Harold Hastings’s journal round-up for 24th December 2018

Every Monday our authors provide a round-up of some of the most recently published peer reviewed articles from the field. We don’t cover everything, or even what’s most important – just a few papers that have interested the author. Visit our Resources page for links to more journals or follow the HealthEconBot. If you’d like to write one of our weekly journal round-ups, get in touch.

Mandatory Medicare bundled payment program for lower extremity joint replacement and discharge to institutional postacute care: interim analysis of the first year of a 5-year randomized trial. JAMA [PubMed] Published 4th September 2018

I will focus on two themes: one local to the United States – bundled payments for Medicare, and one global – the economic burden of sepsis. Finkelstein, Ji, Mahoney, and Skinner described the results of a study aimed at assessing the effects of bundled Medicare payments (as opposed to payments for each component of treatment) upon care and costs of lower extremity joint replacement. Finkelstein et al. found only one significant difference between the bundled carte group and a control group: the percentage discharged to institutional care decreased from 33.7% in the control group to 30.8% in the bundled care group, that is, one fewer patient per 33 treated. There was no significant difference in costs or quality of care. In this sense I must differ from the optimism of an associated editorial; to me, a true success would include a significant reduction in cost together with an improvement in outcome. Thus, in terms of bundled Medicare payments, we are not at the end, not even the beginning of the end, but perhaps near the end of the beginning (my apologies to Winston Churchill).

Epidemiology and costs of sepsis in the United States—an analysis based on timing of diagnosis and severity level. Critical Care Medicine [PubMed] Published 1st December 2018

Epidemiology of sepsis in Brazil: incidence, lethality, costs, and other indicators for Brazilian Unified Health System hospitalizations from 2006 to 2015. PLoS One [PubMed] Published 13th April 2018

Sepsis care continues to pose among the most significant health challenges world-wide, both in terms of economics and mortality, with mortality ranging from 10% to almost 80% depending upon severity. In terms of cost, sepsis treatment in the US averages over $18,000 per hospitalization with almost 1 million cases admitted annually, while Brazil spends 1/30 of this amount (~$600 per hospitalization), and 1/10 of this amount for sepsis treatment in the ICU ($1,700 per hospitalization). Mortality in Brazil is higher than that in the US and higher in public hospitals than in private hospitals. The studies offer complementary suggestions for improvement: in the US study, Paoli et al. call for early detection of sepsis as a way to reduce its severity and thus its cost. In the Brazilian study, Neira et al. conclude that limited economic resources may contribute significantly to high mortality, an observation that should concern all of us interested in world-wide health. Clearly both improved detection and more effective, lower cost treatments are essential to address the health and economic burdens of sepsis. The following paper reviews a potential answer to the latter question – that of more effective, lower cost treatments.

Ascorbic acid, corticosteroids, and thiamine in sepsis: a review of the biologic rationale and the present state of clinical evaluation. Critical Care [PubMed] Published 29th October 2018

In terms of the cost of sepsis treatment, it is interesting to note that an intervention successful in a single-site, retrospective review involved a combination of three “cheap and readily available agents with a long safety record in clinical use since 1949.” Mortality decreased from 40% to 8.5%. The 2018 review describes mixed reaction based on informal cost/benefit/risk analysis while nine trials are underway. If these trials prove successful, it might be hoped that the low cost would spur world-wide incorporation of ascorbate-corticosteroid-thiamine therapy for sepsis – addressing world-wide incidence of 15 million cases annually and mortality approaching 60% in less developed countries. An optimist might even hope for reduced mortality at significantly reduced costs, reminiscent of oral rehydration therapy for diarrhoea developed in Bangladesh 50 years ago and responsible for a 90% relative reduction in mortality.

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Harold Hastings’s journal round-up for 16th July 2018

Every Monday our authors provide a round-up of some of the most recently published peer reviewed articles from the field. We don’t cover everything, or even what’s most important – just a few papers that have interested the author. Visit our Resources page for links to more journals or follow the HealthEconBot. If you’d like to write one of our weekly journal round-ups, get in touch.

Legal origins and female HIV. American Economic Review [RePEc] Published 13th June 2018

I made this somewhat unusual choice because the author Siwan Anderson draws an important connection between the economic and legal status of women across sub-Saharan Africa and the incidence of HIV. As summarized in the American Economic Review feature Empowering women, improving health, “Over half of all people living with HIV are women. Of all HIV-positive women, 80 percent live in Sub-Saharan Africa.” Anderson hypothesizes that regional differences in female property rights (lower in common law eastern and southern Africa than in civil law central Africa) may explain significantly higher HIV incidence in eastern and southern African women, especially relative to eastern and southern African men. Health economists have long studied how economic status affects access to health care; Anderson presents an important and interesting complementary argument for how economic (and legal) status affects health. In particular, improved legal status and access to legal aid may be a key step in improving women’s health.

Addressing generic-drug market failures — the case for establishing a nonprofit manufacturer. The New England Journal of Medicine [PubMed] Published 17th May 2018

We have recently seen shortages in many generic drugs, including generic injectables used in emergency, trauma and other hospital medicine. In many cases, there is only a single supplier, who can dramatically increase prices. One might expect others to enter the market in this case. However, frequently significant fixed start-up costs pose a barrier to entry and the single supplier, who has already made and in many cases paid for the start-up investment, can drastically reduce prices to make it difficult for the competition to cover these costs. Thus there is little incentive to enter a potentially low-profit market. The authors propose establishing a nonprofit manufacturer, essentially a pharmaceutical counterpart to a variety of national and nonprofit health systems, as a novel and a potentially successful way to address this issue.

An incomplete prescription: President Trump’s plan to address high drug prices. JAMA [PubMed] Published 19th June 2018

The prices of many drugs are significantly higher in the United States than in much of the rest of the developed world. President Trump proposes some market actions such as granting Medicare negotiating power; but the authors find these insufficient, making two interesting additional proposals. First, since much pharmaceutical development derives from NIH funded research (including chimeric antigen receptor T-cell immunotherapies which may cost $400,000 US per dose), the authors argue that the NIH and academic institutions could require US prices based upon independent valuations or not to exceed those in other industrialized countries. The authors also suggest authorizing imports where there is adequate regulation as a further mechanism for controlling drug prices; in my opinion a natural free-trade position. The pricing of pharmaceuticals remains complex and perhaps new economic models are needed to address the risk and cost of pharmaceutical development. Kenneth Arrow’s critiques of the limitations of economics to address health issues might provide interesting insights.

Cost-related insulin underuse is common and associated with poor glycemic control. Diabetes Published July 2018

I would like to conclude by citing a recent abstract providing a human side to the growing cost of pharmaceuticals. Darby Herkert (a Yale undergraduate) reported that a quarter of almost 200 patient responses to a survey of patients at a New Haven, CT, USA diabetes center reported cost-related insulin underuse. Underuse was prevalent among patients with lower income levels, patients without full-time employment, and patients without employer-provided insurance, Medicare or Medicaid. Patients reporting underuse had three times the incidence of of HbA1c >9%. These results cite the human costs of high insulin prices in the US. A Medscape review cites the high cost of typically prescribed insulin analogs, and quotes the lead author calling these prices irrational and describing patients living near the Mexican border crossing the border to buy their insulin.

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Kenneth Arrow on healthcare economics: a 21st century appreciation

Nobel laureate Kenneth Arrow passed away on February 21, 2017. In a classic, fifty-year-old paper entitled Uncertainty and the Welfare Economics of Medical Care, Arrow discussed how:

“the operation of the medical-care industry and the efficacy with which it satisfies the needs of society differs from… a competitive model… If a competitive equilibrium exists at all, and if all commodities relevant to costs or utilities are in fact priced in the market, then the equilibrium is necessarily [Pareto] optimal” (emphasis added)

Note the implicit assumption that price reflects value, to which I’ll return. As Arrow elegantly explained, there are vast differences between the actual healthcare market and the competitive model, and, moreover, these differences arise from important features of the actual healthcare market.

Identifying the lack of realism of the competitive model in health care may lead to deeper understanding of the actual system. In essence this is what Arrow does. Although both medical care and our expectations have changed greatly, Arrow ’63 is still valid and worth reading today.

Here is Arrow’s summary of the differences between the healthcare market and typical competitive markets.

The nature of demand

Demand for medical services is irregular and unpredictable:

“Medical services, apart from preventive services, afford satisfaction only in the event of illness, a departure from the normal state of affairs… Illness is, thus, not only risky but a costly risk in itself, apart from the cost of medical care.”

Expected behavior of the physician

“It is at least claimed that treatment is dictated by objective needs of the case and not limited by financial considerations… Charity treatment in one form or another does exist because of this tradition about human rights to adequate medical care.”

Product uncertainty

“Recovery from disease is as unpredictable as its incidence…  Because medical knowledge is so complicated, the information possessed by the physician as to the consequences and possibilities of treatment is necessarily very much greater than that of the patient, or at least so it is believed by both parties.”

Supply conditions

Barriers to entry include licensing and other controls on quality (accreditation) and costs.

“One striking consequence of the control of quality is the restriction on the range offered… The declining ratio of physicians to total employees in the medical-care industry shows that substitution of less trained personnel, technicians and the like, is not prevented completely, but the central role of the highly trained physician is not affected at all.”

Pricing practices

There are no fixed prices:

“extensive price discrimination by income (with an extreme of zero prices for sufficiently indigent patients)… the apparent rigidity of so-called administered prices considerably understates the actual flexibility.”

Avik Roy observes in a critical National Review article that “Because patients don’t see the bill until after the non-refundable service has been consumed, and because patients are given little information about price and cost, patients and payors are rarely able to shop around for a medical service based on price and value.”

Medicine has seen major changes since Arrow’s 1963 paper. For example, the treatment of blocked coronary arteries has evolved from coronary bypass to angioplasty to early stents and finally drug-eluting stents. We have seen the advent of minimally invasive surgery, robotic surgery and catheter-based cardiac valve repair and replacement. We have seen drugs to treat hepatitis C and biologicals to treat arthritis and cancer. Many conditions have been transformed from acute to chronic but (at least temporarily) manageable. There are also divergent trends, such as increases in both natural childbirth and Caesarean sections.

In the last 50 years, medicine has become more powerful, but also significantly more complex and overall, more expensive. Intensive care units are a good example, both valuable therapeutically, but expensive to provide. At the same time, many treatments are both better (more valuable to the patient) and less expensive to provide; these range from root canal (frequently two visits to the dentist instead of four) to the significantly less invasive treatments for many cardiac rhythm abnormalities (radio-frequency ablation) and stents for coronary artery disease. The advent of epinephrine auto-injectors has been a lifesaver, but the cost of the Epi-Pen has increased significantly.

Can a competitive economic system appropriately and reasonably price such treatments and devices? Arrow argues that, if not, non-market social institutions will arise and address these challenges. Here is a deeper look.

Arrow’s first two points are still virtually axiomatic today: demand for medical services has become even more unpredictable with the continued growth of advanced, effective interventions and corresponding, appropriately increasing (in my opinion), patient expectations. Similarly, as medical care advances, we increasingly see medical care as a human right and in many cases, a societal obligation. We have come to expect treatment dictated by objective needs and not limited by financial considerations, not only from physicians but from a growing number of key players including pharmaceutical companies. To their credit, in many cases (AIDS comes to mind) pharmaceutical companies have responded by sharply reducing prices in the developing world.

Powerful chemotherapeutic and biologic drugs may have increased the uncertainty and asymmetry of information observed by Arrow, both in their effectiveness and in their side effects. In many cases one needs the language and mathematics of probability and statistics to evaluate, assess and describe their efficacy and utility. One needs an understanding of probability to determine when and how to use common preventive techniques, such as mammograms and PSA screening. Here is an example, paraphrased from Gigerenzer and Edwards (see also Strogatz). Women 40 to 50 years old, with no family history of breast cancer, are a low-risk population; the overall probability of breast cancer in this population is 0.8%. Assume that mammography has a sensitivity of 90% and a false positive rate of 7%.  A woman has a positive mammogram. What is the probability that she has breast cancer? Among 25 German doctors surveyed, 36% said 90% or more, 32% said 50-80%, and 32% said 10% or less. Most (95%) of United States doctors thought the probability was approximately 75%.  (See the links above for the answer, or see my next blog on the challenge of communicating probability).

Arrow’s information asymmetry remains, despite the growing availability of accessible medical information on the web, perhaps for good reasons such as the ability to effectively address the needs of sicker patients.

I would amend Arrow’s discussion of supply conditions to include a wide variety of cost barriers ranging from large fixed costs of ICUs to the costs of medical research. The high cost of basic medical services relative to per capita GDP in the the developing world represents a barrier as high as any faced in the developed world.  As Arrow notes, society has addressed this challenge through a variety of pricing mechanisms outside traditional competitive models. This may not, and in general will not achieve a Pareto optimum, but their wide endorsement by society does indeed suggest that these approaches achieve a more general optimum.

“I propose here the view that, when the market fails to achieve an optimal state, society will, to some extent at least, recognize the gap, and nonmarket social institutions will arise attempting to bridge it… But it is contended here that the special structural characteristics of the medical-care market are largely attempts to overcome the lack of optimality due to the nonmarketability of the bearing of suitable risks and the imperfect marketability of information. These compensatory institutional changes, with some reinforcement from usual profit motives, largely explain the observed noncompetitive behavior of the medical-care market, behavior which, in itself, interferes with optimality. The social adjustment towards optimality thus puts obstacles in its own path.”

It is this view which I find too limiting. I would suggest that society has at least implicitly concluded that price alone does not define value, and thus formed a broader definition of optimality, not simply Pareto optimality in a competitive market. Society is finding and supporting ways to overcome obstacles toward this broader sense of optimality.

The Bill & Melinda Gates Foundation vaccination project aims to reduce the number of children that die each year from preventable disease (currently around 1.5 million). The lifebox project, founded by Dr Atul Gawande, provides affordable, high quality pulse oximeters to the developing world and now seeks to address basic surgical safety in the developing world. Important advances also arise in the developing world; most recently, an easy to deliver, more effective oral cholera vaccine developed in Vietnam.

Arrow himself recognizes the limits of a traditional economic description of the medical care market in his concluding Postscript, arguing that “The logic and limitations of ideal competitive behavior under uncertainty force us to recognize the incomplete description of reality supplied by the impersonal price system.” I conclude more generally that prices not only do not necessarily represent value in medical care (as Arrow observed), but that the combination of uncertainty, externalities, high costs, divergent economies, and technological advance means that price alone cannot describe value in medical care. A broader more general theory of healthcare economics with a foundation standing on the shoulders of giants such as Kenneth Arrow, with perhaps a more general multi-dimensional Pareto optimum, might help us all better understand where we are and where we might go.

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