Aaron E. Carroll's Blog, page 145

Why the feds must take the lead on health reform.

In yesterday’s post on my new draft essay, Federalism and the End of Obamacare, I emphasized the benefits of returning more regulatory authority to the states. Today, I’d like to draw out a different point: the need for the federal government to take the lead when it comes to financing health reform.

The states face two enormous obstacles to achieving near-universal coverage on their own. First, the states don’t have the same fiscal capacity as the federal government. Keep in mind that the ACA is a large, countercyclical spending program:

When a recession hits, many people will lose both their jobs and their employer-sponsored coverage. The ranks of those eligible for Medicaid and for ACA subsidies will predictably grow, leading to larger federal outlays. At the same time, the economic downturn will depress tax revenues. The federal government can deficit-spend to manage these countercyclical fluctuations. The states, however, cannot. With the exception of Vermont, the states are legally obliged to balance their budgets every year. And states are understandably reluctant to adopt large obligations that will require savage spending cuts or hefty tax increases when times get tough. Cuts and taxes are not only unpopular, but they would also depress the economy further, exacerbating the recession. Broad coverage expansions thus commit states to an economic policy that could inflict serious damage on their residents.

Second, ERISA poses an enormous problem for states that want to tackle health reform.

No government, state or federal, likes to impose new taxes. But governments face a special challenge when their residents can complain that the new tax is discriminatory. That problem arises with particular force when states try to impose new taxes to finance a coverage expansion. A resident who gets health coverage through her job—let’s call her Anna—already faces a reduction in take-home pay commensurate with the value of that coverage. Another resident who works at a similar job but does not get health coverage—let’s call him Bob—likely receives higher cash wages. Should Anna and Bob both face the same new tax, even if it finances a coverage expansion that will only benefit Bob?

Penalizing employers who fail to offer health coverage to their employees avoids this problem. “Pay or play” laws thus have a clear political logic: employers that don’t offer coverage are failing to live up to their end of the social bargain. They have a certain economic logic, too: if Bob starts getting coverage through his employment because of a pay-or-play law, he will see an offsetting wage reduction, tying the costs of coverage to the person who receives it.

The trouble is that ERISA preempts state laws that “relate to any employee benefit plan,” including a plan offering health coverage. Although there is some legal uncertainty, preemption probably means that states cannot impose a penalty on employers that refuse to offer health coverage. By taking pay-or-play laws off the table, ERISA complicates the politics of financing state efforts to achieve near-universal coverage.

Taken together, these legal obstacles—state balanced-budget rules and ERISA—will predictably frustrate state efforts to achieve near-universal coverage. (Massachusetts and Hawaii, as I discuss in the essay, are the exceptions that prove the rule.) Federal money is thus the lifeblood of health reform; the states can’t go it alone.

@nicholas_bagley

Federalism and the End of Obamacare

That’s the title of my new essay, which the Yale Law Journal Forum has published in draft form. Here’s the abstract.

Federalism has become a watchword in the acrimonious debate over a possible replacement for the Affordable Care Act (ACA). Missing from that debate, however, is a theoretically grounded and empirically informed understanding of how best to allocate power between the federal government and the states. For health reform, the conventional arguments in favor of a national solution have little resonance: federal intervention will not avoid a race to the bottom, prevent externalities, or protect minority groups from state discrimination. Instead, federal action is necessary to overcome the states’ fiscal limitations: their inability to deficit-spend and the constraints that federal law places on their taxing authority. A more refined understanding of the functional justifications for federal action enables a crisp evaluation of the ACA—and of replacements that claim to return authority to the states.

The upshot of the piece is that there’s much to be said—more than the ACA’s supporters generally acknowledge—for returning power to the states. That’s so even with respect to some of the ACA’s most sacrosanct provisions:

[C]onsider the ban on medical underwriting. The ACA reflects the judgment that it is unfair to deny coverage to the sick or to ask them to pay more for their coverage. The ACA thus embraces policies—in particular, the much-maligned individual mandate—that its drafters thought necessary to cope with the risk that people will wait until they got sick to purchase coverage. For the ACA’s supporters, the individual mandate is a reasonable price to pay to prevent discrimination against the sick. But many people don’t see it the same way. Some reject the claim that the government should be in the business of guaranteeing coverage for everyone. Others don’t think that medical underwriting, however distasteful, warrants a heavy-handed purchase obligation. Still others doubt that the individual mandate is strictly necessary to prevent adverse selection, and would prefer less-intrusive alternatives. If those who disagree with the ACA’s approach command the levers of political power within a state, why shouldn’t those states be allowed to try something different?

The argument can be generalized to most of the ACA’s insurance reforms. And I can already hear the response: Because this “something different” will not work. The ACA’s opponents are completely unrealistic about the tough tradeoffs that health-care policymaking entails. They will take federal money and squander it, leaving millions of people without coverage.

That might be right; indeed, I suspect it is right. But that’s my judgment. Lots of smart people do not share that judgment. And if federalism means anything, it is that national judgment should not supersede state judgment, absent a good reason for federal intervention. Yes, federal money might be squandered in a state that adopts stupid insurance rules. People could go bankrupt and even die as a result of the lack of coverage. But that’s an issue between the state and its voters. If other states use the money more effectively, the state with the stupid rules will come under pressure to improve them. And what if it turns out that what seemed stupid is not so stupid after all?

Democracy rests on the conceit that we all have an equal voice in determining what the good is, which is why Michigan voters don’t get to tell Ohioans how to spend their tax dollars, even if Wolverines know in their hearts that they make better decisions than Buckeyes. And while the federal government can make decisions for Ohio, it should not do so just because it doubts the wisdom, intelligence, or values of Ohio residents. “The states have bad ideas” is a poor justification for federal law (unless, again, those bad ideas turn on views about the inferiority of minority groups). Federalism thrives when we recognize the limits of what we know, appreciate that good people can hold views that many others find repugnant, and acknowledge that our own misconceptions and prejudices can blind us. Sometimes federalism means letting the states wave their crazy flags.

I’d welcome any suggestions and criticisms. And a big thank you to the Yale Law Journal, which has moved with stunning speed to get the piece up.

@nicholas_bagley

The mystery of back surgery’s variable popularity

The following originally appeared on The Upshot (copyright 2017, The New York Times Company). It was jointly authored by Austin Frakt and Jonathan Skinner. It also appeared on page A3 of the February 14, 2017 print edition. Click through to the original post to see a video of changes in geographic variation in back surgery rates over time.

You might think that once drugs, devices and medical procedures are shown to be effective, they quickly become available. You might also think that those shown not to work as well as alternatives are immediately discarded.

Reasonable assumptions both, but you’d be wrong.

Instead, innovations in health care diffuse unevenly across geographic regions — not unlike the spread of a contagious disease. And even when studies show a new technology is overused, retrenchment is very slow and seemingly haphazard.

Back surgery is a great example. In the early 1990s, when John Wennberg’s Dartmouth Atlas of Healthcare first started tracking treatment rates among older Medicare users, back surgery was relatively uncommon; 1992 rates were as low as one case per thousand in cities as diverse as New York and Johnson City, Tenn.

By 2006, average rates of back surgery had increased to 4.9 per thousand. The procedure had spread rapidly across the Northern Plains and Mountain States. Growth was especially significant in certain cities elsewhere — like Lubbock and Harlingen, Tex. Yet rates in New England and some parts of the Midwest had barely budged.

Even as back surgery’s popularity as a treatment for back pain began to rise in the 1990s, there was little solid evidence of its effectiveness. It wasn’t until 2006 that the first large randomized trial on the subject was published.

That study showed relatively modest benefits of surgery for many conditions that lead to back pain. While many patients felt better after a year, so did a nearly equal proportion of people in the control group who didn’t have surgery. However, years before that evidence was available, some regions had adopted back surgery at a high rate, while others had not.

The rates of back operations performed in hospitals began to flatten after 2006, but little was known about growth in the treatment in outpatient clinics, the same-day facilities with greater convenience and lower costs. Recently, Brook Martin and Sandra Sharp, two Dartmouth researchers funded by the National Institute of Aging, tracked outpatient as well as inpatient procedures through 2014. The finding: Rates of Medicare back surgery had grown 28 percent since 2006, with no decrease in regional variations; rates in 2014 ranged from 3 per 1,000 in the Bronx to 11.5 per 1,000 in Casper, Wyo.

The puzzling thing is why back surgery became more popular in certain broad regions, but not in others. Why, for example, did rates grow so rapidly in the Northern Plain states while rates in New England barely budged?

Our best guess comes from a study by Harvard and Dartmouth researchers, not on back surgery, but on cardiac treatments. It found that regional variation in Medicare spending is associated with variation in physician preferences for intensity of cardiac treatments, and to a greater degree when the evidence is ambiguous. Patient preferences exerted almost no influence. It’s likely that the pattern holds for back surgery, too, though it has not been studied in the United States.

It’s tempting to conclude that there are simply regions where the intensity of care of all types is higher — that some regions invest in all of the latest shiny technologies, while others don’t. This is too simple; Miami and McAllen, Tex., the two most expensive regions in the United States for overall Medicare spending, also clock in with among the lowest spine surgery rates. Instead, we see what Mr. Wennberg calls a surgical signature: Casper Wyo., has the highest back surgery rate in the country, but its cardiac bypass surgery is well below the national average.

This puzzling pattern once again points toward idiosyncratic physician beliefs. Orthopedic surgeons in a particular hospital may be more aggressive, while the cardiologists there are less so.

Though we can’t say this is the answer with 100 percent certainty, we can rule out some other explanations. One is how much surgeons are paid. Since Medicare pays the same price for the procedure (adjusted for cost of living) across the country, prices can’t explain the paradox. The high rates in Denver could also be explained by back pain sufferers who flock to star surgeons and well-known hospitals there, but this doesn’t hold water either. The way the statistics are compiled, if a medical tourist traveled from Des Moines to Denver, the Medicare record keepers would assign that operation back to the tourist’s home in Iowa.

Maybe it’s differences in health. Perhaps areas with rapid growth in back surgery were those where more people had back pain. Yet northern New England retirees had similar histories of hard physical labor in farming, lumbering and manufacturing, and were no more affluent than their counterparts in the Northern Plains states.

Another explanation might be that patients prefer surgery in some regions of the country. One study observed large variations in back surgery across small regions in Ontario, but these weren’t explained by patient preferences. That study, like others, found physician beliefs about the benefits of surgery were associated with surgical variations.

If physicians are driving back treatment choice, even for procedures not supported by evidence, what can be done? One approach is to provide patients with unbiased information about the potential benefits and risks of back surgery relative to nonsurgical therapy so they can make informed choices. But the concern remains that for people in intense pain, when the doctor says that “I get good results with surgery, and my patients generally feel much better,” the back surgery option, with little out-of-pocket cost, will be hard to resist.

Another option is for hospitals or insurance companies to audit outlier physicians, as in a recent example of a back surgeon with a pattern of unusually high billing. In his audit, nine of 10 procedures were deemed not medically necessary.

A third option is to push people toward high-quality back surgery centers. Walmart created a network of high-quality spine centers for its employees that includes Virginia Mason Hospital in Seattle and the Mayo Clinic. It charged hefty co-payments to anyone getting surgery outside the network. The company found about a third of referrals didn’t need back surgery.

Often discussed, the big challenge in health care is to reduce spending by cutting wasteful care. It seems just as important, though, not to let more waste creep in as it did with back surgery. Once it spreads widely, it’s very hard to undo.

AcademyHealth: Adverse drug events

Adverse drug events are a big deal, impacting half of hospital stays for adults 65 years old and older. My latest AcademyHealth post covers some of the other stats and issues.

@afrakt

 

Healthcare Triage: What We Know about Pot in 2017

Marijuana! You guys always want to know more about pot from Healthcare Triage. It’s also one of the most controversial and complex subjects we cover. And it’s time for an update on what we know, versus what we think, when it comes to the drug.

That’s the topic of this week’s Healthcare Triage.

Here’s the study itself.

@aaronecarroll

A congressional inquiry into orphan drugs

In response to a scathing report by Kaiser Health News, Senator Charles Grassley has announced an inquiry into the exorbitant prices for orphan drugs. Now seems like a good time to re-up my series on how to think straight about orphan drugs:

Background on orphan drugs and the Orphan Drug Act
Has the Orphan Drug Act worked?
The costs of the Orphan Drug Act.
Gaming the Orphan Drug Act, Part 1.
Gaming the Orphan Drug Act, Part 2.
The Orphan Drug Act’s enormous tax incentives.

As a bonus, I’m also linking to a short, draft paper on orphan drugs that I compiled during my stint at the World Health Organization. It hasn’t found a home yet, but I’ll try to get it published soon. (Comments are welcome.) Here’s the takeaway:

Some orphan drugs are immensely valuable, but many of the most valuable would have been developed even in the absence of orphan drug legislation. At the same time, manufacturers can receive orphan drug approval for repurposed drugs and for drugs that are sold to large numbers of people, which in turn fuels high prices for orphan drugs. Those prices strain pocketbooks in the developed world and leave patients in low- and middle-income countries with no way to access them. The costs of orphan drug laws may well outweigh their benefits; at a minimum, reform is needed.

In particular, terms of regulatory exclusivity should end when a drug is prescribed to a patient population exceeding the orphan-drug threshold—in other words, when the drug is no longer an orphan drug. EU law already allows a reduction of the exclusivity period to six years when a drug is deemed sufficiently profitable, but the authority has not been exercised. In addition, exclusivity should be available only where a manufacturer has developed a genuinely new compound, not when it has repurposed an old drug.

Manufacturers should also be required to pay back R&D subsidies once drug sales exceed any plausible estimate of development costs. In Japan, for example, manufacturers must repay R&D subsidies for drugs with annual sales that exceed 100 million yen (Wellman-Labadie 2010). The same approach should be adapted elsewhere.

It is crucial to recognize, however, that reforming orphan drug laws may not much reduce the prices of orphan drugs. Most would still be patented and the demand for the drugs would still remain high. To reduce prices, payers will have to consider the value of the drugs that they purchase. Where an orphan drug is not cost-effective—where yields only incremental health improvements at an enormous price tag—payers must be empowered to say “no.” Some governments have taken steps in that direction. Sweden, for example, has declined to pay for about half of newly approved orphan drugs (Garau 2009). If a critical mass of developed nations followed Sweden’s lead, drug manufacturers would come under considerable pressure to cut their prices.

@nicholas_bagley

Healthcare Triage News: A Study on Fish Oil Supplements!

I spend a lot of time knocking supplements for not having research behind them. It’s important therefore to highlight when such research is done.

If you want to read more, here’s the paper we’re covering: Effect of Fish Oil Supplementation and Aspirin Use on Arteriovenous Fistula Failure in Patients Requiring Hemodialysis: A Randomized Clinical Trial

@aaronecarroll

The feds have been ordered to cough up risk corridor money.

A judge on the Court of Federal Claims has entered a $214 million judgment against the United States in favor of Moda Health, an Oregon insurer. Moda sued to recover money owed to it under the risk corridor program, a three-year program that was supposed to protect insurers from excessive losses on the exchanges. In emphatic language, the court ordered the government to pay up.

The Court finds that the ACA requires annual payments to insurers, and that Congress did not design the risk corridors program to be budget-neutral. The Government is therefore liable for Moda’s full risk corridors payments under the ACA. In the alternative, the Court finds that the ACA constituted an offer for a unilateral contract, and Moda accepted this offer by offering qualified health plans on the [exchanges]. …

Today, the Court directs the Government to fulfill [its] promise. After all, “to say to [Moda], ‘The joke is on you. You shouldn’t have trusted us,’ is hardly worthy of our great government.” Brandt v. Hickel, 427 F.2d 53, 57 (9th Cir. 1970).

This is exactly right. Even before the first risk corridor lawsuit was filed, I argued that insurers had viable claims against the federal government for any deficiencies. I’ve expanded on that view in an article in the New England Journal of Medicine and in extensive coverage on the blog. It was only a matter of time before a court entered a money judgment against the United States.

The stakes are enormous. Under the court’s reasoning, every insurer—not just Moda—can sue to recover its risk corridor money. Already, the government owes $8.3 billion for the first two years of the program. Total liability will certainly exceed $10 billion, and will probably be closer to $15 billion.

Will the government pay up? It’ll appeal to the Federal Circuit, but a pending case is likely to resolve the matter. In November, a different judge on the Court of Federal Claims dismissed a risk corridor lawsuit brought by Land of Lincoln. That decision is wrong, and it’s already been appealed. Land of Lincoln filed its opening brief at the end of January.

I expect the Federal Circuit to side with Land of Lincoln, probably sometime this summer or fall. However it rules, the appellate court’s decision will resolve the legal issue at the heart of all the risk corridor cases. Supreme Court review is then a possibility.

But the real wild card here isn’t the courts. It’s Congress. Without an appropriation, the federal government can’t make any payments from the U.S. Treasury, even to satisfy court judgments. As it stands, an indefinite, open-ended appropriation called the Judgment Fund exists to pay money judgment against the U.S. But Congress can amend the statute governing the Judgment Fund to prohibit any payments in connection with the risk corridor program.

Were Congress to sew up the Judgment Fund, the federal government couldn’t pay the judgments entered against it. The obligations would exist in the abstract, but no money would be available to satisfy them. And because the appropriations power has been vested exclusively in Congress, the courts can’t order Congress to appropriate money if it declines to do so.

The judge in Moda is right, though. Refusing to pay is a shabby way to treat insurers, which entered the exchanges in reliance on the federal government’s promises. Our president, however, has a track record of stiffing business partners. I wouldn’t be surprised if he signed a law doing just that.

@nicholas_bagley

How Would Republican Plans for Medicaid Block Grants Actually Work?

The following originally appeared on The Upshot (copyright 2017, The New York Times Company). 

There are only so many ways to cut Medicaid spending.

You can reduce the number of people covered. You can reduce the benefit coverage. You can also pay less for those benefits and get doctors and hospitals to accept less in reimbursement. Or you can ask beneficiaries to pay more.

None of those are attractive options, which is why Medicaid reform is so hard. Medicaid already reimburses providers at lower rates than other insurance programs. How do you reduce the number of beneficiaries when the vast majority of people covered are poor children, poor pregnant women, the disabled, and poor older people? Which of those would you cut?

Reducing benefit coverage has always been difficult because most of the spending has been on the disabled and poor older people, who need a lot of care. Beneficiaries don’t have much disposable income, so asking them to pick up more of the bill is almost impossible.

That doesn’t mean that states haven’t tried. As I’ve discussed in past columns, a number are attempting to increase cost sharing. But this isn’t really a solution because it doesn’t change overall spending much at all.

Part of the challenge lies in the way Medicaid was set up in the first place. The federal government picks up between 50 percent and 100 percent (depending on the population and the per-person income) of whatever it costs to provide health care to a state’s population. Many, if not most, Republican plans would like to change that.

They are pushing for what many refer to as a block grant program. The federal government would give a set amount of money to each state for Medicaid; it would be up to the states to spend it however they like. These block grants could be set based on overall past state needs or based on the number of beneficiaries in the state, referred to as a “per capita” block grant. Some per-capita block grants function more like “ceilings” than outright grants, allowing the state to be paid at normal Medicaid rates, but with a maximum each state could get based on the per-capita calculation.

The supporters of such plans have a point. Medicaid has all kinds of complicated rules, which can create perverse incentives throughout the system. It’s possible that the needs of one state are different from another, and that with more leeway in how Medicaid is administered on a local level, states could improve how they manage health care for the poor. It’s also true that the needs of the beneficiaries are widely different (children and the disabled, for example), and that treating them under one large program is inefficient.

The fiscal magic behind a block-grants approach is that the federal government can then set how quickly the amount they’re responsible for will increase over time, regardless of how quickly medical spending grows. If a gap develops between how much a state needs to spend, and how much the block grant provides, it’s up to the state to make up the difference. Those who support such a plan argue it gives states greater flexibility to make their own Medicaid programs work better.

A recent New England Journal of Medicine article provides some perspective on how this might work by looking at what happened before Medicaid was created in 1965. Care for the poor in the 1950s was done through direct reimbursements to providers. It was calculated on a per-capita basis — the average cash and medical needs of those the programs covered. Those amounts were capped, based on age and demographics. This is quite similar to how many Republican proposals might function.

When these capped amounts weren’t enough to pay for the programs, states had to make cuts. They began to restrict who would be covered, what would be covered and how much care beneficiaries could use. Some states refused to cover children at all. Others didn’t cover doctors’ visits or drugs.

In the early 1960s, the programs had only 3.4 million beneficiaries nationwide.

The 1965 Medicaid law removed these caps, and today Medicaid covers about 81 million people, or about one in four Americans. By 1980, spending in the program had grown by a factor of 10, and many politicians began to panic about the cost. This rise appears to have come not as much from a rise in benefits or payments as a huge increase in enrollees.

Andrew Goodman-Bacon, an economist at Vanderbilt University and one of the authors of the article, told me: “From the time Medicaid began until 1980, the amount spent per Medicaid recipient went up about 68 percent. The number of enrollees, however, went up almost 700 percent. Moreover, since 1980, the amount spent per Medicaid beneficiary has been almost flat, at just under about $5,800.”

Given that the growth in Medicaid spending seems mostly because of increases in the number of people benefiting from the program, it seems logical that one of the few ways to cut spending is by reducing that number.

The fact that so much of the discussion about Medicaid block grants centers on cuts points to most policy makers’ assumptions that cuts will need to be made. According to the Center on Budget and Policy Priorities, the House Republican budget plan for fiscal year 2017 (if it had passed) would have led to a reduction in Medicaid spending by $1 trillion over a decade. By 2026, federal funding for Medicaid would be one-third less than under current law.

From states’ point of view, whether they are reimbursed by a block grant or a percentage of coverage doesn’t really matter as long as the amount is enough. Almost no block grant plan allows for this, though. Planned cuts are how block grants make future federal budget projections look so good.

There’s no magic in how Congress reduces spending under a block grant mechanism. It just says it will do so, and leaves the hard decisions to others. It’s possible that some states will come up with solutions we haven’t been able to see before, and find a way to reduce spending without causing problems. If they can’t, though, they will have to make do with less, make the hard choices and face the brunt of the blame.

@aaronecarroll

AcademyHealth: Population health can be improved with proper planning and honest assessments

It can sometimes feel like there’s nothing we can do to improve population health. That’s just not true. Go read more in my latest post over at the AcademyHealth blog!

@aaronecarroll