Get on the phone

Let’s politely destroy his voice mail box.

Big Payer vs. Big Provider in the Bay State

The Boston Globe is reporting on some very interesting news:

The state agency that spends more than $2 billion a year to provide health coverage to 436,000 public employees, retirees, and their families is pushing changes that would allow it to slash what it pays the most expensive hospitals, a drastic move to try to rein in health care costs.

The Group Insurance Commission voted unanimously last week to support capping its payments to health care providers at 160 percent of the rates paid by Medicare, the federal government’s insurance program for seniors….

The limits would hit a “really small number of providers who are at the high end” of the pay scale, such as Partners HealthCare, UMass Memorial Health Care, Dana-Farber Cancer Institute, and others, Herman said….

This can be modeled in two ways. The first will be the large hospitals near the Charles River screaming socialism. The other will be the state screaming capitalism.

One of my first posts at Balloon Juice was modeling the HHI interactions on pricing.

If the ratio of ratios is close to one, the providers and payers are evenly matched. If the ratio is significantly above one, providers have a market power advantage as the largest provider groups control a significant chunk of sub-markets that the payers need access to. If the ratio is significantly below one, the payers have market power. They can pressure providers to take low rates.

A good paper * just came out in Health Affairs by Roberts, Chernew and McWilliams that looks at the impact of a market power dynamics on pricing. They found the intuitively expected (when providers have power rates are high, when insurers have power, rates drop). More importantly, they were able to quantify the effect:

Using multipayer claims for physician services provided in office settings, we estimated that—within the same provider groups—insurers with market shares of 15 percent or more (average: 24.5 percent), for example, negotiated prices for office visits that were 21 percent lower than prices negotiated by insurers with shares of less than 5 percent. Analyses stratified by provider market share suggested that insurers require greater market shares to negotiate lower prices from large provider groups than they do when negotiating with smaller provider groups. For example, office visit prices for small practices were $88, $72, and $70, for insurers with market shares of <5 percent, ≥5 to <15 percent, and ≥15 percent, respectively, whereas prices for large provider groups were $97, $86, and $76...

What does this mean?

The simplest model is that the Massachusetts state employee plan is one of the largest concentrated buyers of services in Massachusetts. It covers almost half a million lives. That is a big pool of people who pay on average, commercial based rates. It is one of the most attractive sub-markets for healthcare providers to service. The state employee plan is making a declaration that it will offer a single maximum price on a take it or leave it basis. The gamble is that the providers who are currently getting rates above that price will look at their next best alternative to fill their beds and realize that 160% of Medicare that gets paid quickly for a significant fraction of their beds is still much better than the next best alternative.

This is as much a political fight as an economics fight. My bet is that at least some of the high cost hospitals will make concessions and drop their rate significantly (remember the high cost hospitals already get significant upward bumps in their Medicare base rate compared to community hospitals a few miles away). One or two of the hospitals will hold out and run a parade of very sympathetic crying parents and sad looking kids in front of the media every five to ten days as well as running millions of dollars in TV ads.

But if we want to get healthcare cost growth under control much less hold spending constant as a fraction of GDP, reducing the relative prices of care will be a major effort. And that means driving more and more price points to lower multipliers of the Medicare base rate in addition to public health improvements and delivery reform efforts that lead to lower quantities of expensive services needed and consumed.

* Eric T. Roberts, Michael E. Chernew and J. Michael McWilliams “Market Share Matters: Evidence Of Insurer And Provider Bargaining Over Prices” Health Affairs 36, no.1 (2017):141-148 doi: 10.1377/hlthaff.2016.0479

Individual risk adjustment issues

The Healthcare Blog has a great interview with Mark Pauly.   One part made me laugh, all of it made me think long and hard through multiple states on my drive back to North Carolina.   There is one part that left me scratching my head that I want to work through a bit here.

Here is the piece that has me scratching my head.  Dr. Pauly is arguing that community rating is an effective but very inefficient way to make sure that high cost individuals get the effective coverage that they need.

What’s your prescription so that the high-risk aren’t financially fleeced?

MVP: If insurers are permitted to risk rate, the premiums for the healthy will fall and more healthy people will voluntarily buy insurance – let’s agree that’s a healthy outcome. The premiums for the high-risk will surely rise. My proposal– let the insurers risk rate but let us subsidize the premiums for the high-risk.

He clarifies later on that by risk, he means chronic condition risk.  There are two ways this can be done.  The first is to carve a set of chronic, high cost conditions out of the general risk pool and into a high cost, high risk pool.  That high cost, high risk pool would then need to be financed by general taxation so that the people with chronic conditions are not decimated by only high cost people paying for each others’ care.  This would be 5% to 10% of the total covered population and forty to fifty percent of the total costs.  There are other high cost individuals but they are transient high cost individuals due to cats trying to assassinate them, four corner bed impalement or other one-off events.  John Cole is personally a chronic risk.  John Cole is statistically not a chronic risk.

That is one way to do what Dr. Pauly suggests.  The other is to do a risk adjusted individual subsidy.  This is where I scratch my head.  It makes elegant theoretical sense but the implementation hurdles are large.

Read more

Trump’s EO on the ACA

The Trump administration issued its first executive order. The subject is the ACA. The order seeks to destabilize the non-subsidized and off-Exchange portions of the risk pool by minimizing enforcement of the individual mandate.  Dan Diamond at Politico had the first link to the actual order that I saw:

Section 2 is the critical component for the individual market. Section 3 has significant impact for both Exchanges and Medicaid.

Analysis below the fold:
Read more

Open Thread: I’m With Her

And also with these guys…

Because… really, Trumplodytes? A literal comic-book villain?

Emoluments question

I am not a lawyer. But I have a legal question regarding the emoluments clause that could be the start of a constitutional confrontation. Lawyers in the audience, please tell me where I am going wrong in the following scenario?

Let us assume a foreign government official without diplomatic immunity from Fredonia stays at the Trump Hotel in Washington D.C. tonight. The Trump Hotel is still owned by the President. He had not given a credit card to hold the room. The foreign official is conscientious and checks out tomorrow morning. He receives a charge for the room. He refuses to pay for the room as it would be an emolument. He offers to place the money into escrow until the dispute can be resolved.

At that point the hotel management has two choices. Eat the loss to not embarrass the boss or initiate civil or criminal action to get the room fee? If they choose the second option, the entire question of what is an emolument has to be answered. Is that correct?

What am I missing here? And if I am not missing anything big, how do we recruit a good test case?

A personal note on policy evaluation

I want to lay out one of my key heuristics for policy analysis and evaluation for the next four years. But first I need to go back a little in my life to two time periods.

1992 sucked for my family. I am one of five kids. My mom worked a retail job as she was mainly trying to get all of us going in the right direction while managing half a dozen minor chronic conditions between all of us. My dad was a union electrician. Construction is a pro-cyclical industry so when times were good, they were very good and when times are slow, they are really bad. The 80s were good as Boston boomed. The late 80s after the S&L crisis plus the overbuildout of Boston sucked. He was able to get the occasional side job and short term position as an electrician and had already started to work as a cabinet maker, a newspaper deliverer and half a dozen other side jobs and hustles to hold on. We were waiting for the Big Dig to really ramp up as that would clear a log jam on the job list at the union hall.

I remember crying in happiness one day when my parents decided to get me a treat of sweet canned corn instead of frozen corn. We had not had my favorite type of corn in so long as the extra thirty cents a pound was too much of a lift.

Now fast forward.

Mid-2008 my wife had gotten laid off as her organization got a new CEO who wanted to quickly leave their mark for decisiveness and wiped out several profitable but not exciting departments. She was pregnant with our daughter. I was working as a program evaluator for a behavioral health care coordination program. It was funded by a federal grant that was due to run out at the end of FY09. We were trying to transition our funding to local and foundation money. By mid-2009, my wife was working part time at a position far below her skill level, our daughter was happy making faces at her parents, and there was absolutely no local or foundation money as 51 mini-Hoovers were in effect for state level austerity. I got laid off. The next year I stayed home with our daughter as the combination of unemployment insurance and not paying for daycare that was the best solution possible.

Now fast forward.

The past six years have been great for my family. My career has taken off. My wife’s career has launched. We have two great kids. We have stability and we have a cushion. Yesterday the induction motor on the furnace failed after a good eighteen years of service. I was able to grumble and mumble as I wrote a check to the HVAC technician but writing that check had no impact on my family’s financial stability. We’re in good shape.

Some of this is a humble brag. But most of this is how my policy evaluation heuristic is formed. If a policy helps 2009 Me or 1992 Me out more than it helps present day me out, I’m most likelyfor it. If 2017 Me is advantaged over either 2009 or 1992 Me, I’m highly likely to be opposed to it.