to provide safe harbor for doctors who follow evidence-based guidelines. Anyone who could demonstrate that he has followed the recommended course for treating a specific illness or condition could not be held liable.

This proposal raises many questions and issues with regard to implementation.

Issues of Implementation

What happens when the recommended course of treatment is inappropriate? No two patients are alike.  Feinstein & Horowitz raise the issue that “the results show comparative efficacy of treatment for an ‘average’ randomized patient, not for pertinent subgroups formed by such cogent clinical features as severity of symptoms, illness, co-morbidity, and other clinical nuances.”  In addition to the variation between patients and their unique combination of health problems, guidelines neglect to take into account patient preferences.  Also, many guidelines presuppose accurate diagnosis.

Timmermans & Mauck describe the problems associated with “cookbook” medicine put forth by critics of evidence-based medicine:

“Ironically, EBM may also result in a lower standard of safety by deskilling practitioners. Instead of using clinical judgment, practitioners will be encouraged to follow protocols that treat all patients as essentially interchangeable. Providers will therefore be poorly equipped to contend with the variations between patients they will encounter in actual clinical circumstances.”

What if the recommended course of treatment is wrong? Orszag explains the selection of evidence-based guidelines very simply.  “Organizations like the American Medical Association and the Institute of Medicine could also be called upon to issue the needed evidence-based standards for malpractice immunity.”  However, the consensus that surrounds guidelines is more complicated than that.

For instance, what if the American Medical Association and Institute of Medicine disagree over the recommended course of action?   According to David Atkins, et al., “[a]n evidence-based approach to health care policy decisions will neither eliminate controversy nor relieve policymakers of the difficult task of making decisions in the absence of clear scientific consensus… Differing values and resource constraints can produce conflict even when there is good evidence and the policy outcomes are clear.”

Additionally, Mendelson & Carino report that evidence based medicine “cannot be meaningfully practiced in the absence of good clinical studies. Lack of evidence is a major limitation of applying such principles–especially for technologies and medical practices that are not new and might not have been thoroughly tested.”

However, Orszag argues that PPACA will tackle other problems raised by critics.  For instance, Mendelson & Carino point out that “A second barrier to achieving evidence-based clinical practice is the lack of automation in the practice setting. It is unrealistic to expect doctors to be able to easily reference a clinical guideline in a busy practice setting.”  However these authors concede that the “[a]doption of computerized decision-support systems paired with EMRs have been shown to improve compliance with clinical guidelines for patients with diabetes and depression.”  Orszag believes “[s]ubsidies in the stimulus act help doctors pay for this kind of technology.”

In Conclusion…

Orszag’s proposal is intriguing, despite the questions raised regarding the effects of defensive medicine and the proposal’s implementation.  If defensive medicine is a race to the top — to see which physician can do the most to mitigate liability — any strategy to reduce waste is laudable.  Although the introduction of evidence-based guidelines as a legal standard for physicians may appear logical, there are still several hurdles to be overcome.


Reform Rodeo

October 20, 2010 by · Leave a Comment
Filed under: Reform Rodeo 

california_rodeo_salinas_lasso_bull_p1050544-300x187Medical Loss Ratio: Kaiser Health News reports on tomorrow’s vote by the National Association of Insurance Commissioners on ACA’s contentious rules dictating minimum medical loss ratios.

Cleaning the DSHs: Health Affairs cogently explains the difficulties that the ACA will face when reforming the Disproportionate Share Hospital (DSH) framework that reimburses uncompensated care under Medicaid.

ACO Antitrust: At the Health Care Blog, David Dranove discusses what he believes is a looming antitrust crisis surrounding  accountable care organizations (ACOs)

On QALYs: One of the fathers of the Quality Adjusted Life Year  (QALY) — the metric often used to measure comparative effectiveness — laments its near rejection in the ACA.

Economics: In the first of a series, Maggie Mahar provides a remarkably detailed  analysis of the economic impact of the ACA.


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