Hedge Funds Attack American Health Care

Hedge Clippers, September 30, 2015

It’s not just one highly unethical man: dozens of high-flying financial speculators at hedge funds and private equity firms are driving up the price of pharmaceuticals across the country.

Out of the twenty-five drugs with the fastest-rising prices over the past two years, twenty are owned or have been acquired by firms with significant activity from hedge fund, private equity, or venture capital firms. 

Yes, you read that right: 80% of the drugs with the fastest-rising prices were involved in hedge fund, private equity or similar speculative attacks in the past two years.

The exact circumstances of each deal varies, but the outcome is always the same: branded pharmaceuticals — drugs for which no lower-cost generic alternative drug exists — see their prices increase many times over to satisfy the greed of speculative investors.

One company that stands out in all this is Valeant, a drug manufacturer that partnered in 2014 with a hedge fund called Pershing Square Capital Management to attempt the takeover of Allergan, another pharmaceutical company.

Billionaire hedge fund manager William “Bill” Ackman runs Pershing Square, and his manipulative moves exploded prices for medications needed by ordinary Americans – Americans who aren’t billionaires, and who can’t afford to pay billionaire prices for their medications.

Valeant produces twelve of the twenty-five branded drugs that have increase most in price over the past two years. Among the top fifty, Valeant produces twenty-seven.

Given that branded drugs are essentially a license to print money, it appears that Valeant was pumping up the prices of these medications to finance the Allergan takeover attempt – and/or to ensure big profits for billionaire hedge fund manager Ackman.

Looking back at the data on the pharmaceuticals with the largest price increases in the past two years, Horizon Pharma’s Vimovo is at the very top of the list.

The Vimovo acquisition follows a pattern similar to other pharmaceutical purchases made by companies with hedge fund, private equity, or venture backing.

• Speculative private capital is used is used to acquire an existing branded drug from an established pharmaceutical company.
• Because the drug is branded, no generic exists, and the producer is granted a monopoly on the sale of the drug.
• Once the acquisition is completed, the company drastically increases the price of the pharmaceutical.
• Because no generic exists, customers who need the drug are forced to accept any price dictated by the companies.

The only winners in this game are the pharmaceutical companies and their financiers: the hedge funds, private equity firms, and the venture capitalists. These speculators stand to make fortunes.

#HEDGEPAPERS NO. 22 – Hedge Funds Attack American Health Care

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Comment:

By Don McCanne, MD

The full Hedge Clippers article, available at the link above, provides many examples of outrageous drug price manipulation by hedge fund, private equity, or venture capital firms. These confiscatory price increases have not been for financing new drug research, rather they have been for the sole purpose of redistributing money from patients in need of these drugs to the the money managers at the very top of the income and wealth scales, further compounding our crisis of inequality.

Government intervention is imperative. It would be automatic if we enacted a single payer national health program.

U.S. Health Care Could Be More Like Denmark’s

By Steffie Woolhandler
Room for Debate, The New York Times, October 20, 2015

In last week’s Democratic debate, when Bernie Sanders cited Denmark as a role model for the United States to follow, Hillary Clinton was quick to point out that “we are not Denmark.”

The United States isn’t Denmark, but it can, like Scandinavia, implement changes to its health care system that save money, cover everyone and help us live longer.

In the 1950s, U.S. health statistics were world class: infant mortality rate among the lowest, life expectancy among the highest, and health costs about average. One by one, other nations — not just Denmark and Sweden, but Australia, Britain, Canada and Taiwan, to name a few — adopted national health programs. By the end of the 20th century, the U.S. was the lone hold out for private, for-profit health insurance, and its health statistics lagged behind dozens of countries. Meanwhile, costs soared to twice the average in other wealthy nations.

For Americans, national health insurance would mean comprehensive coverage, a free choice from a smorgasbord of any doctor or hospital and lower costs. Other countries have seen huge savings by evicting private insurers and the reams of expensive paperwork they inflict on doctors and hospitals. Aetna keeps 19 cents of every premium dollar for overhead and profit, leaving only 81 cents for care. And U.S. hospitals devote 25.3 percent of total revenue to administration, reflecting the high cost of collecting patient copayments and deductibles, and fighting with insurers.

Obamacare will direct an additional $850 billion in public funds to private insurers, and boost insurance overhead by $273.6 billion. Yet it will leave 26 million uninsured and similar numbers with such skimpy coverage that a major illness would bankrupt them. Most Americans have coverage that limits their choice of doctors and hospitals, and inflicts steep financial penalties when they stray “out-of-network” by accident or necessity.

In contrast, insurance overhead in single-payer programs (and fee-for-service Medicare) takes only 1 percent to 2 percent. In these programs, hospitals don’t need to bill each patient; they’re paid a lump sum budget, the way we fund fire departments, sharply cutting hospital administrative costs. Moving to a single-payer system would save about $400 billion annually on paperwork and administration — enough to ensure every American top coverage.

Messages like “We are not Denmark” insist we put blinders on and refuse to learn from others. That reasoning would have us ignore innovations like vaccination or CT scanners (British inventions), echocardiograms (a Swedish one) or cardiac stents (first used in France). A single-payer reform — like the one advocated by the 20,000 members of Physicians for a National Health Program — could save thousands of American lives each year. That’s as American as apple pie.

http://www.nytimes.com/roomfordebate/2015/10/20/can-the-us-become-denmark/us-health-care-could-be-more-like-denmarks

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Comment:

By Don McCanne, MD

We need to be sure that the fundamentals do not get lost in political rhetoric. The fact is that health system performance in the United States has lagged behind many other nations while our costs have soared to twice the average of wealthier nations. Bernie Sanders says that we can learn from Denmark (meaningful rhetoric). Hillary Clinton says that we are not Denmark, but we are the United States of America (dismissive rhetoric). Steffie Woolhandler says that saving lives through single-payer reform would be as American as apple pie (Yankee Doodle Dandy rhetoric).

So how about a little Yankee Doodle Dandy? James Cagney or Mickey Rooney – you choose: https://www.youtube.com/watch?v=StDpLge_ITM

Where else but in America could we choose which Yankee Doodle Dandy we prefer? And we can even choose health care for all if we were willing to give up our uniquely American health care system, as dysfunctional as it is. But that would mean adopting policies of health care justice already in use in other nations. Apple pie anyone?

PNHP does not take any position on candidates or political parties. Rather we support the policy of health care justice for all through single payer reform.

The Efficiency Consequences of Health Care Privatization: Evidence from Medicare Advantage Exits

By Mark Duggan, Jonathan Gruber, Boris Vabson
The National Bureau of Economic Research, October 2015
NBER Working Paper No. 21650

Abstract

There is considerable controversy over the use of private insurers to deliver public health insurance benefits. We investigate the efficiency consequences of patients enrolling in Medicare Advantage (MA), private managed care organizations that compete with the traditional fee-for-service Medicare program. We use exogenous shocks to MA enrollment arising from plan exits from New York counties in the early 2000s, and utilize unique data that links hospital inpatient utilization to Medicare enrollment records. We find that individuals who were forced out of MA plans due to plan exit saw very large increases in hospital utilization. These increases appear to arise through plans both limiting access to nearby hospitals and reducing elective admissions, yet they are not associated with any measurable reduction in hospital quality or patient mortality.

From the introduction

The growing privatization of Medicare has been motivated by potential efficiencies from the Medicare management provided by private insurance companies. This is a particularly interesting topic in the context of Medicare Advantage, where private insurers provide coverage side-by-side with the government system.

… we find that there is a substantial rise in inpatient hospital utilization after MA plan exit. We estimate that previous MA enrollees see their utilization of the hospital rise by about 60%, when moving back to the traditional FFS plan. This estimate is comparable to the corresponding estimate of 65% from the RAND Health Insurance Experiment of the 1970s, which randomly assigned patients to managed care plans. The finding is robust to specification checks and appears to be long-lasting, so that it does not simply reflect pent-up demand that caused a temporary increase in utilization. The increases appear across all types of hospitalizations, but are particularly pronounced for elective visits. We also find substantial reductions in the average distance traveled to the hospital when patients exogenously switch from MA to FFS following plan exit. This suggests that the mechanisms for lowering costs under MA plans are both reduced hospital availability and greater restrictions on elective care.

From 3.3 Quality Impacts

To measure the quality of care at the hospital level, we turn to two sets of standardized measures from the CMS Hospital Quality Initiative database. The first set of metrics consists of process measures…

Using these measures, we do not see any consistent evidence of moving to higher quality hospitals, as seven of the nine measures are insignificant; further, one of the significant coefficients suggest higher quality (improved process for pneumonia) while the other suggests lower quality (worse outcomes for heart failure). Moreover, all of the coefficients are very small relative to mean values and precisely estimated, ruling out meaningful impacts.

We next turn to more direct process measures of outcomes created from our discharge data. One such measure, the 60-day hospital readmission rate… Another measure, preventable hospitalizations…

When MA plans exit, we find that both measures rise – that is, plan exit does not appear to be translating to more efficient care on net that is lowering readmissions or preventable admissions. The odds of readmission, conditional on an initial hospitalization, rises by about 15% among those initially in MA plans after plans exit. Meanwhile, the odds of a given hospitalization being preventable rises by 10%. By these measures, therefore, quality is falling for those initially enrolled in MA following the exit of MA plans.

Finally, we examine the impact on mortality… Both estimates are in fact positive, suggesting that plan exit leads to higher mortality, although neither estimate is significant.

The results from this section appear to indicate that there is a sizeable inefficiency in transitioning elders out of Medicare Advantage into the FFS program. Utilization of, and spending in, the hospital rises substantially, with no consistent indication of quality improvement (although travel to the hospital is greatly reduced). If anything, we find a reduction in quality, with readmissions, preventable hospitalizations and mortality (the last insignificantly) increasing after the shift out of managed care plans.

From the Conclusions

The role of private players in public insurance is the subject of a central debate in U.S. public policy. This debate is perhaps most heated around the role of Medicare Advantage plans. Advocates claim that the higher efficiency of such private options should push the government towards expanding the role of managed care plans. Opponents point to the sizeable positive selection faced by these plans (and their high baseline reimbursement, even independent of selection) to claim that they are over-reimbursed and are costing, rather than saving, government dollars.

Central to this debate is the question of whether MA plans actually deliver care more efficiently. Our paper contributes to the literature on this point in two important ways. First, we make use of data that tracks the treatment of both traditional Medicare (FFS) recipients and MA enrollees. Second, we make use of exogenous variation in MA availability, arising from county-level exit of MA plans. Using these empirical advantages, we document sizeable increases in hospital inpatient utilization along many dimensions when MA plans exit a county. Hospital inpatient utilization rises by 60%, and total charges by more than 50%. We find that MA insurers may achieve this by reducing the use of the hospital for elective and emergency cases, and also by increasing the distance that a patient needs to travel to the nearest hospital. Moreover, we find no evidence that this is accompanied by reduced quality of care for Medicare patients when enrolled in MA; quality indicators, if anything, deteriorate when MA plans exit.

… our results suggest that there are large efficiencies from ensuring that at least some managed care option is available to enrollees. This could occur through a premium support system of the type discussed in CBO (2013), which would set up competitive exchanges through which private plans could compete with the government option. Alternatively, the government could establish a monopoly MA provider for each area, and auction off the number of MA slots for the area, in that way minimizing the reimbursement of MA plans while ensuring MA plan availability.

http://www.nber.org/papers/w21650

Comment:

By Don McCanne, M.D.

We will likely hear more about this study. The reports will certainly say that private Medicare Advantage (MA) plans provide greater efficiency and lower costs by reducing unnecessary hospitalizations and elective care. We may even hear that they do this while increasing quality and reducing mortality. With a more careful analysis of this article and with additional thought input, these conclusions do not seem to be warranted.

This study was of hospital utilization in regions where the sole MA plan picked up stakes and left the region. Why would a plan pull out of a region? Simply because the business prospects did not seem favorable (code language for not enough profits).

These plans were successful in reducing access to hospitals, partly by using hospitals that were a greater distance away, requiring greater travel for patients. They were also able to use managed care techniques (prior authorization, etc.) in a manner that reduced elective and emergency admissions. Even though the MA plans were paid more than what was being spent on traditional fee-for-service (FFS) Medicare patients, it still wasn’t enough, and they bailed out.

After the plans left, the patients were hospitalized at a greater rate, and costs went up. The authors of this study suggest that these hospitalizations occurred because the FFS Medicare program is not as efficient in preventing them as were the private MA plans. But couldn’t this be explained by the business success of MA plans in preventing patients from having care that was appropriate? Isn’t it more likely that chronic conditions – ubiquitous in this group – became worse and thus more expensive through the neglect imposed by the MA plans?

The authors try to dismiss this possibility by looking at measurements of quality and mortality. They report that “quality indicators, if anything, deteriorate when MA plans exit.” Yet from the CMS Hospital Quality Initiative database, they report, “we do not see any consistent evidence of moving to higher quality hospitals, as seven of the nine measures are insignificant; further, one of the significant coefficients suggest higher quality (improved process for pneumonia) while the other suggests lower quality (worse outcomes for heart failure).” By these measures, there was no quality difference.

On the other hand, they report that hospital readmissions and preventable hospitalizations both rose after the MA plans exited. They interpret this as evidence of lower quality in the traditional FFS Medicare program. But every clinician knows that readmissions and preventable hospitalizations represent a sicker patient population. Rather than being evidence of poorer quality it is much more likely that this is further confirmation of the well established adage that Medicare Advantage patients go into the plan healthy and come out sick.

They use mortality estimates that are not statistically significant to suggest that plan exit leads to higher mortality. Even if the data were powered to show an increase in mortality, is it not true that sicker populations have a higher mortality rate?

This study has the same flaws as many other studies being produced today that are supportive of the private insurance industry. They look at only a minuscule portion of potential outcomes of health care. They show that the differences of what they did measure are almost or sometimes even completely negligible. Then when drawing conclusions between the choices of whether additional care is inefficient or is beneficial, they choose the conclusion that supports the private insurance industry, even if it is a non sequitur.

In their conclusion, they suggest that the “large efficiencies” from the managed care option warrant consideration of the premium support proposal that would privatize Medicare (convert it into a market of private plans). A better interpretation of their data, based on what is best for the patient, rather shows us that we should end the experiment with private Medicare Advantage plans since they prevent patients from receiving care that they should have.

How Many Individuals might Have Marketplace Coverage at the End of 2016?

Department of Health and Human Services, October 15, 2015

Last year, the Secretary of Health and Human Services projected that 9.1 million consumers would be enrolled through the Marketplaces for individual coverage at the end of 2015. We expect that figure to be the starting point for the third open enrollment period.

We project that in 2016 the year-end effectuated enrollment will be 9.4 to 11.4 million. ASPE’s analysis implies that most of the new Marketplace enrollment for 2016 is likely to come from the ranks of the uninsured, with more than three previously uninsured new enrollees for each one new enrollee who previously had off-Marketplace individual coverage.

http://aspe.hhs.gov/basic-report/how-many-individuals-might-have-marketplace-coverage-at-the-end-of-2016

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Health Insurance Marketplace: Uninsured Populations Eligible to Enroll for 2016

By Kenneth Finegold, Kelsey Avery, Bula Ghose, and Caryn Marks
Department of Health and Human Services, October 15, 2015

People who are uninsured often experience financial barriers to coverage and may place other priorities over obtaining health insurance.

• Only 26 percent of those who are uninsured say that they are doing well financially. Nearly 80 percent have less than $1,000 in savings and about half have less than $100 in savings.
• More than half of people who are uninsured feel financially insecure and half had difficulty affording basic necessities such as food or housing in the past year.
• When asked what they would do if they were to become better off financially, many uninsured people say they would pay down their debt, put money into savings, or make home or car repairs before buying health insurance.

http://aspe.hhs.gov/sites/default/files/pdf/118606/OE3%20QHP-Eligible%20Uninsured_FINAL_v42%20clean.pdf

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Is Obama’s Health Overhaul Losing Steam?

By Ricardo Alonso-Zaldivar
Associated Press, October 15, 2015

The health care law’s historic gains in coverage may be leveling off: The Obama administration announced Thursday it expects only a slight overall increase in enrollment next year.

(Health and Human Services Secretary Sylvia M. Burwell) said it’s getting harder to sign up the remaining uninsured. They tend to be young, managing very tight household budgets, and often unaware they can qualify for taxpayer-financed assistance with their premiums.

Some people who sign up for a plan don’t follow through and pay their first month’s premiums. Others drop out because they can’t afford even their subsidized premiums.

A new research paper from the administration finds that nearly 60 percent of the uninsured were not aware or did not understand that subsidies are available to help with their premiums. Half had difficulty affording basic necessities. And many have other financial priorities – such as paying down debt or making car repairs – before buying health insurance.

Getting and keeping coverage under Obama’s law can be frustrating, especially when it comes to documenting eligibility for benefits. Insurance counselors say they are seeing many people whose subsidies were completely eliminated because of income reporting problems.

http://hosted.ap.org/dynamic/stories/U/US_HEALTH_OVERHAUL_SIGN_UPS

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Comment:

By Don McCanne, MD

Out of a population of about 322 million, 32 million US residents remain uninsured. Because of the complex eligibility requirements for various insurance programs under the Affordable Care Act, there are many reasons that so many remain uninsured. Regardless, this latest data from HHS shows that the success in reducing the numbers who are uninsured is leveling off, and one of the most important reasons is that the Affordable Care Act did not make health insurance affordable for far too many of us.

Four-fifths of the uninsured have less than $1,000 in savings. Half have difficulty affording food or housing. Even if they had more money, many would feel obligated to use it to pay down debt, or to repair their homes, or to repair their automobiles that provide them transportation for employment. They still wouldn’t have enough left to purchase health insurance.

Yet when these people turn 65, they can afford Medicare. The program is automatically funded, primarily through the tax system.

If we improved Medicare, funded it completely through progressive taxes, and then provided it to everyone, not only would it be affordable for all of us, none of us would ever have to make a decision on whether our health care dollars needed to be used for food, housing or any other essentials. Medicare would automatically always be there for all of us.

Covering the Remaining Uninsured: Not Just a Red-State Issue

By Drew Altman
The Wall Street Journal, October 14, 2015

About 32 million people in the U.S. remained uninsured as of early 2015, a Kaiser Family Foundation analysis of federal survey data has found, with about half of them eligible for Medicaid or subsidies under the Affordable Care Act. With the high-profile resistance in some states to Medicaid expansion and the ACA generally, you may think those places are the main obstacle to covering more of the uninsured. But the uninsured remain a problem in both red and blue states.

About half of the remaining uninsured, 16 million people, are in mostly blue states that have expanded Medicaid. The other 16 million are in states that have not expanded Medicaid and where there is strong anti-ACA sentiment. Consider the examples of California and Texas, the states with the largest populations of remaining uninsured, to understand the different challenges.

Remaining uninsured as of 2015:

  California  3,845,000

  Texas       4,425,000

Eligible for Medicaid:

  California  1,428,000

  Texas         493,000

Eligible for tax credit:

  California    623,000

  Texas       1,035,000

Ineligible for financial assistance due to income, employer offer, or citizenship status:

  California  1,795,000

  Texas       2,132,000

In Medicaid “coverage gap”:

  California  (no gap)

  Texas       766,000

Some elements of the remaining uninsured problem are uniquely a red state issue. The most prominent of these are 3.1 million people—or one in 10 of the uninsured—who fall in the “coverage gap” in 20 red states that have chosen not to expand Medicaid coverage. But as the examples of Texas and California demonstrate, progress on covering the remaining 32 million uninsured will depend on action in both red and blue states.

http://blogs.wsj.com/washwire/2015/10/14/covering-the-remaining-uninsured-not-just-a-red-state-issue/

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Comment:

By Don McCanne, MD

Texas should be ashamed. They have the largest number of uninsured individuals in the nation, and yet they have failed to take advantage of the provisions in the Affordable Care Act (ACA) that would grant the state 90 percent of the costs of Medicaid expansion, plus they have failed to provide adequate outreach efforts to enroll individuals in exchange plans where they would be eligible for federal premium tax credits and cost-sharing subsidies. In contrast, California has been aggressive in trying to get as many individuals as possible covered by health insurance of one type or another. How do the results in California (a blue state) compare to those in Texas (a red state)?

In California, 10 percent remain uninsured, whereas in Texas, 16 percent lack insurance. California’s efforts have paid off… for some. But why should California, with its strong support of ACA, still have 3,845,000 people without any insurance? It’s very simple. ACA is a highly flawed model of reform.

Models which build on existing, fragmented, multi-payer systems are the most expensive models of reform, yet they fall short of many of the goals, including universality. Yet the least expensive comprehensive models of reform achieve the goals of universality, efficiency, affordability, equity, improved access, and better health care outcomes. These are the single payer national health insurance and national health service models.

Many suggest that we should celebrate our gains and move forward with incremental patches to the system. There are two problems with this approach. Incremental patches will add significant additional costs to the system, and patches cannot possibly repair the fundamental structural flaws in the financing system. Thus, under ACA, we will always fall short of the goals.

There is a better way. Fix Medicare and provide it to everyone. California would then achieve its goal of reducing its uninsured to zero. Texas would too, even if its politicians were opposed. One thing for sure, once everyone in Texas did have Medicare, the people would be overwhelmingly supportive.

What Does a Deductible Do? The Impact of Cost-Sharing on Health Care Prices, Quantities, and Spending Dynamics

By Zarek C. Brot-Goldberg, Amitabh Chandra, Benjamin R. Handel, Jonathan T. Kolstad
The National Bureau of Economic Research, NBER Working Paper No. 21632, October 2015

Abstract

Measuring consumer responsiveness to medical care prices is a central issue in health economics and a key ingredient in the optimal design and regulation of health insurance markets. We study consumer responsiveness to medical care prices, leveraging a natural experiment that occurred at a large self-insured firm which forced all of its employees to switch from an insurance plan that provided free health care to a non-linear, high deductible plan. The switch caused a spending reduction between 11.79%-13.80% of total firm-wide health spending ($100 million lower spending per year). We decompose this spending reduction into the components of (i) consumer price shopping (ii) quantity reductions (iii) quantity substitutions, finding that spending reductions are entirely due to outright reductions in quantity. We find no evidence of consumers learning to price shop after two years in high-deductible coverage. Consumers reduce quantities across the spectrum of health care services, including potentially valuable care (e.g. preventive services) and potentially wasteful care (e.g. imaging services). We then leverage the unique data environment to study how consumers respond to the complex structure of the high-deductible contract. We find that consumers respond heavily to spot prices at the time of care, and reduce their spending by 42% when under the deductible, conditional on their true expected end-of-year shadow price and their prior year end-of-year marginal price. In the first-year post plan change, 90% of all spending reductions occur in months that consumers began under the deductible, with 49% of all reductions coming for the ex ante sickest half of consumers under the deductible, despite the fact that these consumers have quite low shadow prices. There is no evidence of learning to respond to the true shadow price in the second year post-switch.

From the Conclusion

In this paper we studied the health care decisions and spending behavior for a large population of employees (and their dependents) who were forced into high-deductible insurance after years of having access to completely free health care.

A meaningful portion of all spending reductions came from well-off consumers who were predictably sick, implying that the true marginal prices they faced under high-deductible care were actually quite low.

We found that almost all spending reductions during the year occurred while consumers were still under the deductible, despite the fact that the majority of incremental spending occurs for consumers that have already passed the deductible. Moreover, about 30% of all spending reductions come from consumers in months when they (i) began that month under the deductible but (ii) were predictably sick, in the sense that they had very low shadow prices for health care.

http://www.nber.org/papers/w21632

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This study is forcing economists to rethink high-deductible health insurance

By Sarah Kliff
Vox, October 14, 2015

Economists Zarek Brot-Goldberg, Amitabh Chandra, Benjamin Handel, and Jonathan Kolstad studied a firm that, in 2013, shifted tens of thousands of workers into high-deductible insurance plans. This was a perfect moment to look at how their patterns of care changed — whether they did, in fact, use the new shopping tools their employer gave them to compare prices.

Turns out they didn’t. The new paper shows that when faced with a higher deductible, patients did not price shop for a better deal. Instead, both healthy and sick patients simply used way less health care.

This raises a scary possibility: Perhaps higher deductibles don’t lead to smarter shoppers but rather, in the long run, sicker patients.

Kolstad and his co-authors looked at the case of a large, unnamed company that shifted more than 75,000 workers and their dependents from a plan with no deductible to one with a $3,750 deductible.

Workers’ health spending dropped, and did so quickly.

In one sense, then, the high-deductible plan did accomplish a key goal: lower health spending. But when the researchers looked at why spending dropped, they found it had nothing to do with smarter shopping. The average price of a doctor visit wasn’t dropping.

Instead, under the high-deductible plan, workers just went to the doctor way less. The paper finds that “spending reductions are entirely due to outright reductions in quantity.” Workers did use less “potentially wasteful care,” like imaging services, but they also cut back on “potentially valuable care,” like preventive visits.

Even more striking: The sickest workers were those who were most likely to reduce their use of care while still under the deductible — even though this is the group that needs lots of care and is most likely to blow through the deductible by the end of the year. Once these sick workers actually exceeded their deductible, though, use of medical services rebounded.

“This is a difficult task for consumers to take on, and we now have very detailed data to show that’s the case,” (Kolstad) says. “When we’ve thought about the economics, we’ve generally thought this type of price change wouldn’t be problematic, that sicker people would just spend their deductible and get the care they need. This research suggests that’s not the case.”

For Kolstad, this makes him skeptical of “demand-side” interventions in health care — those that rely on consumer demands for lower health prices to ultimately lead to less medical spending.

http://www.vox.com/2015/10/14/9528441/high-deductible-insurance-kolstad

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Comment:

By Don McCanne, MD

This is an important study. It shows that sick patients will not shop prices but rather they will forgo beneficial health care services while they are still under the deductible for their plan.

This confirms that deductibles are an inappropriate tool for reducing health care spending, since health policies should be designed to improve care rather than impair it. This puts the entire concept of consumer-directed health care under question as a means of slowing health care spending. In contrast, single payer policies control spending while benefiting patients.

This study may seem familiar to regular readers. That is because it was covered in our June 15, 2015 Quote of the Day. It was based on an article in “The Conversation” by Ben Handel, one of the co-authors of this study.

What is new is that NBER has now released the full study, and reports of it are appearing in the media. It is a concept well worth repeating. Excerpts of the Vox article by Sarah Kliff are included above in that her description is quite clear, avoiding the technical language of economists and policy wonks.

Quote of the Day, June 15, 2015: https://www.pnhp.org/news/2015/june/deductibles-do-not-foster-price-shopping