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

Earlier 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.

The Hippocratic Math

Will Durant, The Story of Civilization, and Immunization and Human Subject Research, or “I Never Promised You a Rose Garden”

I am reading Will Durant’s Story of Civilization as of late–actually, I’ve been reading the splendid 11 volume set off and on since I first bought it at a garage sale some twenty years ago. The work of a lifetime, Durant and his collaborating wife, Ariel, published these volumes between 1935 and 1975–and few things are so well written. A gifted storyteller, Durant’s prose is lively, personal and terribly witty;  the march of civilization not so much an inexorable plodding of dates, but a series of movements punctuated by the fits and starts, foibles and peccadilloes of an all too human race. For the work, in effect “a biography of civilization” which is said to have put its publisher,  Simon & Schuster, on the map, Durant and his wife were awarded the Pulitzer Prize for General Non-Fiction in 1968 and the Presidential Medal of Freedom in 1977. It is no small point of alumni pride that for a number of years, early in his career, Will Durant attended and taught at Seton Hall.

At present I am reading The Age of Napoleon, and I cannot help but offer here some characteristic lines from Durant’s work. Of Benjamin Constant (1767- 1816), sometime aide to Napoleon, he writes:

… born in Switzerland, educated in a dozen cities, and finally embattled in France, so littered his life with unpaid debts, discarded mistresses, and political somersaults that it would hardly be profitable to dally with him here had he not come close to history in many frays, been loved to distraction by notable women, and been able to describe his faults with such eloquence, subtlety, and impartiality as might help us understand our own….

He came of a titled Swiss-German family that traced its pedigree through 800 years. We need go back no further than his father, who was so occupied with his own sins that he had little time to supervise his son’s…  On October 25, at Lausanne, [Henriette de Chandieu] gave birth to Benjamin; a week later she died, the first of many women who suffered from his irregularities. The father entrusted the boy to various tutors, carelessly chosen. One tried by beatings and fondlings to make the boy an infant prodigy in Greek. When the beatings endangered Benjamin’s health, he was transferred to a second tutor, who took him to a brothel in Brussels. His third tutor gave him a good knowledge of music, and, for the rest, relied on him to educate himself through reading. Benjamin read eight or ten hours a day, permanently injuring his eyes and his faith. He spent a year at the University of Erlangen, then he was transferred to Edinburgh, where he felt the final flurry of the Scottish Enlightenment; but there too he took to gambling, which became second only to sex in disordering his life. (p. 302-304, footnotes omitted).

Of a woman more than twice Constant’s age (the intellectual beauty, Isabella van Tuyll, who famously rejected Boswell decades prior) twice taken to educating the young man in “the wiles of women and the lies of men,” Durant tells us that she told Benjamin,

If I knew a young and robust person who would love you as much as I do, and who is no more stupid than I am, I would have the generosity to say ‘Go to her!’

Durant: “To her surprise and indignation, he soon found a young and robust person.”

And what does this have to do with Health Reform? Absolutely nothing, except to say that Durant’s work, which happens to chronicle the advances as well as the missteps of medicine in every age and most places, would make a great addition to your library.

Consider this account of vaccinations for small pox in England, while thinking a moment about human subject research, informed consent, and the foundation of experimental medicine and immunology:

In 1806 London recorded a singular event: it had gone a full week without a death from smallpox– that pustulous, feverish, face-marring, and infectious disease which had once been epidemic in England, and might again at any time swell into a deadly plague.

A modest English physician, Edward Jenner–addicted to hunting, botany, composing poetry, and playing the flute or the violin-made the miracle week possible by a decade of inoculations that finally overcame the conservatism of British society. The prevention of smallpox by inoculation with weakened virus from a smallpox-infected human being had been practiced by the the ancient Chinese; Lady Mary Wortley Montagu had found it customary in the Constantinople of 1717; on her return to England she recommended the procedure there. It was tried upon criminals, then upon orphans, with considerable success. In 1760 Drs. Robert and Daniel Sutton reported that in thirty thousand cases of smallpox inoculation they had twelve hundred fatalities. Could a surer method of preventing smallpox be found?

Jenner was led to a better way by noting that many milkmaids in his native Gloucestershire contracted cowpox from infected nipples of cows, and that these women were thereafter immune to smallpox. It occurred to him that a like immunity might be established by inoculating with a vaccine (vacca is Latin for cow) made from a virus of pox-infected cow. In a paper published in 1798 Jenner recounted a venturesome procedure which laid the foundations of experimental medicine and immunology.

…I selected a healthy boy, about eight years old, for the purpose of inoculation for [with] the Cow Pox. The matter was taken from a sore on the hand of a dairymaid who was infected by her master’s cows, and it was inserted, on the 14^th of may, 1796, in the arm of the boy…. On the seventh day he complained of uneasiness…. And on the ninth he became a little chilly, lost his appetite, and had a slight headache…. On the following day he was perfectly well….

I order to ascertain whether the boy, after feeling so slight an affection of the system from the Cow Pox virus, was secure from the contagion of the Small Pox, he was inoculated, the 1^st of July following, with variolous matter [variola is Latin for smallpox] immediately taken from a pustule…. No disease followed…. Several months afterwards he was again inoculated with variolous matter, but no sensible effect was produced in the constitution.

Jenner went on to describe twenty-two other cases of similar procedure with completely satisfactory results. He met with condemnation for what seemed to be human vivisection, and he tried to atone for using a consenting minor by building a cottage for him and planting a rose garden for him with his own hands. In 1802 and 1807 Parliament voted Jenner £ 30,000 to improve and spread his methods. In the course of the nineteenth century smallpox almost disappeared from Europe and America, and when it occurred it was in unvaccinated individuals. Vaccination was applied to other ailments, and the new science of immunology shared with other medical advances, and with public sanitation, in giving modern communities as much health as is allowed by the harassments of poverty, the fertility of ignorance, the recklessness of appetite, and the patient inventiveness of disease. (p. 392-2, footnotes omitted).

As for the leap in immunology, Jenner’s work, was not universally acclaimed– at least not early on. In addition to the above mentioned moral approbation he weathered with the help of the time-tested gift of roses, the feared potential “side-effects” of his vaccine were chronicled in this caricature from 1802, entitled “The COW-POCK– or– The Wonderful Effects of the New Inoculation! Vide– the Publication of y Anti-Vaccine Society,” which is said to depict Jenner vaccinating patients who feared it would make them sprout cowlike appendages.

Recommended Reading: Recent Scholarship on Drug and Device Regulation

In Patients Over Politics: Addressing Legislative Failure in the Regulation of Medical Products (forthcoming in the 2011 volume of the Wisconsin Law Review and available on SSRN), Efthimios Parasidis proposes a significant expansion of drug and device companies’ responsibility to engage in “active post-market analysis” of drugs and devices, to be coupled with a new rule that only companies that conducted such analysis would benefit from preemption of state tort claims.  Professor Parasidis’ article includes a nuanced and revealing analysis of the historical and other reasons for the Food and Drug Administration’s heavy focus on pre-market review of drugs at the expense of post-market surveillance, as well as useful updates on both the caselaw regarding the preemption of claims involving branded drugs, generic drugs, devices, and vaccines and the ongoing efforts to use health information technology to glean information about the safety and efficacy of marketed products.  Most notable, though, is the article’s thorough explication of Professor Parasidis’ interesting proposal that “preemption laws, which often are enacted pursuant to industry lobbying efforts [be linked to] protocols that further the public health.”

In Enforcing Integrity (forthcoming in the 2011 volume of the Indiana Law Journal and available on SSRN), Katrice Bridges Copeland makes a strong case for her conclusion that neither the exclusion of pharmaceutical manufacturers from Medicare and Medicaid — a punishment which the government is reluctant to impose because it would spell the end for the company — nor the use of corporate integrity agreements coupled with large fines — which manufacturers agree to in order to avoid exclusion — works to deter illegal marketing activities.  As Professor Copeland notes, numerous companies have learned that “the punishment for multiple offenses is simply another CIA and another fine.”  She recommends that the government consider a number of alternative penalties for repeat offenders, including (1) requiring that manufacturers fund clinical trials studying the off-label uses for which they promoted their products, (2) requiring that they license the product or products at issue to other manufacturers, (3) holding high-level individuals criminally liable under the responsible corporate officer doctrine, and (4) amending the Social Security Act to allow for the exclusion of particular drugs (as opposed to entire companies) from Medicare and Medicaid.

Finally, I recommend Seton Hall Law’s own Jordan Paradise’s fascinating article, Claiming Nanotechnology: Improving USPTO Efforts at Classification of Emerging Nano-Enabled Pharmaceutical Technologies (forthcoming in the 2011 volume of the Northwestern Journal of Technology and Intellectual Property and available on SSRN), in which she argues that the United States Patent and Trademark Office’s system for classifying patents on nanotechnology-related inventions, “[w]hile undoubtedly helpful for internal purposes,” cedes too much to the courts.  Reviewing the facts of the recent case Elan Pharma International v. Abraxis Bioscience, which involved a dispute over two patents describing nano or near-nano scale versions of the same existing cancer-fighting agent and was tried to a jury verdict, Professor Paradise points out several ways in which the patents’ claims potentially overlap.  She argues that the courts are “a clumsy forum” for sorting out the “complex patent law issues that arise based on scale, size, and interactions at the nanoscale that transcend previously envisioned physical and chemical boundaries[,]” and offers concrete recommendations for steps the USPTO can take to improve its classification efforts to reduce the number of patents with potentially overlapping claims thereby making court involvement less necessary.

Recent Comparative Studies of Health Systems

As America continues to wrestle with the thorny thicket of health care reform, there are a number of recent reports chronicling and comparing approaches to health care and health reform in different countries that are worth a read.  For example:

• The Organisation for Economic Co-operation and Development recently released Health at a Glance 2011: OECD Indicators, which provides “comparable data on different aspects of the performance of health systems in OECD countries.” The U.S. spends 2 ½ times more than the OECD average health expenditure per capita (which amounted to 17.4% of GDP in 2009). (OECD explores why in a separate addendum, “Why is Health Spending in the United States So High”.) Yet, with the exception of cancer care and acute care in hospitals, it is not clear Americans are getting improved quality for the greater expenditures. As reported by CQ HealthBeat and by the Commonwealth Fund, “hospital services cost much more in the United States and pharmaceutical prices are much higher compared to other countries;” “there are fewer practicing physicians per 1,000 population, fewer doctor consultations and shorter hospital stays;” “more CT scans, knee replacements, and Caesarean sections;” and “comparatively high hospital admission rates for preventable conditions like asthma, diabetes and hypertension.”

• Strengthening Primary Care: Recent Reforms and Achievements in Australia, England, and the Netherlands, a recent report by Sharon Willcox, Geraint Lewis, and Jako Burgers of the Commonwealth Fund, evaluates efforts to improve access to, and the quality of, primary care in these countries– and suggests what the U.S. can learn from these initiatives. These countries have been focusing on three primary care reform strategies: promoting coordination of care, reforming primary care payment, and improving quality and access. As the abstract summarizes, “[q]uality improvement strategies include postgraduate training programs for family physicians, accreditation of general practitioner (GP) practices, and efforts to modify professional behaviors–for example, through clinical guideline development. Strategies for improving access include national performance targets, greater use of practice nurses, assured after-hours care, and medical advice telephone lines. All three countries have established midlevel primary care organizations both to coordinate primary care health services and to serve other functions, such as purchasing and population health planning. Better coordination of primary health care services is also the objective driving the use of patient enrollment in a single general practice. Payment reform is also a key element of English and Australian reforms, with both countries having introduced payment-for-quality initiatives. Dutch payment reform has stressed financial incentives for better management of chronic disease.”

• Bradford H. Gray, Thomas Bowden, Ib Johansen, and Sabine Koch, also of the Commonwealth Fund, review the extent of adoption of “meaningful use” (as defined in federal regulations) in three countries with extensive experience with electronic health records, Denmark, New Zealand, and Sweden in Electronic Health Records: An International Perspective on “Meaningful Use.” Although these European countries have high levels of EHR adoption, they have not reached 100% meaningful use, with the greatest weakness being in information provided to patients. The authors suggest that the U.S. could learn from these experiences the value of “providing economic incentives to encourage adoption and designating an organization to take responsibility for standardization and interoperability.”

• International Profiles of Health Care Systems: Australia, Canada, Denmark, England, France, Germany, Italy, Japan, the Netherlands, New Zealand, Norway, Sweden, Switzerland, and the United States, edited by Sarah Thomson, Robin Osborn, David Squires, and Sarah Jane Reed and published by the Commonwealth Fund, provides an overview of the health systems in these countries– including “health insurance, public and private financing, health system organization, quality of care, health disparities, efficiency and integration, use of health information technology, use of evidence-based practice, cost containment, and recent reforms and innovations.”

• The Commonwealth Fund also recently released results of an international study of patients with complex care needs in eleven countries: Australia, Canada, France, Germany, the Netherlands, New Zealand, Norway, Sweden, Switzerland, the United Kingdom, and the U.S. Although it identified significant care coordination issues, it found that “patients who have a medical home reported better coordination of care, fewer medical errors, and greater satisfaction with care than those without one.” In addition, the study also found “that patients in the United States are much more likely than those in 10 other high-income countries to forgo needed care because of costs and to struggle with medical debt.” 27% “were unable to pay or encountered serious problems paying medical bills in the past year, compared with between 1 percent and 14 percent of adults in the other countries,” and 42% did not see a doctor, fill a prescription, or receive recommended care. The authors conclude that “[t]he United States in particular has opportunities to learn from abroad-including the use of purchasing power to lower prices, payment innovations, and the use of information systems and care system redesign efforts that are under way in several countries.”

Of course, there are a variety of reasons the experiences in other countries may not take root in the United States.  But we still should be aware of these efforts and critically evaluate whether we might transplant any of them as seeds of reform here.

Recommended Reading: Joan Krause’s “Skilling and the Pursuit of Healthcare Fraud”

In her latest article, Skilling and the Pursuit of Healthcare Fraud, which is forthcoming in the University of Miami Law Review, Joan Krause suggests that the Supreme Court’s decision in Skilling v. United States could have a paradoxical effect on health care fraud prosecutions.  In Skilling, the Supreme Court rejected Jeffrey Skilling’s argument that 18 U.S.C. §1346, which criminalizes frauds designed “to deprive another of the intangible right to honest services,” is unconstitutionally vague.  In so doing, the Court strictly cabined the scope of Section 1346, holding that it only applies to “offenders who, in violation of a fiduciary duty, participated in bribery or kickback schemes.”  While the Skilling decision is expected to lead to fewer honest services prosecutions overall, Professor Krause believes that it may lead to an increase in honest services prosecutions founded on health care kickbacks.  Professor Krause notes that “bribery or kickback schemes” are activities that “have particular salience in health care.”  She also points out that there are strategic advantages to prosecuting healthcare fraud cases pursuant to Section 1346, including a “focus on the physician-patient relationship as the locus of the misbehavior” that may appeal to juries and the fact that violations of Section 1346 carry longer maximum prison terms than violations of the Anti-Kickback Statute.

In the conclusion to Professor Krause’s article, she acknowledges that “the broader use of the honest services theory in health care kickback cases would raise a host of analytical issues” and then provides a fascinating elaboration.  According to Professor Krause, “the characterization of the physician-patient relationship as a fiduciary one is, perhaps surprisingly, far more complex than first appears.”  The physician is not a typical fiduciary.  For one, the physician’s duty is not all-encompassing — his or her duty of honesty does not extend beyond the provision of medical diagnosis and treatment — and, for another, unlike a traditional fiduciary, a physician has no control over his or her patient’s money.  Moreover, and of central relevance for the prosecution of health care fraud as honest services fraud,  “the physician’s duty to disclose information to patients generally is handled through the state-based law of informed consent rather than through broad federalized notions of fiduciary duty, and few informed consent cases or statutes require the disclosure of financial rather than treatment-related information.”  (For an in-depth discussion of whether disclosure of financial information should be required, see Seton Hall Law’s Center for Health & Pharmaceutical Law & Policy’s December 2010 white paper The Limits of Disclosure as a Response to Financial Conflicts of Interest in Clinical Research and June 2011 Journal of Health & Life Sciences Law article An Argument Against Embedding Conflicts of Interest Disclosures in Informed Consent).

If physicians are not legally obligated to disclose financial information to their patients, in what sense do they deprive those patients of their honest services by accepting a kickback?  Professor Krause sets forth a number of possibilities, including (1) that kickbacks are per se deceptive, (2) that kickbacks are deceptive unless proved otherwise, and (3) that “in the absence of a clear duty to disclose a kickback under fiduciary law or informed consent” kickbacks are not deceptive and there can be no honest services prosecution without “additional evidence of harm to the patient — if not tangible harm, at least proof that the physician’s decisionmaking (i.e., the services owed), was in fact influenced in a way that could have affected the patient’s treatment.”  While the third option is arguably “a truer reading of the doctrine,” Professor Krause predicts that it “likely will be found wanting by jurists who believe the disclosure duties imposed under current health law are incomplete.”

I highly recommend Professor Krause’s article for its comprehensive and insightful analysis of the Skilling case’s potential paradoxical effect on health care fraud cases, but also for its thought-provoking concluding section and the numerous timely questions it raises about the relationship between physicians’ duties to their patients and the federal duty to provide honest services.

Recommended Reading: Recent Scholarship with Implications for Pharmaceutical Pricing and Access

Bundles in the Pharmaceutical Industry: A Case Study of Pediatric Vaccines, by Kevin W. Caves and Hal J. Singer of Navigant Economics, provides a technical but still accessible analysis of the anticompetitive effects of vaccine manufacturers’ practice of conditioning price discounts on physician buying groups agreeing to purchase the manufacturers’ vaccines in a bundle and agreeing not to purchase other manufacturers’ products.  The article begins with an interesting overview of the characteristics of the vaccine market, an introduction to the physician buying groups that purchase vaccines and to the anti-kickback concerns they raise, and a summary of the (somewhat up in the air) legal standard for when bundled discounting becomes an antitrust violation.

The authors then present their analysis of the uphill battle Novartis (a source of funding for the article) will have to fight to induce physicians to “break the bundle” and buy its new meningitis vaccine.  The authors conclude that even if Novartis were to give away its meningitis vaccine for free, “buyers defecting from [Sanofi Pasteur's bundle of vaccines, which includes Sanofi's meningitis vaccine,] would still lose $14.05 per patient in expected value.”  They present data indicating “that buyers unencumbered by … Sanofi’s loyalty contracts are over three times as likely to purchase [Novartis' vaccine], relative to encumbered buyers…” and conclude that enough of the market is foreclosed to Novartis to establish a presumption of anticompetitive effects and concomitant harm to consumers.  Per the authors, “[i]n an industry served almost exclusively by large, multi-product incumbents, with no prospects for generic competition and extremely limited entry by competitive rivals of any kind, these findings have significant implications for public policy and antitrust enforcement.”

Somewhat less accessible (due to a plethora of equations) but still well worth reading is Tort Liability and the Market for Prescription Drugs by Eric Helland, Darius Lakdawalla, Anup Malani, and Seth Seabury.  Helland and his co-authors present the results of an empirical study of the relationship between product liability rules and drug price and utilization.  While the effect of a liability rule can often be studied by comparing a state that makes a change to the rule with one that does not, the authors had to modify this approach because drugs are sold nationally.  They determined the exposure to punitive damages caps of each of nearly 16,000 drugs by first determining each drug’s geographic distribution of sales, a figure which varies from drug to drug due to geographic variation in the prevalence of disease.  The authors found that the degree of exposure to caps was correlated with an increase in drug prices but also with an increase in drug utilization.  Tighter liability standards also correlate with a reduction in adverse drug reactions.  The authors write that their numbers “imply that if every remaining state adopted some reform, there would be a 23% increase in all [adverse] events and a 25% increase in serious [adverse] events … among branded drugs.”  They conclude that “on balance, liability improves consumer and social welfare.”

Recommended Blog and Podcast: The Incidental Economist

For those interested in health economics, I cannot recommend highly enough the Incidental Economist blog and podcast. Featuring an economist, a physician, and law professor Kevin Outterson, the IE blog has offered invaluable commentary on a number of vexed policy issues. The podcast has taken on issues ranging from all-payor rate setting to the rationale for randomized clinical trials.  Austin Frakt and Aaron Carroll offer an entertaining and educative experience in their podcasts.  If you’re already listening to Health Affairs events or the JAMA and NEJM line-ups, this is an excellent in addition to your iPod playlist.

Recommended Reading: Recent Legal Scholarship on Decision-Making about Health and Healthcare

In Health Choices: Regulatory Design and Processing Modes of Health Decisions, Orly Lobel and On Amir briefly summarize a fascinating series of experiments they have conducted with the support of the Robert Wood Johnson Foundation that test individuals’ ability to make decisions about their health in the face of cognitive depletion or overload.  A longer version will be available in September, but the summary is well worth reading.  Lobel and Amir begin by reviewing a line of research demonstrating, perhaps unsurprisingly, that “psychological depletion caused by a prior task” — in one study it was eating radishes while resisting cookies–leads to a reduced ability to exercise “executive control” and “persist in demanding cognitive activities.”  As the authors note, applying this research to the context of health related decision-making is important because patients and providers alike are frequently asked to process information about relative risk and make reasoned, reasonable decisions under conditions of cognitive depletion or overload.

To test their hypothesis that “absent sufficient resources for executive functions individuals will take more risk in their [health-related] decisions,” Lobel and Amir conducted a lab experiment with approximately 700 participants and a web-based one with over 3000 participants, including 300 medical doctors.   The findings from their studies support the conclusion that depletion affects people’s ability to process risk, albeit not in entirely intuitive or predictable ways.  For example, when parents are cognitively depleted, they become more risk averse regarding vaccinating their children, but when policymakers are cognitively depleted, they become less risk averse regarding population-wide vaccination.  When consumers are in a state of attention and focus, a long list of potential side effects will deter them from using a new drug.  When cognitively overloaded, though, they paid “less attention to warning lists the longer they were.”  The implications of Lobel and Amir’s work are many, varied, and vast; I am looking forward to reading the full paper when it comes out in September.

I also highly recommend Christopher Tarver Robertson’s Biased Advice, which was published in the Emory Law Journal earlier this year.  Robertson conducted a series of experiments that built on the groundbreaking 2005 study by Daylian M. Cain, George Loewenstein & Don A. Moore evaluating the effect of a conflict of interest, and of disclosure of the conflict, on the quality of advice given by advisors regarding the number of coins in a jar and on the accuracy of advisees’ estimation of the number of coins in the jar.  Cain and his colleagues’ most surprising finding was that when a conflict existed, disclosing it caused the accuracy of advisees’ estimates to decline, in part because advisors gave more biased advice when their conflicts were disclosed than when they were not disclosed.

Among other questions, Robertson examined whether a more concrete disclosure about an advisor’s bias–that is, that “prior research has shown that advisors paid in this way tend to give advice that is $7.68 higher on average than the advice of advisors who are paid based on accuracy”–would aid advisees.  It did not, because advisees did not do what “one would hope and expect” and simply subtract $7.68 from the advisor’s estimate.  Rather, it appears that they “used the bias disclosure not as a mechanism of calibrating their reliance more precisely, but rather as a strengthened warning suggesting that the advice is altogether worthless.”

On the other hand, disclosing to advisees that an advisor was paid based on the accuracy of the advisee’s estimate–i.e. that the advisor’s financial interest aligned with that of the advisee–led advisees to rely more heavily on the expert’s advice and, as a result, to more accurately estimate the number of coins in the jar.  Disclosure of a conflict of interest is also likely to be valuable where advisees can seek out another advisor; a second, unconflicted, opinion dramatically increased the accuracy of advisees’ estimates.

Robertson’s research is important and interesting.  As he observes, one of the reasons that it is so difficult to rein in health care costs is that “[t]he health care industry is characterized by radically distributed decision making, with each patient deciding upon her own course of treatment within the range of treatments offered by providers and covered by public and private insurers.”  Improving individual decisions may be key to bending the cost curve.  Robertson’s research suggests that a disclosure mandate could help under certain circumstances, where, for example, there is “epistemic charlatanism” and a physician’s disclosure of a financial conflict of interest would lead a patient to reject the physician’s not-so-expert recommendations.  Robertson emphasizes, however, that disclosure does not improve layperson decision-making nearly as much as unbiased advice does.

Recommended Reading: Recent Legal Scholarship on “Risk Classification by Design”

Tom Baker’s Health Insurance, Risk, and Responsibility after the Patient Protection and Affordable Care Act (forthcoming in the University of Pennsylvania Law Review) is short (it would seem a theme is beginning to emerge in my Recommended Reading posts), tightly-reasoned, and instructive.  I highly recommend it.

Professor Baker’s essay “explores the contours of the solidarity and individual responsibility” embodied in [the Patient Protection and Affordable Care Act].”  He identifies a number of challenges to the Act’s vision of “achieving … solidarity through individual responsibility[,]” including what he terms “risk classification by design.”   With the passage of the Act, health insurance companies will no longer be able to evaluate each prospective policyholder to determine the risk that he or she will need medical care and then charge him or her a premium that accounts for his or her individual level of risk.  Risk classification by design could still occur, however, “as individuals’ self select into different health care products according to their self-assessed health risk status.”  For example, ["h]igh health risk people tend to prefer more complete health insurance coverage, fewer restrictions on their choice of doctors, and other plan features that make it easier to consume more health care.”  If a plan offering with those features attracts a disproportionate number of high risk individuals, the health care costs associated with that plan would rise and premiums would increase accordingly.  The end result would be high risk individuals paying more than low risk individuals for their health insurance, “challenging the core non-discrimination value embodied in the Act.”

Professor Baker points to a number of regulatory tools that the Act gives the states, the health insurance exchanges that states have begun to create, and the Department of Health and Human Services, to address the challenges posed by risk classification by design.  These include (1) the minimum coverage requirements, which allow “less room for variation in plans that can be used to segment people into separate risk groups,” (2) the exchange certification requirement, pursuant to which an exchange can decline to certify a plan that uses “marketing practices or benefit designs that have the effect of discouraging” enrollment by high risk individuals, (3) the medical loss ratio requirements, which work by “requiring a successful cream skimming insurer to return to its policyholders all or most of the benefits of the cream skimming,” and (4) the risk adjustment procedure, the goal of which is premiums that reflect the entire exchange pool as opposed to the  pool that has self-selected into a particular plan.  These tools, Professor Baker argues, will only be partially successful, but that “will simply mean that more actuarial fairness survives than the Act’s drafters may have intended.”  And actuarial fairness, he notes, has “many supporters, not all of whom are insurance industry apparatchiks.”

I also highly recommend two other recent articles addressing the post-reform potential for risk classification by design, Will Employers Undermine Health Care Reform by Dumping Sick Employees? (published in the March 2011 issue of the Virginia Law Review) by Amy Monahan and Daniel Schwarcz, and PPACA in Theory and Practice: The Perils of Parallelism (forthcoming in the Virginia Law Review), in which David Hyman responds to the arguments made by Professors Monahan and Schwarcz.  Professors Monahan and Schwarcz warn of a “substantial prospect that [the Act] will lead some, and perhaps many, employers to implement a targeted dumping strategy designed to induce low-risk employees to retain [their employer-sponsored health insurance (ESI)] but incentivize high-risk employees to voluntarily opt out of ESI and instead purchase insurance through the exchanges[.]“  This dynamic, they fear, “could render insurance exchanges unsustainable and thereby jeopardize health insurance reform writ large.”  Professor Hyman counters that what Monahan and Schwarcz consider a “bug” might in fact be a “feature” of health reform, particularly since for “dumping/[risk classification by design] to ‘work,’ Monahan & Schwarcz are clear that it has to make employers and employees better off-both individually and collectively.”

Recommended Reading: “Diagnosing Liability: The Legal History of Posttraumatic Stress Disorder”

In her fascinating article Diagnosing Liability: The Legal History of Posttraumatic Stress Disorder (forthcoming in the Temple Law Review and available on SSRN), Deirdre Smith describes the role that legal considerations–of eligibility for benefits and liability for harm–played in the development of the posttraumatic stress disorder diagnosis, from its earliest roots in the mid-1800s, when the term “railway spine” was coined to describe post-traumatic symptoms in survivors of train accidents, to its eventual inclusion in the Diagnostic and Statistical Manual of Mental Disorders in 1980.  Concluding that “[t]he line between law and medicine is not merely blurred in PTSD; it is absent,” Professor Smith contends that courts should consider “PTSD’s development and long-standing association with assigning legal responsibility” when determining whether to admit evidence that a criminal complainant or civil plaintiff was so diagnosed.

As Professor Smith explains, when veterans of the Vietnam War “began to seek treatment and compensation for their persistent psychiatric difficulties, there was no diagnosis that clearly captured their symptomatology.”  They were diagnosed with “‘character disorders’ or schizophrenia, either of which would rule out any ’service-connected’ disability compensation.”  It was at least in part a desire to eliminate barriers to care and compensation for these veterans that persuaded the American Psychiatric Association to include the PTSD diagnosis in the DSM-III.   And, it worked.  “With a diagnosis built around their experiences, veterans [of the Vietnam War] were indeed more successful in obtaining, not only health coverage and disability benefits, but also validation from the United States government itself that they had endured an experience that transformed a ‘normal’ person into one who was ill and in need of care and compassion.”  (This history provides an interesting context for the current controversy over the diagnosis of mild traumatic brain injury in veterans of the wars in Iraq and Afghanistan, which I discussed here.)

To be diagnosed with PTSD, individuals must meet a number of criteria.  The “A” or “stressor” criterion requires that the person being evaluated have been exposed to a traumatic event.  The remaining criteria relate to the existence, duration, and functional significance of symptoms experienced in the wake of, and presumably as a result of, the trauma.   Professor Smith focuses on “two contexts in which courts have permitted PTSD, and particularly the A criterion, to take a critical role in establishing liability: (1) to prove that a criminal complainant or civil plaintiff was subjected to a traumatic event, such as child sexual abuse; and (2) in tort cases, to establish liability for [emotional distress in the absence of physical injury].”  She argues persuasively against using the diagnosis in these ways.  To do so creates a “problem of circularity” because “[c]linicians cannot apply the PTSD diagnostic criteria without opining about the nature, extent, or even the existence of a reported or purported stressor event.”  Judicial findings that suggest otherwise notwithstanding, one cannot determine based on a given cluster or presentation of symptoms that an individual has been exposed to a particular traumatic event.

Professor Smith’s article brings to mind the important work that Joan Kaufman and colleagues have done documenting the underdiagnosis of PTSD in the child welfare system.  Dr. Kaufman’s data demonstrate the limits of a number of potential sources of information about a child’s trauma history, including the children themselves, their parents, their protective service workers, and their protective service case records.  She argues that mental health professionals should use multiple sources to build the complete trauma histories that are key to both accurate diagnosis and effective treatment.  Notably, Dr. Kaufman does not suggest that a child’s symptoms be used to divine his or her history.  To the contrary, she observes that “[w]ithout knowledge of children’s trauma experiences, trauma-related symptoms can appear to reflect manifestations of other diagnoses.”

Recommended Reading: Recent Legal Scholarship on Issues in Global Public Health

Redressing the Unconscionable Health Gap: A Global Plan for Justice (published in the Harvard Law & Policy Review). In this article Lawrence Gostin brings a big picture issue — the vast global health gap between rich and poor — into perfect focus. Professor Gostin reminds us of an “uncomfortable truth” — “that closing the health gap is well within the means of the international community” — and he proposes a simple (in concept if not execution) plan to do just that.  No international treaty would be required; Professor Gostin’s Global Plan for Justice would take the form of a World Health Assembly resolution.  No new organization or governance structure would be required either; rather, the World Health Organization would “assume its place as the global health leader.”  States would be asked to contribute a small percentage — Professor Gostin suggests 0.25% — of their Gross National Income each year to a Global Health Fund.  The WHO would then allocate the Fund’s resources based on “the health needs of developing countries measured by poverty, morbidity, and premature mortality.”  Professor Gostin suggests that the mission of the Fund be threefold: “(1) ensure the fair allocation of essential vaccines and medicines, with particular attention to low- and middle-income countries in a public health emergency; (2) meet basic survival needs [e.g. food, water, sanitation, and vector controls] and create the conditions in which people can be healthy; and (3) help countries that will suffer most to adapt to the health impacts of climate change.”  Existing efforts, such as the Global Fund to Fight AIDS, Tuberculosis and Malaria, demonstrate the power of voluntary collective action; unlike the proposed Global Health Fund, however, they are too narrowly-targeted and inconsistent to close the global health gap.  Professor Gostin’s article is short (it’s based on the text of a speech), straightforward, and provocative in the best sense of the word.  I highly recommend it.

I also highly recommend Kevin Outterson’s The Legal Ecology of Resistance: The Role of Antibiotic Resistance in Pharmaceutical Innovation (published in the Cardozo Law Review) in which he uses proprietary sales and volume data for the important hospital antibiotic vancomycin to test a number of widely-propounded theories about the interplay between antibiotic resistance and intellectual property law.  The vancomycin case study fails to support the hypothesis that a patent holder is likely to zealously market an antibiotic with an eye to the drug’s dwindling patent term, without regard for the risk that increased uptake could accelerate the evolution of antibiotic-resistant bacteria.  It also fails to support the hypothesis that if patent terms for antibiotics were extended, patent holders would better manage the sales and use of their drugs to forestall the development of resistance.  By contrast, the story of vancomycin is consistent with the hypothesis that antibiotic resistance stimulates innovation — as bacteria evolve that are resistant to an existing antibiotic a market for a new antibiotic arises.  All of this suggests that “tinker[ing] with the patent system” is unnecessary and could even backfire.  Professor Outterson concludes that a more direct and potentially more effective approach to preserving the antibacterial effectiveness of our antibiotics would be to fix our broken health care reimbursement system, under which infection control is an unreimbursed cost and “hospitals and doctors have generally gained revenues from additional infections[.]“

Recommended Reading, “Regulating Conflicts of Interest in Research: The Paper Tiger Needs Real Teeth”

Jesse Goldner’s Regulating Conflicts of Interest in Research:  The Paper Tiger Needs Real Teeth, 53 St. Louis U. L.J. 1211 (2009), is a must-read for anyone who has anything to do with oversight of researchers’ conflicts of interest.  The article reflects an insider’s understanding of academic physicians’ perspectives on this still-contentious topic, provides a terrific survey of the literature, and proposes regulatory fixes by the feds that HHS will hopefully seriously consider.  The article’s timing is perfect, given that HHS is receiving comments until August 19, 2010 on proposed changes to its conflict of interest regulations.  See http://grants.nih.gov/grants/policy/coi/. Even in the short time since the publication of Goldner’s article, HHS OIG has issued yet another report on conflicts of interest management, entitled “How Grantees Manage Financial Conflicts of Interest in Research Funded by the National Institutes of Health,” (Nov. 2009), available at http://oig.hhs.gov/oei/reports/oei-03-07-00700.pdf.  Based upon an in-depth audit of 41 grantee institutions that reported conflicts in FY 2006, the OIG found that equity interests represent the most pervasive form of financial conflict of interest. The most popular tool employed by entities managing conflicts is disclosure to publications or at academic presentations; entities only rarely required the reduction or elimination of conflicts.  As important, and unsurprising based upon AAMC surveys, is the unreliability of the conflict reporting mechanisms used by most academic institutions.

The OIG report emphasizes the need for increased oversight of conflicts of interest.  Academic medical centers have had plenty of time and forewarning to address the issue but, as demonstrated by a vignette described by Goldner about his own efforts to accomplish this through the IRB which he chaired, faculty resistance is significant.  Consequently, Goldner is exactly right in calling upon HHS to issue aggressive regulations that accomplish the necessary reforms.  He would require the establishment of conflict of interest committees at every research institution, comprised primarily of independent members, to which faculty would report all financial relationships that create conflicts of interest. Resolution of such conflicts would be a condition precedent to proceeding with proposed research, and violations would result in significant penalties, including debarment from research.

As shall be discussed in a forthcoming Seton Hall White Paper entitled The Limits of Disclosure as a Response to Conflicts of Interest in Clinical Research, I do not have confidence in benefits accruing from requiring disclosure of conflicts to research participants in consent forms, although research participants do have a right to know of such conflicts.  This is a minor quibble.  Goldner’s article is a great contribution to the literature. 

Private Equity in Health Care

As lawmakers squabble over the “carried interest” tax rate, it’s nice to find a big picture overview of some of the economic activity they’re discussing. I recently read Josh Kosman’s book The Buyout of America: How Private Equity Will Cause the Next Great Credit Crisis, and I highly recommend it to our readers. Kosman painstakingly describes the byzantine financial maneuvers behind marquee private equity firms which bought “more than three thousand American companies from 2000-2008.” He describes in detail how they resist transparency (164) and “hurt their businesses competitively, limit their growth, cut jobs without reinvesting the savings, and generate mediocre returns” (195). The recipe for high earnings is simple: the firms “get large fees up front and are largely divorced from their results if their transactions fail” (195).

Like Kwak and Johnson’s account in 13 Bankers, Kosman offers a political economy account of private equity’s favored treatment by government. As he notes,

[F]our of the past eight Treasury Secretaries joined the PE industry . . . . and they have significant influence in Washington. President Bill Clinton, and both President Bushes, have also advised PE firms or worked for their companies. . . . KKR retained former Democratic House majority leader Richard Gephardt as a lobbyist and hired former RNC chairman Kenneth Mehlman as head of global public affairs. (196)

Having analyzed a wide array of buyouts, Kosman concludes that “PE firms manage their businesses to satisfy short-term greed, not for long-term survival” (51). This is a particularly dangerous attitude in health care, an industry too long dominated by short-run thinking. There can also be a troubling trade-off between care and profit in health care, as the nursing home industry demonstrates.

It’s precisely this mentality that FDIC Chair Sheila Bair indicted in her testimony before the FCIC:

[W]hile the establishment of emergency backstops to contain financial crises can help to limit damage to the wider economy in the short-run, without needed reforms these policies will promote financial activity and risk-taking at the expense of other sectors of the economy. Corporate sector practices [have] had the effect of distorting of decision-making away from long-term profitability and stability and toward short-term gains with insufficient regard for risk. . . .Meaningful reform of these practices will be essential to promote better long-term decision-making in the U.S. corporate sector.

We can only hope that members of Congress keep both Bair’s and Kosman’s insights in mind. Congratulations to Kosman for authoring a compelling and well-researched analysis of one of the most troubling engines of inequality in the US.

Cross Posted at Concurring Opinions

Recommended Reading: Nonprofit & Tax Law

James J. Fishman’s Stealth Preemption:  The I.R.S.’s Nonprofit Corporate Governance Initiative, recently posted on SSRN, joins the growing chorus of critics of the IRS’s preemption of state nonprofit corporate law via the addition of an entire “governance section” to Forms 1023 and 990.  The underlying hypothesis is, of course, that by virtue of asking particularized questions regarding governance, the IRS will affect changes to facilitate the provision of the “right” answers on the respective forms; the IRS specifically acknowledges that no federal tax law addresses most of the issues about which it inquires.  The article is a great survey of the bases of criticism of the IRS foray into governance reform, particularly as it applies to the medium to small nonprofit.  It also catalogues examples of applicants being denied 501(c) (3) exemption as a result of concerns about, for example, conflicts of interest which, Fishman explains, the IRS appears to believe are per se bad, without an acknowledgement of why they may be necessary and appropriate for the small nonprofit, and can be managed, as is required by state law, to avoid foreseeable evils.  An important theme of Fishman’s article is the lack of empirical data showing that the IRS’s structural governance preferences actually have a positive substantive impact on the operation of nfps.

John D. Columbo’s The NCAA, Tax Exemption, and College Athletics, 2010 U.Ill. L. Rev. 109 is simply fun for those academics who enjoy complaining about the outrageous salaries of coaches, or who flinch at the reference to the “scholar athlete.”  More relevantly, however, Columbo’s article comprehensively outlines the doctrine relevant to analyzing the sparse legal guidance available regarding the assessment of the reasonableness of executive compensation, and whether it violates the prohibition on inurement or excess private benefit. This analysis is timely as well: the IRS may be on the verge of  delving into the salaries of coaches as part of its college audits. The article also makes incredibly accessible UBIT analysis, also of importance in teaching health law.  Like most of Columbo’s work, he makes hard concepts seem easy. As the IRS may be taking a closer look at coaches’ salaries.

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