Hedging FDA Risk?

by on April 19, 2017 at 6:09 am in Economics, Law, Medicine | Permalink

In the words of a recent article, the FDA’s rejection of a recent drug application was a stunning setback. Stunning setbacks are by definition unpredictable and unpredictable risks aren’t correlated with other risks which means that they can be easily priced and bought and sold. The all-star team of Adam Jørring, Andrew W. Lo, Tomas J. Philipson, Manita Singh and Richard T. Thakor propose just this in Sharing R&D Risk in Healthcare via FDA Hedges.

The idea is to create FDA Hedges that pay out a fixed fee if a drug fails to be approved and zero otherwise. Pharmaceutical firms could then buy some of these contracts and reduce their risk exposure which in turn would increase their incentive to invest in R&D.

The idea is clever but firms and even more so firm owners already have many ways to diversify and its not clear what the value of an additional source of diversification is, even one that is more closely tuned to the firm’s profits. It’s also not clear how much additional R&D would be driven by offloading these risks. Pharmaceutical R&D is valuable, however, so even small increases in R&D are welcome even if more fundamental changes would be better. Prices in these markets would also provide useful information.

I also worry that we are asking a lot of FDA reviewers and firm insiders to keep their inside information private. Information about FDA approval decisions is already very valuable and there have been a few cases where insiders trade on their information or leak it to make millions. FDA Hedges might make this problem worse which should be balanced against the possible gains.

Soon I will be doing a conversation with Dave Barry, podcast only, no public event (alas).  In case you somehow do not know, that is Dave Barry the humorist.  So what should I ask him?

Label this not The Department of Why Not but rather The Department of Why?

The Howsers are far from the only regulars at the Castle Creek Cafe, located inside Aspen Valley Hospital. It’s a popular breakfast spot for city workers. It also feeds people on both sides of the law; police officers visit daily, and the cafe delivers to inmates at the local jail 7 days a week. The cafe makes a point of welcoming community members with no hospital affiliation. And its menus, made available to view a month at a time, include items like herbed farro pilaf, corn soufflé, and panko crusted cod. We’re a long way away from institutional slop. [TC: speak for yourself, buster!]

The Howsers discovered the cafe, which Mary calls “the best kept secret in Aspen,” after having some tests done in the hospital. She says, “Never in my wildest dreams did I think hospital food could be tasty!” The experience has even inspired them to check out restaurants at other hospitals.

One Colorado hospital restaurant that should be next on their list is Manna, within Castle Rock Adventist Hospital.

I am sorry people, but I am going to stick with theory on this one.  No data will be sampled, unless you count this enthusiastic description from Tim Davis as evidence of sorts:

“Their menu has real gourmet style food you would expect from a high priced restaurant, but sold to you at a much more affordable price,” he says. One dish is maple glazed duck confit, consisting of a maple glazed duck leg served with swiss chard and spätzle, for $9. The grilled Thai cabbage steak, with marinated cabbage, spicy lime dressing, and shishito pepper, is even cheaper. Their burger buns even come adorned with a monogrammed M.

A further advantage is that the staff don’t push you out the door to leave, in addition the dining rooms are spacious and somber.

Mises was right about the a priori!

Here is the article, with further testimonials, and for the hat tip I thank Steve Rossi.

The Chinese government have set up a special economic zone for medical tourism.

Hainan Boao Lecheng international medical tourism pilot zone, the first of its kind in the country, was approved by the State Council in 2013. It enjoys nine preferential polices, including special permission for medical talent, technology, devices and drugs, and an allowance for entrance of foreign capital and international communications.

The pilot zone also has permission to carry out leading-edge medical technology research, such as stem cell clinical research.

The zone, for example, offers a way to skirt the slow Chinese FDA (and presumably the slow US FDA as well).

Established in 2013, the Hainan program will open up new treatments–including Keytruda–to affluent Chinese residents who can afford the travel and medical costs, while other patients will have to wait for regulators to approve them. In recent years, mainland Chinese patients have increasingly traveled to Hong Kong or elsewhere in the face of lagging drug approvals by the China FDA and high treatment costs.

The zone is too small to have a significant impact on worldwide R&D but China’s original SEZs soon expanded. The SEZ could also encourage some interesting experiments. Keep an eye out for billionaires who travel to the island for a holiday and emerging looking younger and healthier.

We fight over health care policy because we focus on demand and redistribution. We could reach greater agreement if we focused on supply and innovation. What are the key areas where agreement is likely?

1) Cancer kills both Republicans and Democrats so more spending on medical research is likely to reach broad agreement.  As I said in Launching:

Looking at the future, if medical research could reduce cancer mortality by just 10 percent, that would be worth $5 trillion to U.S. citizens (and even more taking into account the rest of the world). The net gain would be especially large if we could reduce cancer mortality with new drugs, which are typically cheap to make once discovered. A reduction in cancer mortality of this size does not seem beyond reach, and the value of such a reduction in mortality far exceeds that of spending more on medical care today. Yet because the innovation vision is not central to our thinking, we overlook potentially huge improvements in human welfare.

By greater spending on medical research, I mean not only greater spending through the NIH but also a commitment to innovation policy more broadly. We know, for example, that price controls kill medical research so no price controls. We can also improve the FDA. I would favor less regulation but there are other methods to speed up the approval process which could command bipartisan support such as greater funding of the FDA. The FDA is also not monolithic, some departments are better than others, so we can reform the FDA by making it more like the better parts of itself.

In thinking about pharmaceutical regulation we also need to remember that 80-90% of prescriptions are for generic drugs and due to intense competition, generic drug prices are low and falling–so lets build on the parts of the US health care system that work well by keeping the entry barriers to entry in the generics market low.

2) Increase the supply of physicians. Despite an aging population and greater demand, the number of MDs per person has been trending downwards! Increasing physician supply could involve a combination of increased immigration of foreign physicians (skilled immigration is really a non-brainer that receives widespread support), increased slots at medical schools and in residency programs (via Medicaid), increased support for allowing nurse practitioners, dental hygienists and so forth and making occupational licenses portable across states. (In addition to making it easier for foreign physicians to come to US patients we should also make it easier for US patients to travel to foreign physicians–patients without borders). None of these things are easy to do, of course, but neither are they riven by ideological differences.

3) Demand price transparency from hospitals and other health care providers. In real markets, a price is a signal wrapped up in an incentive. With few exceptions, we don’t have real markets in health care and so “prices” neither signal nor incentivize. Thus, I don’t expect miracles from “price” transparency and this is a policy that could go wrong but transparency would still allow for some standardization, comparison, and computation of tradeoffs. Price transparency would also limit some of the worst forms of bill abuse. Even the Soviets found prices to be useful for these purposes.

Other supply side reforms that could find bipartisan support?

Mostly yes, that is a result for cosmetic surgeons, and that may be one reason why online evaluation of medical services has been relatively slow to evolve in an effective manner.  Here is part of the abstract of a new paper:

I argue that surgeons see reviews overwhelmingly as a threat to their reputation, even as actual review content often positively reinforces physician expertise and enhances physician reputation. I show that most online reviews linked to interview participants are positive, according considerable deference to surgeons. Reviews add patients’ embodied and consumer expertise as a circumscribed supplement to surgeons’ technical expertise. Moreover, reviews change the doctor-patient relationship by putting it on display for a larger audience of prospective patients, enabling patients and review platforms to affect physician reputation. Surgeons report changing how they practice to establish and maintain their reputations. This research demonstrates how physician authority in medical consumerist contexts is a product of reputation as well as expertise. Consumerism changes the doctor-patient relationship and makes surgeons feel diminished authority by dint of their reputational vulnerability to online reviews.

Here is the paper, by Alka V. Menon, and the pointer is from the excellent Kevin Lewis.

But it is also a question of history and, more specifically, of how welfare states in the rest of the world developed alongside warfare. European welfare states began in Prussia at the end of the 19th century, when war with France required the mobilisation of a large number of civilians. Britain’s welfare state has its origins in the discovery that many of the men who presented themselves to recruiting offices during the Boer war were not healthy enough to fight. Before the second world war, British liberals would have seen the creation of a government-run national health service as an unwarranted intrusion of government into private life. After 1945 it seemed a just reward for a population that had suffered.

In America this relationship between warfare and health care has evolved differently. The moment when the highest proportion of men of fighting age were at war, during the civil war (when 13% of the population was mobilised), came too early to spur the creation of a national health system. Instead, the federal government broke the putative link between war and universal health care by treating ex-servicemen differently from everyone else. In 1930 the Veterans Administration was set up to care for those who had served in the first world war. It has since become a single-payer system of government-run hospitals of the kind that many Americans associate with socialised medicine in Europe. America did come close to introducing something like universal health care during the Vietnam war, when once again large numbers of men were being drafted. Richard Nixon proposed a comprehensive health-insurance plan to Congress in 1974. But for Watergate, he might have succeeded.

That is from The Economist.

One of Beijing’s busiest public toilets is fighting the scourge of toilet paper theft through the use technology – giving out loo roll only to patrons who use a face scanner.

The automated facial recognition dispenser comes as a response to elderly residents removing large amounts of toilet paper for use at home.

Now, those in need of paper must stand in front of a high-definition camera for three seconds, after removing hats and glasses, before a 60cm ration is released.

Those who come too often will be denied, and everyone must wait nine minutes before they can use the machine again.

But there have already been reports of software malfunctions, forcing users to wait over a minute in some cases, a difficult situation for those in desperate need of a toilet.

The camera and its software have also raised privacy concerns, with some users on social media uneasy about a record of their bathroom use.

Here is the full story, via Michelle Dawson.

Fatigued drivers cause accidents. In response to this obvious fact, we limit bus and taxi drivers to a maximum of 10 hours of driving after 8 consecutive hours off duty. Yet when it comes to physicians, the current standard is significant more lax; first-year residents are restricted to 16-hour shifts! That already is nuts. I often teach a night class, 7:20-10 pm and I always try to teach the more difficult material early because by 9pm I am not at the top of my game. Needless to say, medical residents are far more stressed and fatigued than teachers. Moreover, while first year residents can work up to 16 hours, second year residents can work up to 24 hours straight and even up to 30! Isn’t it amazing how one year of residency can teach physicians how to function without sleep?

The current standards, which strike me as absurdly low, are actually due to restrictions put in place in 2003 and 2011–restrictions which are now being lifted. The new plan is to allow longer hours for first year residents:

Rookie doctors can work up to 24 hours straight under new work limits taking effect this summer — a move supporters say will enhance training and foes maintain will do just the opposite.

A Chicago-based group that establishes work standards for U.S. medical school graduates has voted to eliminate a 16-hour cap for first-year residents. The Accreditation Council for Graduate Medical Education announced the move Friday as part of revisions that include reinstating the longer limit for rookies — the same maximum allowed for advanced residents.

An 80-hour per week limit for residents at all levels remains in place under the new rules.

Studies have found that physicians who work longer hours are much more likely to get into auto accidents on the way home. Physicians and nurses who work longer hours also make more medical mistakes.

The main argument in favor of long hours is that the 2003 and 2011 restrictions do not seem to have greatly improved patient safety. That is surprising but the micro and experiential evidence that fatigue makes for mistakes is so strong that the lesson to be drawn isn’t that longer hours don’t lead to mistakes–the lesson is either that the restrictions were routinely ignored (as the National Academy of Science study found), that the studies done to date are misleading for a statistical or design reason or that there is another constraint in the system that needs to be examined. One possibility for another constraint is that handoffs of patients between physicians aren’t handled well. But that means that poor handoffs are killing as many people as fatigue!

In no other field do we tolerate error as much as we do in medical care. Why does the government regulate driving hours more than medical hours? It’s not just the government. It’s amazing that in a society where McDonald’s can be sued for making people fat that the tort system hasn’t shut down absurdly long residency hours (there have been a few cases). Medical care is a peculiar field (cue Robin Hanson).

Aside from Hanson-type factors, a key factor that explains what is going on is that residents are a huge profit source for the hospitals. Much like student athletes, residents are underpaid. As a result, hospitals want to use residents as much as possible so they lobby for longer hours even at the expense of patient safety.

The state of West Virginia has paid for so many burials for indigent people who have died from drug overdoses that the funding has run out five months before the end of the current fiscal year on June 30.

Kitchen said there have been so many drug overdose deaths in West Virginia, it often takes two to three weeks for the state medical examiner to complete the required autopsies. He said families then have the added stress of not being able to carry out a funeral for weeks after a death occurs.

Here is the article, via Anecdotal.  Here is a good Christopher Caldwell piece on opioids.

It is not easy to excerpt, so do read the whole thing.  But here is the closing bit:

And in any case, momentum depends on a strong, successful push at the start. This could have started better, and it needs to end smarter.

That is the title of a recent paper in the Journal of Development Economics (NBER version here, 2013 ungated version here), and although the piece does not feel dramatic at first it is one of my favorite articles of the year.  It pins down some critical features of economic underdevelopment better than any study I know.  The subtitle, by the way, is “The Successes and Limitations of Bureaucratic Reform in India,” the authors are Iqbal Dhaliwal and Rema Hanna, and the work is set in rural Karnataka.

It is not easy to excerpt from, so I will summarize the narrative:

1. Using biometric technology — thumbprints — to monitor absenteeism induces staff attendance for public health workers to rise by almost 15 percent.

2. That in turn leads to a reduction in low-birth weight babies.

3. Yet the government proved not so interested in monitoring attendance on a more regular basis, not even to enforce their pre-existing human resource policies.  Potential penalties against late or absent doctors were not, for the most part, enforced.

4. Following the implementation of monitoring, the doctors showed the least improvement in attendance of all the workers, in fact virtually no improvement.  The entire positive effect came from nurses, lab technicians, and lower level staff.

5. The government was reluctant to continue the monitoring because it feared staff attrition and staff discord, especially from the doctors.  There is growing private sector demand for doctors, and many doctors are considering leaving these clinics for superior pay elsewhere, and perhaps also superior location.  Therefore the doctors are given, de facto, a very lenient absence and lateness policy, in lieu of a pay hike.

6. It is already the case that many of these doctors moonlight on the side, or have separate private practices, and that spending more time at the public clinic is not their major priority.

7. It is not easy for the underfunded local government to pay these doctors more, and thus a high level of lateness and absenteeism continues.  I wonder also what would be the morale costs on the non-doctors, if the monitoring were to be continued to be enforced in this differential manner over a longer period of time.

Here is Ezra Klein on the new health care bill.  Avik Roy doesn’t seem entirely crazy about it either.  I don’t have anything to add to their two fine reports.  Read Bob Laszewski too.

We find that as the county unemployment rate increases by 1 percentage point, the opioid death rate (per 100,000) rises by 0.19 (3.6%) and the ED visit rate for opioid overdoses (per 100,000) increases by 0.95 (7.0%).

That is from a new NBER working paper by Alex Hollingsworth, Christopher J. Ruhm, and Kosali Simon.

China fact of the day

by on February 25, 2017 at 12:57 am in Data Source, Medicine | Permalink

During one of the greatest economic booms in the history of the world, working-age men had trouble staying alive.

That is the disheartening news from China, where its insurance regulator recently updated a more-than 10-year-old table of mortality rates. A key finding: Mortality rates among Chinese men aged 41 to 60, who account for nearly three-quarters of the working-age population, increased by 12% over the decade through 2013, the most recent data available. This was even as mortality rates generally improved across other age groups and genders.

It could be that financial success breeds bad health habits. Disposable income per capita has risen 90% in the past six years and probably more than that over the past decade, though official government data is limited. Chinese liquor consumption—where men consume 60% more than women—has risen 5% compounded annually over the past 15 years, considered fast by global standards, according to Bernstein analysts. Richer diets go along with high incidence of lung and coronary issues for Chinese men.

That is from Anjani Trevedi at the WSJ, via the always-interesting Dan Wang.