That Costs How Much?

April 7, 2017

My wife was recently trying to book a flight for business travel. The price of the flight on one airline from Minneapolis to DC varied from $700 to $2000.  How is it possible for the cost to vary three-fold?  The answer is, it doesn’t.  The cost depends primarily on how many people are needed to staff the plane, and how much fuel is used.  The cost of those flights was exactly the same.  It is the price that varies.  The point is, we often say that the $2000 flight costs more, but it depends on what we mean by cost.  The cost to the airline is the same.  The cost to my wife is very different.

The same is true when we talk about costs in healthcare. When you read about healthcare costs, it’s often a challenge to figure out exactly what is being addressed.  Do we mean the cost to the hospital to provide the service?  The cost to the patient?  The cost of the insurance?  Any can be true depending on the context.  However, in the end, what someone (whether a patient family or an insurer) pays for healthcare is ultimately tied to the cost of providing that care.  Just like the cost of a plane ticket is at root tied to the cost of staff and fuel.  Other factors, especially supply and demand, affect the price, but it starts with the cost of production.  So if we want to address the high cost of healthcare – whatever that means – we have to address the high cost of healthcare.

Like any other product, the cost of providing a healthcare service can be broken down into its parts. As in most service industries, labor is the biggest part of the cost.  Doctors, nurses, social workers, interpreters, pharmacists, etc.  These are highly trained individuals, and thus not easily replaced with cheaper labor.  Moreover, much of their work is not readily amenable to automation or outsourcing (though there are numerous examples of both).  Economist William Baumol refers to this as the “cost disease” that helps explain why healthcare costs (along with those of education and live entertainment) tend to rise faster than the cost of other goods and services.  Other main drivers of healthcare costs include equipment (which is typically expensive and rapidly obsolete) and supplies, especially pharmaceuticals.

To figure out the cost of providing a particular service – say, an MRI – you need to know the unit cost of each of the components, and the number of them you use. Unit cost might include a certain number of hours of nurse, radiation technologist, and physician time, a portion of the depreciation of the scanner itself, and medications for contrast or sedation.  You can bring down the cost of the MRI by getting cheaper components (for example, paying the radiologist at a lower rate, or using a less expensive contrast agent), or using fewer of those components (for example, not using contrast).

One more thing. The total cost of providing care is then the sum total of the cost of all of those particular services. The cost of caring for a child with appendicitis, for example, is the sum total of the cost of the various diagnostic tests, medications, and other therapies.  You can lower the cost of an appendectomy by making a CT scan cheaper to do, or you can lower the cost by doing fewer of those CT scans in the first place.  This is the heart of efficiency which, along with effectiveness and safety and patient-centeredness and equity, is one of the core domains of healthcare quality.

Why does this matter? The overall amount of money spent in the US on medical care continues to rise.  For individual families and for society as a whole, medical spending is starting to crowd out other priorities.  Families must choose between medical care and clothing.  States must choose between medical care and education.  You can’t open a newspaper or go on the Internet without hearing that people are unwilling to continue to spend more on healthcare.  Which means we in healthcare need to figure out how to lower the cost of that care.  Not lower the price.  Lower the cost.  We need to be compensated fairly for the service we provide, but we can’t simply advocate for more. We must become more efficient so that we can continue to provide care, and so that our patients and families will continue to be able to access it.  Otherwise someone else – likely someone who is not as knowledgeable about what it takes to provide excellent care, and someone with less personal investment in the outcome of the care – will do it for us.  And we won’t like the result.

But we can do it. Health professionals are smart, creative, and committed.  As an industry we have made healthcare more effective and safer than ever.  We can also, without sacrificing those other domains of quality, make it more efficient.  Otherwise people will forego it – just like my wife declined that $2000 flight to DC.

Sticker Shock

December 4, 2012

Health care costs are now an estimated 17.9% of GDP in the US, far higher than the next highest country (the Netherlands, at 12.0%), and projected to top 20% in the next 5 years.  You’ve all heard the outrage expressed in various media.  But what if health care spending were over 60% of GDP?  This is what economist William Baumol predicts will happen by 2105.  But the more shocking point he makes, in his book “The Cost Disease: Why Computers Get Cheaper and Health Care Doesn’t,” is that it is OK if the share of our national spending devoted to health care rises to that level – that it is to be expected, and is not at all a problem.  [I must admit that while the concept is fascinating, the book is overly repetitious, and a bit sloppily written and edited; it could easily have a been a Harvard Business Review or New Yorker article – in fact, it was a New Yorker article back in 2003.  That said, it’s fairly quick and easy reading, if the discussion below leads you to want to know more.]

The central concept, the “cost disease,” was first described by Baumol and William Bowen in the 1960s, in the context of higher education costs.  Here are the main points:

  • Productivity increases over time.  We learn more efficient ways of doing things – assembly lines replace artisanal shops; robots replace humans.  (I’m talking strictly about economic efficiency, not quality, human dignity, etc.)  As overall productivity in the economy rises, it leads to higher wages, since more productive workers can command greater pay.
  • With higher productivity, a business can create more with less.  Even after rewarding workers with higher pay, costs may remain stable or even decline.  So overall, an increasingly productive economy leads to a more prosperous society.
  • Productivity rises unevenly.  Some sectors of the economy, such as manufacturing, agriculture, telecommunications, retail (scanners and self checkout lines at the grocery store), and finance (ATM’s, on-line banking), are more amenable to mechanization and outsourcing.   Others, such as health care, education, police and other public services, and entertainment, rely more on a handicraft, or human, element that is harder to replace.  The former will have above average productivity increases; the latter, below average.
  • Because those productivity increases are unequal across parts of the economy, prices in the higher productivity sectors will tend to decline, or go up relatively slower than those in the areas where productivity gains are more stagnant.  Hence, computers and cell phones get cheaper, while education and health care get more expensive.

One of his important points is that the relative rise in health care costs is not primarily because of the usual suspects: rising demand (there has been an even greater increase in demand for computers than for health care), lack of competitiveness in the health care sector (there is probably even less in big agriculture or telecom), or malpractice costs.  It is a consequence of the inherently human dimension of health care.   Thanks to technological advances, productivity in the computer industry rises about 60% per year.  Can you imagine a physician or nurse seeing 60% more patients each year?

But here’s where the argument gets interesting.  Over time, on average, wages will go up faster than prices, and people will be able to buy more of everything .  The standard of living for a middle class American in 2012 is substantially greater than in 1960, and he or she has lots more stuff.  Because of the cost disease, the goods and services that have a greater need for personal contact with real people – what Baumol calls the “stagnant” sectors of the economy – will be relatively more expensive, and therefore consume a greater proportion of all spending.  So health care goes from almost 18% of all spending now to 20% in 5 years to 63% in another 90.  But at the same time, we can easily fit all the rest of the stuff we need and want – and more – into the other 37%, because we’ll benefit from the awesome productivity changes in  those other sectors, leading to higher wages and crazy low prices on tablets and phones and food and so on.  In other words, spending almost 2/3 of all of our money on health care is not a problem.

Baumol argues that there are important policy implications:

  • We should stop trying to control health care costs by decreasing demand for services, or by cutting per unit costs (i.e., payments to providers).   This will only lead to shortages and poor quality, especially for those of limited means, as has happened to public services of many types.
  • While it is reasonable to be as efficient as possible – following evidence-based practice, developing personalized medicine, leveraging information systems, and investing in prevention and wellness – politicians and voters need to understand that this will only shift the cost curve, but not bend it.  The rate of increase will continue to outpace other areas because the human-centric basics of health care delivery will always be subject to the cost disease.
  • The focus needs to be on redistribution – making sure that either wages for all continue to keep up with the cost of essential services, or that there is some subsidization for those whose earning power is slipping.

All quite provocative, and in some ways reassuring.  What health care crisis?  But there are a few crucial questions we need to ask ourselves before we get too complacent. (What, me worry?)

  • How little room for productivity increase is there really?  More and more health care interventions are becoming automated (from self-service blood pressure screenings and medical Web sites as sources of information instead of physicians, to remote sensing and electronic ICU capacity that allows one intensivist to staff several ICUs), and outsourced (teleradiology in India, medical tourism).  The centrality of the face-to-face human contact is diminishing.
  • How much does the increasing income disparity in the US undermine the “on average this is logical and a good thing” argument?  For example, it is precisely in those parts of the economy where productivity has been growing the fastest that wages have been most stagnant and ability to afford health care has declined.  And the concept of income redistribution has never been an easy sell in this country.  What makes sense in the economic abstract does not always translate into political reality.
  • How willing are politicians and the public to engage in the sort of sophisticated analysis required to move our public policy in this direction?  It’s a whole lot easier to complain about overuse, waste, and fraud than to ask philosophical questions about the allocation of benefits in society.
  • At a certain point, isn’t sticker shock going to set in and people are going to freak out?  It’s all well and good  to rationalize that we can afford, as a society, to spend 63% of our income on health care, but come on, it’s 63% of our income!

 In this last point, Baumol may be onto something.  Let’s look at music – specifically, recorded (technology-driven, fast productivity growth) vs. live (human-centered, stagnant productivity).  In 1980, the average price of a record album* was $8, and now an equivalent CD goes for around $16.  On the other hand, a ticket to a Springsteen concert was $9.50 in 1980, but averages around $95 today.  And nobody seems to flinch at paying that cost to see the Boss.

*an ancient sound recording technology similar to a CD but harder to fit into the dashboard of a car


March 1, 2017

We’re starting to see why those who supposedly hated Obamacare have been so reluctant to say what their replacement plan is.  It’s because it’s essentially Obamacare, minus the good things.  Their replacement is “Nobamacare.”  And it’s not likely to work.

First, let’s recall why health reform was such a big issue in the 2008 election.  15% of Americans were without health insurance at that point, the highest number since the creation of Medicare and Medicaid in the 1960s, and a figure that was increasing steadily over the prior 5 years. There are two basic approaches to trying to correct this.  One is a national health plan, where healthcare is either paid for (e.g., Canada) or provided by (e.g. Great Britain) the government.  The other is to work through the free market, using a combination of carrots and sticks to make private insurance more affordable, and incentivizing people to purchase it.  Over decades, and true to form, Democrats have tended to favor the former, while Republicans have promoted the latter.  Until, that is, Barack Obama was elected.  He essentially adopted the Republican idea of working through private insurance.  The Affordable Care Act – a.k.a. Obamacare – is almost exactly the same market-based plan as that instituted in Massachusetts by Gov. Mitt Romney (yes, the same Republican Mitt Romney who ran against Obama in 2012).  In fact, Democrats initially wanted to compromise on a hybrid where there would be a public option – that is, people would be able to choose among private plans or a public plan similar to Medicare – but that was dropped in a futile effort to get Republican legislators to support the Republican plan.

So, Obamacare was basically an effort to increase private insurance coverage (OK – there is one exception which I will get to in a minute). The reasons there were 48 million people without health insurance included that it was too expensive, that there were practices that prevented people from getting covered (e.g., companies refusing to give a policy to someone with a pre-existing condition), and that some people chose to take the risk of not having insurance. Trying to increase coverage through private insurance meant lowering costs, removing barriers, and incentivizing people who were choosing not to buy insurance.

The ACA plan to increase coverage addressed each of those.  To attack the issue of costs, Obamacare sought to create a better marketplace.  The theory was that if you could increase competition, costs would drop and most people without insurance would be able and willing to buy it.  Adam Smith wins again.  So the ACA created an insurance marketplace (sometimes called the “exchange”).  People who did not have insurance through their employer would be able to go on line, compare several insurance plans with information on what they covered, which providers were included, and how much they cost – sort of an Expedia for health care – and competition would drive down prices.  Removing barriers meant preventing insurance companies from excluding those with pre-existing conditions, or placing lifetime caps on coverage which would toss many people with expensive illnesses like prematurity or cancer off the policy part way through their treatment.  And finally, incentives included both carrots – premium and cost-sharing subsidies for lower income people, allowing young adults to stay on their parents’ plan, and requirements that preventive care be covered without cost-sharing – as well as the stick of the individual mandate, which required everyone to have insurance or pay a fine. (Here is where that private insurance exception comes in.  The architects of the plan realized that some people were too poor to buy insurance no matter how many carrots or sticks were offered.  Therefore, one element of the plan was to expand Medicaid to make sure that all those below the poverty line were covered.)

OK, with me so far?  Obamacare was a Republican plan, implemented by a Democratic president, to expand health insurance coverage through the miracle of the free market.

So what happened?  Well, as far as the primary goal of increasing the number of people with health insurance, it was a big but not complete success, with some 20 million additional people covered by 2016.  Also on the plus side, the tens of millions of people predicted by naysayers to lose their employer-based coverage – that never happened.  Of course, that still leaves a lot of uninsured – over 25 million.  Of those, half cite cost as the reason they remain uninsured.  And this is not surprising, since after an initial flattening, health insurance premium costs have started to increase more rapidly again (though at a slower rate than before the ACA).  Why?  There are several factors.  Many insurance companies, in an effort to gain market share quickly, underpriced themselves in the marketplaces.  As competitors dropped out, they jacked up their prices.  Also, fines for not buying insurance under the individual mandate were very low, so lots of healthy people continued to forego insurance, meaning companies were covering a sicker and more expensive population than they expected. Finally, despite its title, the Affordable Care Act did little to address the root causes of high health care costs including private insurance overhead.

So what do the Republicans plan to do?  Instead of expanding health insurance coverage through the miracle of the free market, it appears they plan to expand health insurance coverage through the miracle of the free market.


Yes, that’s right, the mainstay of Nobamacare is the insurance marketplace.  So what, you may ask, will be different?  That’s not entirely clear, but the main things seem to be changing the incentive system.  Rather than offering subsidies that vary based on income, Paul Ryan’s plan calls for tax credits and incentives to contribute to health savings accounts.  Both of these would be tilted toward those with higher incomes.  Moreover, the Medicaid expansion for the poorest would be reversed.  In other words, there would be fewer incentives for those most in need of incentive.  Given what we know about who is not covered – coverage increased least among the poor in states that did not accept the Medicaid expansion, and inversely proportional to income among those above the poverty line – that is simply not going to make things any better.  And like the original Obamacare, “Nobamacare” does virtually nothing to address healthcare costs.  If that were my plan, I’d be scared to release it too.

Now, I tend to agree that Obamacare has not lived up to its promise.  It has increased coverage, but less than hoped.  It has slowed healthcare spending, but less than hoped.  But the reason is not because it is insufficiently free market.  Rather, it demonstrates the limitations of the “free market” in healthcare.  Acknowledging the shortcomings in those ideas in the first place would be a start. Calling Obamacare something else because Republicans can’t abide the fact that a Democrat took credit for implementing their ideas isn’t the answer.  Maybe turnabout is fair play: today’s most prominent New York Republican, now that he realizes that healthcare turns out to be complicated, could steal the Democrats’ idea of “Medicare for all” and name it after the New York Republicans who also supported that idea in the 1970s.  He could really shake things up and introduce a single-payer Javitscare or Rockefellercare.  Now that would be interesting.  That would be progress.

Worried Wellness

January 9, 2015

CHW LogoI signed up for the 2015 “Healthy Rewards” (the Children’s Hospital of Wisconsin workplace wellness program) within about five minutes of getting the email that it was available.  Aside from the fact that I’m a bit on the competitive side, I figure the only thing better than having good health care when you’re sick is staying well in the first place.  For employers, a healthy workforce should have all kinds of benefits,  including lowering their health care costs, which helps explain why Children’s, along with over half of all US businesses, offers a wellness program (with larger companies more likely to have them).  In fact, workplace wellness is a $6 billion a year industry.  Must be a smart investment, right?

That’s not entirely clear.  A recent NY Times article, citing several reports and systematic reviews, called into question the health and financial benefits of these programs.  At the risk of oversimplifying, here’s a summary of the salient points from those articles:

1)  Studies of the impact on employee health are generally poorly designed and have mixed results.  Better designed studies (i.e., randomized trials) are less likely to show benefits, but still half of these have demonstrated that wellness programs lead to improvements in some aspects of health including exercise, weight management, and smoking cessation.

2)  Programs that are focused on disease management (e.g., targeting employees with chronic conditions and incentivizing them to better management and preventive care) have a generally better impact than those focused on more general lifestyle management or screening.

3)  The overall benefit of these programs is probably muted by the fact that on average fewer than half of eligible employees participate, with some evidence that those most likely to benefit are the ones who are opting out.

4)  Overall wellness programs seem to save employers money, but part of that is from shifting costs to employees (e.g., higher premiums for those who do not meet screening criteria).  Most studies showed a positive return on investment, but the quality of these studies was low.

5)  Key facilitators of success include making wellness activities convenient and easily accessible for employees, and making wellness an organizational priority among senior leaders.

So yes, the jury is still out; it’s not a slam dunk that these programs are all they are cracked up to be.  But if half the randomized trials indicate a positive benefit, I’d say the glass isn’t half empty, it’s half full – of clean, non-bottled tap water, of which we ought to drink 64 ounces a day.  In the meantime, go ahead and sign up.

“Obscure Diagnoses” for $30,000, Please

November 7, 2014

CHW LogoAsk your doctor if you might be suffering from “restless legs syndrome.” Or “low testosterone,” or “social anxiety disorder.”  We’ve all seen the ads suggesting that our legs cramps or aging or shyness might instead represent a disorder with a name.  One that, not coincidentally, could be helped by a medication manufactured by the sponsor of the ad.  A medication for which you can ask your doctor for a prescription.  But while doctors like to complain about Big Pharma’s “diagnosis mongering,” what if we are also part of the problem?

Overdiagnosis: How Our Compulsion for Diagnosis May Be Harming Children,” in the November issue of Pediatrics, raises this question.  The authors here are not referring to the kind of pseudo-disorders pedaled by industry.  By overdiagnosis they mean the discovery of a true abnormality, where the diagnosis does not benefit the patient.  This may include minor forms of a condition that would neither benefit from treatment nor be expected to progress to something more severe, or conditions for which treatment has been shown not to affect outcomes.  Think of low levels of elevated bilirubin in a newborn, asymptomatic skull fracture due to minor accidental trauma, or positive IgE blood test results indicating a response to food allergens in the absence of clinical symptoms.  None of these is treatable, and even knowing the diagnosis isn’t helpful in any way.  Yet physicians often perform – and sometimes parents request – tests for these and other diagnoses.

What is behind this drive for a diagnosis that doesn’t matter?  The article cites a few groups of factors.  One is industry influence.  There is no doubt that advertising does drive some demand.  (There is a reason pharma spent $4.5 billion on direct-to-consumer advertising in 2009, in addition to support for various disease advocacy groups, with varying degrees of legitimacy.)  Another is incentives in the current health care system.  For one thing, providers are often financially rewarded for unnecessary testing and care.  A review of pediatric quality measures also shows a marked bias toward indicators focused on underuse of resources rather than overuse.  Public perception that diagnosis is more precise than it really is, coupled with an intuitive sense that it must be better to detect disease, as another factor.  But the largest influence, according to the authors, is physicians themselves.  We have a culture of intolerance of uncertainty.  We hate not having an answer, something that is ingrained from the earliest days of medical education where students are encouraged to develop a lengthy list of potential diagnoses and then exhaustively eliminate them one by one until finally arriving at the right one.  “Defensive medicine” is frequently cited, but most of the research suggests that this plays at most a minor role.

Cost is the obvious downside.  But there are others.  There are potential adverse physical effects, if having a diagnosis leads to treatment that will not benefit and might harm the patient.  Sometimes the tests ordered in search of a diagnosis are themselves risky (procedures requiring anesthesia, for example, or radiation exposure).  There is also real psychological harm in carrying a diagnosis.  The newborn who is a little yellow and has a mildly elevated bilirubin gets a diagnosis of  “hyperbilirubinemia.”  A child with nonspecific symptoms who tests positive for antibodies to shellfish and eggs is now labeled as “food allergic.”  Numerous studies have documented the “vulnerable child syndrome” in such children.  It results in increased utilization of health care, overprotective parenting, and bullying, among other consequences.

There are several efforts – from professional societies and academic medical centers – targeted at both providers and lay people to increase awareness of the presence and problems of overdiagnosis.  Traditionally, academic medicine has probably been more of a cause, but is now trying to be part of the solution.

Ask your doctor if you might be suffering from “adiagnosticophobia.”

Something old, something new, something borrowed…

February 14, 2014

CHW LogoPicking up a medical journal can be humbling.  Easily ¾ of the medications and therapies I read about, including entire classes of drugs, didn’t exist when I was in medical school.  At the same time, the basics of what I do as a clinician, and what we do as a hospital, are fundamentally unchanged: patients come to us, we assess and treat them, and we bill for the services which are largely paid by some form of insurance.  But now that health care expenditures exceed 17% of GDP, a tipping point seems to have been reached, forcing changes in the basic model of health care.  While we are confronted daily with innovations in clinical care, most of the innovations in care delivery haven’t yet reached pediatrics, and certainly not our market.  But there are numerous novel approaches to delivering value in healthcare.  Here’s a brief view of some of what is happening elsewhere.

1.  Retail clinics.  CVS recently announced that they would stop selling tobacco products at its 7600 stores around the US.  The prime driver is the desire to be seen as a legitimate healthcare provider.  CVS, Walgreen’s, Walmart, and others already offer medical services, including both episodic urgent care and chronic disease management.  Such arrangements raise legitimate questions about continuity of care, but they have been highly successful.  The number of retail clinics climbed 8-fold from 2006 to 2013, with over 1600 such clinics today, and over 6 million visits in 2012.  The key drivers are convenience and access, though cost is also a factor.  In the US, only 35% of primary care physicians have after-hours care arrangements, compared with 95% in the UK and the Netherlands.  Retail clinics are simply filling an unmet demand.

2.  Concierge medicine.  This term covers a wide range of practices, from One Medical group, encompassing 25 primary care practices in five markets, where patients pay $150-$200 per year for enhanced direct access to and longer appointments with their physician; to the $25,000 a year to be one of only 400 patients to have a physician essentially at your beck and call.  Again, the drivers are access and experience.  While the rise of these niche services raises questions of equity, in medicine as in so much of the rest of the economy there will undoubtedly be a role for services that cater to those who can afford them.

3.  House calls.  Remember Marcus Welby, black bag in tow, seeing patients in their homes? Increasingly, physicians or other providers are going back to the future.  Not only the old fashioned way, but also using phone or Web contact to bring care not only closer to home, but into the home.  Employers are also bringing healthcare into the workplace, with on-site primary care clinics for employees and families.  Wisconsin-based Quad Graphics, a large printing company, started this and now operates Quad Medical, which provides these services for other employers.  Access and experience, anyone?

4.  Price transparency.  Many elements of health reform, including high-deductible plans and healthcare exchanges, have the goal of containing costs by promoting price competition.  It’s hard to do that, though, if the person doing the buying has no idea what the price is, which has led to numerous efforts are making that information more accessible.  CMS, for example, has made publicly available charge data from Medicare providers on 130 common procedures.  Some hospitals are starting to do the same, publishing their prices up front. 

5.  On-line access.  My Chart, the patient portal for the Epic EHR, is only the start.  Other patient-centered innovations include free-standing patient health records (which are owned by the patient and pull data from all different sources), direct patient access to their records with the ability to edit them, provider-facilitated Web searches for health related information, and shared medical decision-making tools.  Interestingly, a JAMA study showed that access to such online tools actually increased patient visits, rather than supplanting them.

I’m not trying to suggest that all, or even any, of these is something we want to embrace.  We do, however, need to be aware of what is happening in the market.  At the very least, it tells us what our patients and families are seeking.  We, then, need to figure out how to meet those needs.  To do that, we need to be creative.  Selected for success in science and math, many of us in medicine are fairly “left-brained” types; creativity and original thinking often don’t come naturally.  We need to be more intentional innovators.  To do so, it will be important to think outside the clinic.  Leaders in healthcare need to look to other industries to identify trends and come up with new approaches.  We also need to tap into talent from outside healthcare.  The rest of the economy has been focused on value for a long time.  We have a lot to learn.

Insurance, Medical Care, and Health – Any Connection?

May 7, 2013

As adherents to evidence-based practice, we are used to paradigms changing.  From leeches to surgery for low back pain, the medical literature is filled with things that seemed sensible and theoretically sound, but that on rigorous study turned out not to be correct.  This is why providers need to keep up on the literature.  But there are caveats.  First, we must balance an openness to changing practice when the evidence supports or even demands doing so, with a healthy skepticism and critical evaluation of the evidence to be sure we draw the right conclusions from what are often imperfect studies.  We can all think of examples of papers that at first blush appeared to be true landmarks, only to have substantial flaws revealed, or be contradicted by subsequent data.  In addition, data are merely facts; to become information, data must be interpreted, and those interpretations can be subjective.  Finally, most progress in health care is at best incremental.  It is rare that any one study singlehandedly changes what we do.

A recent paper in the New England Journal of Medicine has been hailed by at least some commentators as one of those rare solo game changers.  In my mind, though, I believe its data are being widely misinterpreted.  I am referring to the study of the Oregon Medicaid Experiment.  Briefly, in 2008, Oregon was expanding its Medicaid coverage for childless adults.  However, there was less funding available than originally intended, so they allocated the coverage to the applicants using a lottery.  This was the holy grail of health services research – a randomized controlled trial (albeit a naturally occurring one) of insurance vs. no insurance.  Such rigorous study designs almost never occur in the area of health policy.  This was a rare opportunity to answer the question of how insurance coverage affects utilization of services and, most importantly, health, without the confounding and other flaws that occur when, for example, comparing different states with different levels of coverage.

The authors found that when comparing those who were randomly selected to get coverage with those who remained uninsured, those with Medicaid used more health services.  This is perhaps not terribly surprising.  But after two years of follow up, while the newly insured had lower rates of depression and less financial stress, there were no differences in several measures of health status including prevalence of diabetes and hypertension, cholesterol levels, or hemoglobin A1c levels in diabetics.  These results are consistent with one of the only other RCTs of insurance coverage, the RAND study of the 1970s.  All subjects in that study had coverage, but with varying levels of cost sharing.  Better coverage led to more utilization, but without any clear overall difference in health status.

Some commentators, particularly those opposed to the Medicaid expansion included in the Affordable Care Act, have touted these studies as proving that comprehensive health insurance in general, and Medicaid in particular, do not work.  Many others have pointed out specific flaws with the study that might limit this conclusion.  But I think there are two additional major errors of interpretation here that we might heed.

What if the proper conclusion is not that health insurance doesn’t improve health, but that heath care does not improve health?  After all, in both studies there were more doctors visits, prescriptions, etc., but no better health status.  That might be a leap, but we do know that not all medical interventions (tests and treatments) are beneficial.  Moreover, medical care is but one determinant, and a minor one at that, of a person’s health.  Finding that having insurance by itself does not decrease the rate of diabetes isn’t terribly unexpected.  But one potential lesson to draw from the Oregon study – and, I believe, and important one – is that health insurance is being spent on the wrong things.  If health coverage, and health care, are to have a positive impact – if they are to have value – what we do may need to be more focused on prevention, on promoting adherence on the part of both patients and providers to proven management strategies, and on care coordination.

The second thing to keep in mind is that health is not merely the absence of disease.  The World Health Organization, among others (including the American Academy of Pediatrics) support a more holistic view of health: a positive state of physical, mental, and social well-being.  Yes, the lucky people who received Oregon Medicaid had similar rates of several measures of physical health.  But they had lower rates of depression and of economic stress.  If we had some composite measure of the comprehensive meaning of health, insurance would undoubtedly have been shown to improve it.

Surely at least a few of those who pay for health care will look at this study and draw a similar conclusion.  If they pursue evidence-based policy making, they will develop ways to move models of care and payment in that direction.  Fee-for-service may become the bloodletting of the health payment world.

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