A Freakonomics Proposal to Help the British National Health Service

In the first chapter of our new book, Think Like a Freak, we recount an ill-fated interaction that Dubner and I had with David Cameron shortly before he was elected Prime Minister of the U.K. (In a nutshell, we joked with Cameron about applying the same principles he espoused for health care to automobiles; it turns out you don’t joke with Prime Ministers!)

That story has riled up some people, including an economics blogger named Noah Smith, who rails on us and defends the NHS.

I should start by saying I have nothing in particular against the NHS, and I also would be the last one to ever defend the U.S. system.   Anyone who has ever heard me talk about Obamacare knows I am no fan of it, and I never have been.

How to Control Runaway Entitlement Spending

At the Becker-Posner blog, Richard Posner offers some ideas for amending the entitlements programs that are "threatening the long-term solvency of the federal government":

Which leads me to the first of the only two practical ideas that occur to me for slowing the increase in entitlement expenditures relative to the size of the economy: a shift in emphasis in medical research from length of life to ability to live independently. Independent living means living without home care (whether by relatives, thus taking time from them that they could use more productively in other activities, including paid employment, or by paid care—paid by the government in many cases) and being able—and wanting—to work. Independent living can be fostered by focusing medical research on problems of vision, musculoskeletal problems (which impair mobility), obesity, and dementia, in preference to research on curing and preventing cancer, heart disease, and stroke. 

The Unsustainable Economics of Cancer Drugs

In New York magazine, Steve Hall lays out the good, bad, and the ugly of cancer-drug economics. Warning: it is mostly bad and ugly.

The pharmacist e-mailed the numbers, and Saltz stared at the figures on his computer screen. Zaltrap, the drug that was extremely similar to Avastin, cost roughly $11,000 a month. (And because that extra 42 days wouldn’t be possible without taking the drug for, say, seven months before—which was roughly what was happening in clinical trials—the price for that six-week life extension could be as high as $75,000.)

“Wow,” he said to himself, “that’s a deal-changer for me.”

That may not seem like a heretical statement, but the unspoken rule in American health care is that doctors should never consider the cost of a medicine that might be beneficial to patients. When the FDA approves a new cancer drug, it analyzes safety and effectiveness only. Medicare is obliged to reimburse payment for the drug, and private insurers in most states must cover the cost. Any doctor who considers cost—or the value of a costly drug—risks being accused of “rationing” health care.

Paying Less … Without Health Insurance

Writing for the Wall Street Journal, Jeffrey Singer describes a patient who came in for a "simple outpatient surgical procedure" and discovered it was cheaper to just ignore his "low-cost 'indemnity' type of health insurance policy."  The patient's estimated costs had he used his health insurance plan: approximately $20,000 (out of the estimated hospital charge of $23,000).  After speaking to the patient, Singer realized that he wasn't bound by a "preferred provider" contractual arrangement and offered the patient a solution that saved him $17,000:

I explained that just because he had health insurance didn't mean he had to use it in every situation. After all, when people have a minor fender-bender, they often settle it privately rather than file an insurance claim. Because of the nature of this man's policy, he could do the same thing for his medical procedure. However, had I been bound by a preferred-provider contract or by Medicare, I wouldn't have been able to enlighten him....

Most people are unaware that if they don't use insurance, they can negotiate upfront cash prices with hospitals and providers substantially below the "list" price. Doctors are happy to do this. We get paid promptly, without paying office staff to wade through the insurance-payment morass.

So we canceled the surgery and started the scheduling process all over again, this time classifying my patient as a "self-pay" (or uninsured) patient. I quoted him a reasonable upfront cash price, as did the anesthesiologist. We contacted a different hospital and they quoted him a reasonable upfront cash price for the outpatient surgical/nursing services. He underwent his operation the very next day, with a total bill of just a little over $3,000, including doctor and hospital fees. He ended up saving $17,000 by not using insurance.

(HT: Jason Hirschhorn)

FREAK-est Links

1. They said it would never happen: Israel's ultra-orthodox lose many of their exemptions.

2. Health-care economics: how the American Medical Association prices medical procedures.

3. The most popular page on Wikipedia in 2012: Facebook. (HT: Eric M. Jones)

4. Everyone knows that the French work fewer hours -- but judging by their GDP per capita, they are very productive.

Should Hospital Workers Who Don't Get a Flu Shot Be Required to Wear a Mask?

A few weeks ago, before the flu was national news, a reader who works at a hospital in Portland, Or., wrote to say:
"The organization I work for just started this policy, I think it is very interesting and may push those who don't want to get a flu shot for whatever reason to get a flu shot to avoid the stigma of wearing a mask. The employee comment section has ranged from HIPPA violations to discrimination for those who can't have a flu shot based on egg allergies."

Here's the policy:

You may have heard by now: Flu season is ramping up in Oregon, with cases now starting to affect hospitalized patients in greater numbers. For individuals whose immune systems are compromised by other conditions, the flu can be life threatening.

To keep patients safe, a new Influenza Vaccination and Masking policy requires that workforce members do one of two things during flu season:

Peter Cramton: Medicare Auction Gadfly

My friend and co-author Peter Cramton continues his two-year crusade to improve the workings of “Medicare’s Bizarre Auction Program.”  You can watch his YouTube testimony before the United States House Committee on Small Business here.

(See also his Oral TestimonyTranscript of HearingVideo of Entire Hearing.)

Peter’s supplemental comments are particularly devastating in rebutting two claims of Lawrence Wilson, Centers for Medicare and Medicaid Services (CMS) Director of the Chronic Care Group:

CMS [claim]: “CMS worked closely with stakeholders to design and implement the program.”

Mr. Wilson. “CMS worked closely with stakeholders to design and implement the program in a way that is fair for suppliers and sensitive to the needs of beneficiaries.”

Does More Primary Care Increase Healthcare Costs Instead of Lowering Them?

Health care reformers often argue that increasing patients' access to doctors (especially primary care doctors) can actually lower health care costs in the long run, as these doctors can help diagnose and manage conditions before they lead to more expensive treatments and hospitalizations. But a new paper by economists Robert Kaestner and Anthony T. Lo Sasso disputes that theory. Here's the abstract:

By exploiting a unique health insurance benefit design, we provide novel evidence on the causal association between outpatient and inpatient care. Our results indicate that greater outpatient spending was associated with more hospital admissions: a $100 increase in outpatient spending was associated with a 2.7% increase in the probability of having an inpatient event and a 4.6% increase in inpatient spending among enrollees in our sample. Moreover, we present evidence that the increase in hospital admissions associated with greater outpatient spending was for conditions in which it is plausible to argue that the physician and patient could exercise discretion.

The authors further conclude that "the implication of these findings is that expanding health insurance, as recent federal reform (Patient Protection and Affordable Care Act) proposes, will be cost increasing."

Are High-Cost Hospitals Better Hospitals?

A new working paper (ungated here) by Joseph J. Doyle, Jr., John A. Graves, Jonathan Gruber, and Samuel Kleiner exploits the random assignment of ambulances to emergency care patients to determine whether higher-cost hospitals achieve better outcomes. From the abstract:

Ambulances are effectively randomly assigned to patients in the same area based on rotational dispatch mechanisms. Using Medicare data from 2002-2008, we show that ambulance company assignment importantly affects hospital choice for patients in the same zip code. Using data for New York state from 2000-2006 that matches exact patient addresses to hospital discharge records, we show that patients who live very near each other but on either side of ambulance-dispatch boundaries go to different types of hospitals. Both strategies show that higher-cost hospitals have significantly lower one-year mortality rates compared to lower-cost hospitals. We find that common indicators of hospital quality, such as indicators for "appropriate care" for heart attacks, are generally not associated with better patient outcomes. On the other hand, we find that measures of "leading edge" hospitals, such as teaching hospitals and hospitals that quickly adopt the latest technologies, are associated with better outcomes, but have little impact on the estimated mortality-hospital cost relationship. We also find that hospital procedure intensity is a key determinant of the mortality-cost relationship, suggesting that treatment intensity, and not differences in quality reflected in prices, drives much of our findings. The evidence also suggests that there are diminishing returns to hospital spending and treatment intensity.

The authors conclude that their results "should give policy makers some pause before assuming that spending can be easily cut without harming patient health, at least in the context of emergency care."

The Perfect Gift for the Health Care Buff in Your Family

Searching for the perfect gift for the health care reform junkie in your family? A new graphic novel by Jonathan Gruber (out on Dec. 20) may be just what you've been looking for. The book, Health Care Reform: What It Is, Why It's Necessary, How It Works, has been gestating for awhile, and aims to explain the complicated legislation. Here's an excerpt from the Amazon book description:

You won’t have to worry about going broke if you get sick.
We will start to bring the costs of health care under control.
And we will do all this while reducing the federal deficit.

In the interest of full disclosure, it should be noted that Gruber served as an Obama advisor during the 2008 campaign and may not be the most unbiased of observers.

(HT: Marginal Revolution)