Category Archives: Economics of Health Care

More Hospital Access Does Not Equal More Health

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Nathan Petek writes,

I construct a hospital-level panel using American Hospital Association data from 1982-2010 that includes measures of the quantity of health care and indicators for hospital entry and exit. I combine this file with county-level measures of health, including mortality rates from 1982-2010 and self-reported health from 2002-2010, and detailed health care utilization and mortality data for all Medicare fee-for-service enrollees from 1999-2011.

He finds that having more hospitals in an area does increase the utilization of medical resources. It does not improve health outcomes. Like all studies, this one by itself is not convincing. But it does add to the huge pile of studies that go into the Hansonian medicine file.

Pointer from Tyler Cowen.

An Antidote to Obamacare

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James Capretta and others put together a comprehensive health care policy proposal. If the 2016 Presidential campaign ever gets serious, this is probably the plan that the Republican nominee should be pushing. A brief excerpt:

Health Savings Accounts (HSAs). HSAs should be a central component of health care in the United States. The accounts provide strong incentives for their owners to seek the best value for their health care purchases, and they provide a ready vehicle for providing additional protection against high medical expenses. Existing rules should be modified to allow all Americans to make annual contributions to an HSA, and a new, one-time federal tax credit would provide a strong incentive for those without accounts to establish them. HSAs should also be fully integrated into the Medicare and Medicaid programs.

The goal of their reforms is to increase consumer choice and market incentives in health care. They want to reduce the centralized management from Washington that was in place prior to Obamacare and then was greatly expanded by that legislation. Their proposals seem to me to accomplish those goals, and I believe that the result would be much better performance of the U.S. health care system.

Timothy Taylor on Hansonian Medicine

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He writes,

The good news is 50,000 fewer deaths, along with health improvements and saving money. The bad new is that the rate of hospital-acquired conditions basically fell from one patient in every seven patients to one out of every eight. Sure, hospital-acquired conditions will never fall to zero. But it certainly looks to me as if at least tens thousands of lives were being lost each year because that rate had not been reduced, and that tens of thousands of additional could be saved be reducing the rate further.

Read the whole post.

Robin Hanson has observed that:

1. Some medical interventions clearly prolong life.

2. On average, medical interventions do not prolong life.

He infers from this that the successful interventions must be offset by interventions that make things worse.

Hard to do Large Clinical Trials

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With this:

Speaking this week at the EmTech conference in Cambridge, Massachusetts, Editas CEO Katrine Bosley said the company hopes to start a clinical trial in 2017 to treat a rare form of blindness using CRISPR, a groundbreaking gene-editing technology.

…The condition Editas is targeting affects only about 600 people in the U.S., says Jean Bennet, director of advanced retinal and ocular therapeutics at the University of Pennsylvania’s medical school.

I don’t think that the FDA is prepared for what is coming.

Megan McArdle on Catastrophic Reinsurance

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She writes,

The government would pick up 100 percent of the tab for health care over a certain percentage of adjusted gross income—the number would have to be negotiated through the political process, but I have suggested between 15 and 20 percent. There could be special treatment for people living at or near the poverty line, and for people who have medical bills that exceed the set percentage of their income for five years in a row, so that the poor and people with chronic illness are not disadvantaged by the system.

This is part of asymposium to try to address the problem that pre-existing conditions pose for standard health insurance.

I strongly agree that a simple, minimalist government solution that leaves plenty of room for market innovation would be the best approach.

Perspectives on U.S. Infant Mortality

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New genius-grant winner Heidi Williams and colleagues write,

Effectively, either across countries or across regions within the US, we see that the observed geographic variation in postneontal mortality is heavily driven by variation in health gradients across socioeconomic groups. Notably, when we look at neonatal mortality we do not draw the same conclusions, suggesting that the inequalities we observe emerge especially strongly during the postneonatal period

Pointer from Joshua Gans. Read the paper before commenting. You will note that she deals with reporting differences.

Thoughts on Drug Pricing

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A reader asked me to comment on this story, about the guy whose firm bought the license for a drug and then jacked up its price.

1. I don’t know the whole story in the example. My understanding is that with a decades-old drug, the patent is no longer effective, and generics can be made. So there is something going on here that has not been explained in the stories that I have read.

2. In theory, if someone bought a license to a drug, the cost of the license was tied to the potential revenue from the drug. We might want the value of such a license to be high in order to encourage drug research and development. But again, I am missing some important institutional details in this case.

3. Assuming that the value of the license for the drug indeed is high, then this is a fixed cost. Like many products nowadays (electricity, data transmission, digital content), pharmaceuticals are characterized by low marginal cost and high fixed cost. A price that is efficient in that it is close to marginal cost is too low to cover the fixed cost.

4. This means that there is no price that is “correct.” It also means that price discrimination often can improve the outcome. That is, charge a high price to the people willing to pay such a price, but get additional revenue by charging other consumers a price closer to marginal cost. As I tell my economics students, “price discrimination explains everything.”

5. Another option, in the case of pharmaceuticals, would be to offer prizes instead of patents. Prizes could be funded by taxpayers, or they could be funded by associations of people who would benefit from the medications.

6. However, price controls on medications treat only a symptom, without getting at the underlying problem. Price controls will lower the value of licenses to produce a drug, and that means less incentive to undertake research and development.

UPDATE: Alex Tabarrok says that we thank the FDA for the lack of generic competition.

Also, on this post, commenter Matt had an interesting solution. He would have the FDA issue blanket licenses to proven-quality generic drugmakers, so they they could instantly start to copy any drug that goes off patent without having to submit samples of that particular drug for approval.

Judging Performance from Outside an Organization

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Adam Ozimek writes,

I do think that those who are skeptical of our ability to meaningfully measure school performance are expressing a level of data and empirical skepticism that is not applied elsewhere.

You should read the whole post. I’ve seen excerpts from Tyler Cowen and Don Boudreaux, and neither their excerpt nor mine really conveys what Ozimek is complaining about.

My own view is that judging an organization from the outside is hazardous. I remember when Harvard’s David Cutler was touting pay-for-quality as the solution for compensating doctors, and I considered the notion absurd. If people in Washington know what individual doctors should be doing and how they should be paid, then they must also know what individual middle managers throughout the business world should be doing and how they should be paid.

Organizational outcomes should not be judged by statisticians running regressions. They should be judged by consumers voting with their dollars (using vouchers would count as voting with their own dollars).

Individual performance in the context of an organization should not be judged by Harvard economists. It should be judged by their managers, who know the context in which they work.

The problems with education and medical care is that we insulate consumers from paying with their own money for those services. This imposes a socialist calculation problem, with adverse consequences in both areas.

Would Universal Health Coverage Help the Poor?

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Apparently, Larry Summers wants to stake out that position. Pointer from Tyler Cowen.

I seriously doubt that medical services are the relevant margin for improving the health of the poor. Public health measures I can see. Otherwise, my bet is that economic growth and diffusion of knowledge are the relevant margins.

Of course, if Larry believes otherwise, he is always welcome to donate his own funds to relevant charitable causes. As long as he does not take my money to donate to his preferred causes.