Chris Sampson’s journal round-up for 4th December 2017

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.

Funding breakthrough therapies: a systematic review and recommendation. Health Policy Published 2nd December 2017

One of the (numerous) financial pressures on health care funders in the West is the introduction of innovative (and generally very expensive) new therapies. Some of these can be considered curative, which isn’t necessarily the best way for manufacturers to create a steady income. New funding arrangements have been proposed to facilitate patient access while maintaining financial sustainability. This article focuses on a specific group of innovative therapies known as ‘Advanced Therapy Medicinal Products’ (ATMPs), which includes gene therapies. The authors conducted a systematic review of papers proposing funding models and considered their appropriateness for ATMPs. There were 48 papers included in the review that proposed payment mechanisms for high-cost therapies. Three top-level groups were identified: i) financial agreements, ii) performance-based agreements, and iii) healthcoin (a tradable currency representing the value of outcomes). The different mechanisms are compared in terms of their feasibility, acceptability, burden, ‘financial attractiveness’ and their appeal to payers and manufacturers. Annuity payments are identified as relatively attractive compared to other options, but each mechanism is summarily shown to be imperfect in the ATMP context. So, instead, the authors propose an ATMP-specific fund. For UK readers, this will likely smell a bit too much like the disastrous Cancer Drugs Fund. It isn’t clear why such a programme would be superior to annuity payments or more inventive mechanisms, or even whether it would be theoretically sound. Thus, the proposal is not convincing.

Supply-side effects from public insurance expansions: evidence from physician labor markets. Health Economics [PubMed] Published 1st December 2017

Crazy though American health care may be, its inconsistency in coverage can make for good research fodder. The Child Health Insurance Program (CHIP) was set up in 1997 and then, when the initial money ran out 10 years later, the program was (eventually) expanded. In this study, the authors use the changes in CHIP to examine the impact of expanded public coverage on provider behaviour, namely; subspecialty training (which could become more attractive with a well-insured customer base), practice setting and prevailing wage offers. The data for the study relate to the physician labour market for New York state for 2002-2013, as collected in the Graduate Medical Education survey. A simple difference-in-differences analysis is conducted with reference to the 2009 CHIP expansion, controlling for physician demographics. Paediatricians are the treatment group and the control group is adult physician generalists (mostly internal medicine). 2009 seems to be associated with a step-change in the proportion of paediatricians choosing to subspecialise – an increased probability of about 8 percentage points. There is also an upward shift in the proportion of paediatricians entering private practice, with some (weak) evidence that there is an increased preference for rural areas. These changes don’t seem to be driven by relative wage increases, with no major change in trends. So it seems that the expanded coverage did have important supply-side effects. But the waters are muddy here. In particular, we have the Great Recession and Obamacare as possible alternative explanations. Though it’s difficult to come up with good reasons for why these might better explain the observed changes.

Reflections on the NICE decision to reject patient production losses. International Journal of Technology Assessment in Health Care [PubMedPublished 20th November 2017

When people conduct economic evaluations ‘from a societal perspective’, this often just means a health service perspective with productivity losses added. NICE explicitly exclude the inclusion of these production losses in health technology appraisals. This paper reviews the issues at play, focussing on the normative question of why they should (or should not) be included. Findings from a literature review are summarised with reference to the ethical, theoretical and policy questions. Unethical discrimination potentially occurs if people are denied health care on the basis of non-health-related characteristics, such as the ability to work. All else equal, should health care for men be prioritised over health care for women because men have higher wages? Are the unemployed less of a priority because they’re unemployed? The only basis on which to defend the efficiency of an approach that includes productivity losses seems to be a neoclassical welfarist one, which is hardly tenable in the context of health care. If we adopt the extra-welfarist understanding of opportunity cost as foregone health then there is really no place for production losses. The authors also argue that including production losses may be at odds with policy objectives, at least in the context of the NHS in the UK. Health systems based on privately-funded care or social insurance may have different priorities. The article concludes that taking account of production losses is at odds with the goal of health maximisation and therefore the purpose of the NHS in the UK. Personally, I think priority setting in health care should take a narrow health perspective. So I agree with the authors that production losses shouldn’t be included. I’m not sure this article will convince those who disagree, but it’s good to have a reference to vindicate NICE’s position.


Sharing the burden of healthcare: providing care to our sickest patients

One of the major challenges to affordable, universal health insurance is the high cost of providing care to the sickest patients. According to Roy Vaughn, senior vice president at BlueCross BlueShield of Tennessee, “just 5 percent of the company’s marketplace customers had accounted for nearly 75 percent of its claims costs.” What is the cost of healthcare for the typical person in the United States?Distribution of per capita US health expenditures 2012

Data from 2012, the last year for which a full analysis is available, presents a complex and confusing picture. The graph above shows per capita expenditures by percentile starting with the highest per capita expenditure. 10% face expenditures of at least $10,250. The median per capita expenditure was $854. The mean average per capita expenditure was $4309 – five times the median – and “the top 1 percent ranked by their healthcare expenses accounted for 22.7 percent of total healthcare expenditures with an annual mean expenditure of $97,956″. In brief, there is no typical person: since the bottom 50% accounted for 2.7% of total expenditures, the average per capita expenditure of the top 1% was 420 times that of the bottom 50%. There really is no typical person in terms of healthcare expenditures.

Pareto/ power law distribution of healthcare costs

This extreme distribution of healthcare costs (approximately an “80/20”, Pareto/ power law distribution) poses a major challenge to providing universal healthcare through traditional insurance models based upon risk pooling. Prior to the Affordable Care Act (ACA), the US health insurance industry addressed these challenges with risk selection – adjusting premiums or denying insurance to patients with high predicted risks, such as those with pre-existing conditions, and imposing caps on annual and/or lifetime benefits, much like the way the auto insurance industry sets premiums and limits benefits to address extreme differences in projected driver risks. Come back tomorrow for another blog post with more technical details about the Pareto distribution and healthcare costs.

Risk selection is illegal but prevalent

The ACA makes both caps on benefits and risk selection based upon pre-existing conditions illegal. In particular, US insurance carriers are required to provide coverage to all, at rates independent of pre-existing conditions, a requirement which President-Elect Donald Trump would like to keep.

However, the extreme distribution of healthcare costs means that “Targeting the highest spenders represents the greatest opportunity to have a significant impact on overall spending”; an opportunity for insurance carriers as well as for public policy. Moreover, there are good predictors for high spending: age and end of life, chronic conditions, and high spending in a previous year. For example 44.8% of the top decile in 2008 healthcare expenditures “retained this top decile ranking with respect to their 2009 healthcare expenditures”; a fact cited in an extensive Forbes report. Swiss and Dutch experience found risk selection prevalent and persistent. However, with every adult paying the same premium – within a given fund for the same type of contract – but expected healthcare expenditure (HCE) varying widely, strong incentives for risk selection are created in the absence of an adequate risk adjustment scheme. Although risk selection is illegal, it is prevalent. Swiss conglomerates of insurance carriers have been reported to achieve risk selection by assigning applicants to “specific carriers based on their risk profiles.”

Removing the economic incentives for risk selection

There is one clear way to avoid built-in economic incentives for risk selection (incentives which seem to drive insurance company behavior); that is, a single payer system, universally or as excess coverage for significant, predictable expenses. The United States now has several parallel single payer systems, namely Medicare for the elderly, Medicaid for the very poor and CHIP for children; thus, in effect, a public/private partnership in healthcare. These pre-existing single-payer systems might serve as models for a more inclusive US single payer system. Alternatively, the United States might act as an insurer of last resort, providing umbrella insurance covering individual expenses above some relatively high limit, or for costly but treatable conditions using the End Stage Renal Disease (ESRD) Program, passed in 1972 as a model. This approach would also remove extreme costs from the health insurance risk pool, as both Medicare and the ESRD Program do now, by providing near-universal coverage for our sickest patients outside the private insurance system (elderly US citizens and those with severe chronic kidney disease, respectively).

Tomorrow I will return to the Pareto-like distribution of healthcare expenditures and its consequences for any competitive insurance program. But for now, a few conclusions. Medicare and the ESRD program provide models for a smooth transition from health insurance pre-ACA with its caps and limitations to a more universal system. Medicare can be expanded to a broader public alternative. Universal coverage for additional treatable but high-risk conditions can be modeled on the ESRD program. These steps should provide the basis for further evolution of the present public/private partnership into a more universal, more cost-effective system.

In my opinion, the extreme distribution of healthcare expenditures and the ability to perform risk selection, even though illegal, present a strong, essentially irrefutable argument for a single payer system; either overall, or for chronic conditions and expenditures predictable through risk selection. In the US, Medicare and the ESRD program provide illustrative, successful and useful models.