Category: Medicine

Competitive hospitals as a virtue of the Singapore health care system

I won’t recap my earlier discussion, but rather here I will point out another feature of the system which makes it work and which keeps costs down: competition among hospitals.

Singapore has nine general hospitals, eight community hospitals, and twelve specialist hospitals, many of which are owned by the government.  (The public hospitals are usually bigger than the private hospitals, so the public hospitals serve about 80% of the market.)  To put that in proper perspective, Singapore is about the size of a U.S. county.  That’s 274.1 square miles, noting that most people do not live on the fringes of the territory.

The publicness of the public hospitals is not their most important feature.  Their most important feature is that they compete.  They do not merge, for instance.

Not every Singaporean public hospital is a contender to treat every kind of ailment.  And not every hospital is within convenient reach in a country where many people do not have cars.  Still, that’s a lot of competition by American standards.

To put matters in perspective, Fairfax plus Arlington counties have two hospital chains of significance, Virginia Hospital Center and Inova FFX hospital, and that is in a reasonably densely populated (by American standards) elite region.  Yes DC and Maryland may beckon (Sibley, Suburban, Children’s Hospital — what else is good?), but still ask yourself how many Americans can choose from a comparable number of hospitals as one can in Singapore?

One lesson is that urbanization is good for your health care system.  That is another reason to deregulate urban density.

A second lesson is that congestion prices for your roads make it easier for hospitals to compete.  Driving north on the Beltway to a Maryland hospital, from Fairfax, isn’t so great, especially if you are really sick.

A third lesson concerns the Hayek-Lange debate on managed competition as a potential solution to the socialist calculation debate.  The government-owned hospitals in Singapore would appear to be implementing one version of Lange’s proposal, namely that they are told to compete and they do.  Very successfully, so successfully that they are often cited as an example by market-oriented economists.  No, this could not work for an entire economy, and yes, in most other places public choice considerations would be a bigger problem than they are in Singapore.  Still, Lange’s proposal, viewed in light of the Singapore hospital system, looks a bit better than it used to.

Addendum: Here is Reihan on the monopoly power of U.S. hospitals.

What do we know about the easing of malaria burdens?

There are some new and interesting results from Lena Huldén, Ross McKitrick and Larry Huldén.  Here is the abstract:

Malaria has disappeared in some countries but not others, and an explanation for the eradication pattern has been elusive. We show that the probability of malaria eradication jumps sharply when average household size in a country drops below four persons. Part of the effect commonly attributed to income growth is likely due to declining household size. The effect of DDT usage is difficult to isolate but we only identify a weak role for it. Warmer temperatures are not associated with increased malaria prevalence. We propose that household size matters because malaria is transmitted indoors at night, so the fewer people are sleeping in the same room, the lower the probability of transmission of the parasite to a new victim. We test this hypothesis by contrasting malaria incidence with dengue fever, another mosquito-borne illness spread mainly by daytime outdoor contact.

The gated published version is here.  A six-page author summary is here.

For pointers I thank Aaron C. Chmielewski and Gregory Rehmke.

U.S. life expectancy in perspective

From Avik Roy:

A few years back, Robert Ohsfeldt of Texas A&M and John Schneider of the University of Iowa asked the obvious question: what happens if you remove deaths from fatal injuries from the life expectancy tables? Among the 29 members of the OECD, the U.S. vaults from 19th place to…you guessed it…first. Japan, on the same adjustment, drops from first to ninth.

Here is more.  Arnold Kling comments.

Boonton defends ACA on Hayekian grounds

This one is from the comments:

This illustrates what I think is an advantage the ACA has, it’s remarkably flexible and dynamic. Most people who complain about it being too complicated, or too radical, neglect to consider just how complicated and radical their own pet solutions would be. From the left perspective, a national single payer system entails abolishing all insurance and having gov’t set payment levels for all existing and new medical services. You can argue back and forth whether this is a good idea, but clearly it would radically disrupt how almost every American pays for their health care. Likewise even though such a bill may be ‘less complicated’ as measured by some stupid metric like # of pages, it’s not less complicated in its implementation. Just consider the transition to single payer along would probably entail thousands of pages of regulations and multiple court cases. Now single payer advocates can argue that on net it will eliminate the complexity of having doctors billing multiple insurance companies, navigating numerous payer systems etc. But whatever the merits of that argument the system itself would not be free of complexity.

Now consider right wing proposals. Abolish employer based insurance? You’re talking disrupting how nearly 50%+ of working people have had insurance for generations now. Huge voucher schemes to buy private insurance? Err hello the exchanges are only expected to be covering 7M people, and they want to cover 300M+ with vouchers including the entire Medicare population?!!!!

While both types of ideas seem simpler when reduced to some talking points and powerpoint presentations, they really aren’t. They both consist of risky gambles, betting the entire system on a single model and throwing away all other models the economy has on the assumption that they will not be needed anymore (if you abolish employer insurance and discover you screwed up big time, getting it back is going to be hard, so is pulling back Medicare-Voucher, or a single payer system).

Now consider the idea quoted above. It basically sets a cap on subsidy growth at slightly above GDP over the long run. If that results in people being very price conscious about medical expenses and ‘bending the curve’ downwards, that’s fine. But what if people don’t want the curve bent downwards? What if they find that they are willing to spend a larger share of income on healthcare because health care innovations are more worthy than other types of innovations (i.e. such as ’3-d tvs’ or the next generation of ipads)? Then they can. What if they think gov’t should fund additional subsidies? Well that question can be taken up in the future and debated in light with what our budget situation looks like in the future. In the ACA you have a lot of flexibility for the system to evolve because it essentially let’s the multiple systems we have in the US work and allows the ones that work best to expand and the ones that work less to contract. It may very well be that one set of systems is so great that they come to dominate the market (liberals are betting private insurance can’t work in the long run, conservatives that the single payer-systems like Medicare/caid have to eventually convert to private insurance). The ACA could evolve in either of those extremes but it can also evolve into a mixed system (the elderly are on Medicare, the very poor on Medicaid and everyone else is in a robust private market where employer based coverage competes with individually purchased policies)

You also will find a response there from John Thacker.

From the comments, John Goodman on health insurance subsidies

Commenting on yesterday’s post, John Goodman writes:

Two points:

1. The premium the individual pays is not fixed as a percent of income. The subsidy is fixed, based on the second lowest silver plan premium and that amount is based on income. But the consumer is free to buy any plan. Remember, the second lowest priced silver plan may be a really lousy plan. It might have a very narrow network, for example. So, all the plans are competing against each other, with one fixed subsidy and an array of premiums. The premium an insurer charges will matter very much. 2. After 2018, the out-of-pocket premium for the second lowest priced silver plan will no longer be fixed as a percent of income. Premium subsidies as a whole will grow no faster than GDP + 0.5%, the same rate of growth that is in the Obama budget for Medicare.

The thread has some other good comments as well.

Do subsidies protect Obamacare against the adverse selection death spiral?

Jonathan Cohn writes:

What you may not realize (because few people do) is that the subsidies, by design, protect people from rising premiums. The law basically dictates what these folks pay for the typical, “silver-level” Obamacare plan, no matter what the insurer charges. This is critical. It means that rising premiums won’t affect the willingness of those people to enroll—which means, in turn, they’d still have incentive to sign up next year, as long as the technological bugs were gone and Obamacare online was working. (Subsides were a missing element of those ill-fated reform experiments in New Jersey and elsewhere.)

The economics here are tricky.  Insurance companies set prices both for those who receive subsidies and for those who do not.  Furthermore, the subsidy — when there is a subsidy — is determined by a process akin to a second-price auction, rather than matching the highest price in the market.  (How much collusion is there anyway, once all these prices are posted?)

One question is this: pre- “pressures for adverse selection death spiral,” where is the price sitting?  I don’t see an a priori answer to this query, so let’s work through two possibilities.

One option is that, at the margin, the price is already high enough that further price hikes would lower insurer profits and subsidies won’t make up for enough of that difference.  So the scenario goes like this.  A smaller number of “invincibles” sign up early on than initially had been expected, in part because of negative publicity about the exchanges.  Providers respond by lowering service quality rather than by raising posted prices.

Think of this as the “price stickiness scenario.” One big reason for holding back on the price, and instead lowering network quality, is the adverse selection problem itself.  If some of the invincibles are paying part of the price hike, higher prices will put them off.  Yet, if indeed they are invincibles, vague rumors about inferior network access may not put them off much at all.  They don’t expect to be using the network anyway.  But of course for sick people this change in quality and access will be a problem.

On top of that, might there be some stickiness in the posted price?  Many macroeconomists stress price stickiness even under normal circumstances.  And that means very often sticky in the upwards direction too, for fear of alienating customers.  Prices are all the more sticky in heavily regulated industries and in sectors which are under a good deal of policy debate and media scrutiny and where suppliers are not all that politically popular.  Prices are even stickier when there are easy ways of raising “true net price” by lowering quality, raising wait times, restricting access and delivery speed, and so on.  Those dimensions of the problem are harder for customers, regulators, and also media-mongers to monitor.

Access restrictions are also a way of checking ultimate financial risk in a way that price increases cannot be.  We can thank Joseph Stiglitz for this insight, as Joe pointed out that not only are prices sticky, but quantities can be sticky too, and risk-averse firms may wish to limit how much they are on the hook for.

I see a good chance that the price stickiness scenario holds.  And in that case the problem is not so much a price spiral but rather network quality moves to a much lower level and sits there.

I call the second and simpler scenario the “subsidies make up the difference” scenario.

In that scenario, the initial prices are low enough that they can be raised and the subsidies pick up the difference.  The companies don’t try to game the adverse selection problem with quality decreases and most would-be buyers are covered by the subsidies at the relevant margin.  The thought experiment then runs like this.  The initial quality of pool applicants suddenly worsens, but this time the main effect is that posted prices go up.  Because of the subsidies the real net prices to potential purchasers do not change very much and all still seems OK.

We do not know which scenario will occur, or to what extent, or in which states.  But I hardly think the law is in the clear in this regard.

Henry Aaron says suck it up: health insurance cancellation update

Via Brad DeLong, here is Aaron:

Rather than apologizing for these cancellations, [the administration] should be bragging about them…. Imagine a new law enacted to promote food purity. As it is being debated, you are told ‘if you like what you eat, you can keep on eating it.’ The new law takes effect, and one day you find that the market no longer carries certain foods you have been buying… [which] included elements found to be bad for your health. The pure food act barred their use.

…People should be no more shocked when substandard insurance plans are removed from the market than they would be if food purity legislation caused some products to be removed from a grocer’s shelf….Obamacare is removing insurance products from the market that are bad for your health.

I am a big fan of Henry Aaron, but I see this response as representing a miscalculation and also showing a tin ear to the ongoing worries.  I suppose I would not put Henry in charge of marketing.  I have a few questions:

1. How many of the cancelled people are already receiving treatment from preferred specialists, doctors, hospitals, and so on?  They are in any case the most important “subjects.”

2. How many of these people know that their new policies (if and when they can get them) will cover the same providers?  How can these people find out that information — now — in an easily verified manner?  And if they have to switch providers, how long will it take before their previous treatments are back up and running at an acceptable level?  What kind of publicly available information is available on this question?  Might their current providers start neglecting them, even before coverage is up, figuring they are “out the door” in any case?

3. How high is the anxiety level of these patients in the meantime?  And must they feel they are getting a better deal from the new law, once they have shed their previous “substandard” treatments and providers?  How confident should those patients feel about any promises being made to them right now?  How should they feel about Aaron’s proposal for Obama administration boasting?

4. Why is Aaron so convinced that the new policies will involve no negative trade-offs?

5. We hear so much about behavioral economics, and rightly so.  Doesn’t it teach us that endowment effects and status quo bias are very strong?  Or are those always feelings we should be forcing people to overcome?

6. Are the best French unpasteurized cheeses — which do carry some health risk — “substandard”?  Or is there an offsetting benefit?  How about sushi?  How about beans?  They are delicious and good for your health.  How about a more modest mandate for ACA?  How about a stronger grandfather clause?

I thank Megan McArdle for a useful conversation related to this post.

Addendum: Via Wonkbook, here is one relevant report:

“Many new health exchanges don’t yet let shoppers see which doctors accept which insurance plans. Where exchanges do post the so-called provider lists, they often contain inaccurate or misleading information, some doctors say, including wrong specialties, addresses and language skills, and no indication whether providers are accepting new patients. Exchange officials blame the insurance industry, where inaccurate and out-of-date provider lists are nothing new. “I don’t think we realized that the underlying data had quite this number of problems. Now, it’s becoming more transparent,” said Joshua Sharfstein, Maryland’s secretary of health and the chairman of its exchange…[I]n addition to providing wrong information, the lists may give consumers a false impression of how big the networks are, some physicians say.” Melinda Beck in The Wall Street Journal.

Three provocative and interesting health care links

1.  Josh Barro on health insurance as fiscal policy. The private market may be more statist than you think.

2. Arnold Kling on when the ACA exchanges will be working. Maybe never, or possibly very soon.

3. Chris Conover on how many people will have to change their health insurance plans?  There is some exaggeration in the definitions there, but still the author makes some useful points.

Ross Douthat on the burden and incidence of ACA

As Angus has pointed out, Ross has been on a real roll lately, here is yet another good bit:

Now an effective levy of several thousand dollars on the small fraction of middle class Americans who buy on the individual market is not history’s great injustice. But neither does it seem like the soundest or most politically stable public policy arrangement. And to dig back into the position where I do strong disagree with Cohn’s perspective, what makes this setup potentially more perverse is that it raises rates most sharply on precisely those Americans who up until now were doing roughly what we should want more health insurance purchasers to do: Economizing, comparison shopping, avoiding paying for coverage they don’t need, and buying a level of insurance that covers them in the event of a true disaster while giving them a reason not to overspend on everyday health expenses.

If we want health inflation to stay low and health care costs to be less of an anchor on advancement, we should want more Americans making $50,000 or $60,000 or $70,000 to spend less upfront on health insurance, rather than using regulatory pressure to induce them to spend more. And seen in that light, the potential problem with Obamacare’s regulation-driven “rate shock” isn’t that it doesn’t let everyone keep their pre-existing plans. It’s that it cancels plans, and raises rates, for people who were doing their part to keep all of our costs low.

The full post is here.

What is the most likely path forward for the ACA exchanges?

I had lunch yesterday with a friend and I was asked that question (and I asked it in turn).  My answer, with some ex post editing, was this:

1. The chance of “no smooth resolution” for the health care exchanges crisis is now 60-40.  Not long ago I thought it was 20-80.

2. The Obama administration is claiming the exchanges might be ready soon to stem Democratic defections and to keep the policy locked in, but in reality they now know there is no chance for timeliness (NB: this sentence is true with 60-40 probability, not unconditionally true).

3. More parts of the thing will be working by late November, but not enough for it to serve as a functioning enrollment system, much less encourage “the invincibles” to sign up.  They will figure, correctly, they don’t have to bother with the whole thing until they hear from peers, and from the media, that the process is as smooth and as easy as Orbitz.  (Oddly, Tea Party attempts to get young people to resist the mandate have the counterintuitive property of increasing awareness of the sign up requirement.  Disengagement, not fiery opposition, is the real enemy of the law.)

4. Come January 1, hundreds of thousands of Americans will lose their individual coverage packages for not meeting ACA standards.  Most of them won’t have ready replacements.  This will be a big mainstream media story, not just a FoxNews story.  There will be easily identifiable victims, expressing sorrow or rage or both in front of the camera.  Left-wing bloggers will express outrage that Republicans express outrage over the existence of individuals with no insurance coverage.  Republicans will express outrage that left-wing bloggers express outrage, etc.

5. Democrats will propose various ACA fixes, and Republicans will reject them, claiming that the law requires a more fundamental restructuring.  That standoff will not be readily resolved and it will become the “new debt-ceiling crisis.”  Democratic defections will be a problem for Obama.

6. The exchanges will be mostly working by March 2014, but by then the risk pool will be dysfunctional.  In the meantime, real net prices will creep up, if only through implicit rationing and restrictions on provider networks.  The Obama administration will attempt to address this problem — unsuccessfully — through additional regulation.

7. By October 2014, no one will think the exchanges are a satisfactory solution, except for 17 state exchanges which will be running reasonably well.  Some of the state-level exchanges, by the way, will have more serious problems than is currently evident, mostly on the back end.

8. Chris Christie will campaign against ACA and beat Hillary Clinton in the general election.  Upon assuming office he will place price controls on the insurance plans in the individual market, repeal much but not all of the federal financial support for the Medicaid expansion, and keep many other parts of ACA, while claiming to have repealed the whole thing.  Enough Democrats will go along with this, as public opinion will have shifted toward the Republican side on this issue.  The individual market still won’t be working very well.  The exchanges will be working fine in the technical sense, but skittishness, political risk, and the adverse selection death spiral will have led the insurance companies to withhold high quality policies from that side of the market.

From the comments (Dan Hanson on ACA)

Dan writes:

The front end technology is not the problem here. It would be nice if it was the problem, because web page scaling issues are known problems and relatively easy to solve.

The real problems are with the back end of the software. When you try to get a quote for health insurance, the system has to connect to computers at the IRS, the VA, Medicaid/CHIP, various state agencies, Treasury, and HHS. They also have to connect to all the health plan carriers to get pre-subsidy pricing. All of these queries receive data that is then fed into the online calculator to give you a price. If any of these queries fails, the whole transaction fails.

Most of these systems are old legacy systems with their own unique data formats. Some have been around since the 1960′s, and the people who wrote the code that runs on them are long gone. If one of these old crappy systems takes too long to respond, the transaction times out.

Amazingly, none of this was tested until a week or two before the rollout, and the tests failed. They released the web site to the public anyway – an act which would border on criminal negligence if it was done in the private sector and someone was harmed. Their load tests crashed the system with only 200 simultaneous transactions – a load that even the worst-written front-end software could easily handle.

When you even contemplate bringing an old legacy system into a large-scale web project, you should do load testing on that system as part of the feasibility process before you ever write a line of production code, because if those old servers can’t handle the load, your whole project is dead in the water if you are forced to rely on them. There are no easy fixes for the fact that a 30 year old mainframe can not handle thousands of simultaneous queries. And upgrading all the back-end systems is a bigger job than the web site itself. Some of those systems are still there because attempts to upgrade them failed in the past. Too much legacy software, too many other co-reliant systems, etc. So if they aren’t going to handle the job, you need a completely different design for your public portal.

A lot of focus has been on the front-end code, because that’s the code that we can inspect, and it’s the code that lots of amateur web programmers are familiar with, so everyone’s got an opinion. And sure, it’s horribly written in many places. But in systems like this the problems that keep you up at night are almost always in the back-end integration.

The root problem was horrific management. The end result is a system built incorrectly and shipped without doing the kind of testing that sound engineering practices call for. These aren’t ‘mistakes’, they are the result of gross negligence, ignorance, and the violation of engineering best practices at just about every step of the way..

…“No way would Apple, Amazon, UPS, FedEx outsource their computer systems and software development, or their IT operations, to anyone else.”

You have to be kidding. How do you think SAP makes a living? Or Oracle? Or PeopleSoft? Or IBM, which has become little more than an IT service provider to other companies?

Everyone outsources large portions of their IT, and they should. It’s called specialization and division of labor. If FedEx’s core competence is not in IT, they should outsource their IT to people who know what they are doing.

In fact, the failure of Obamacare’s web portal can be more reasonably blamed on the government’s unwillingness to outsource the key piece of the project – the integration lead. Rather than hiring an outside integration lead and giving them responsibility for delivering on time, for some inexplicable reason the administration decided to make the Center for Medicare and Medicaid services the integration lead for a massive IT project despite the fact that CMS has no experience managing large IT projects.

Failure isn’t rare for government IT projects – it’s the norm. Over 90% of them fail to deliver on time and on budget. But more frighteningly, over 40% of them fail absolutely and are never delivered. This is because the core requirements for a successful project – solid up-front analysis and requirements, tight control over requirements changes, and clear coordination of responsibility with accountability, are all things that government tends to be very poor at,

The mystery is why we keep letting them try.

Arnold Kling on the problems with the health insurance exchanges

Somebody who had experience with creating a health insurance brokerage business would know that the systems problems are more complicated than just putting up a web site. In the background, the system needs to communicate with the systems at several government agencies and at the insurance companies. That changes it from a simple technical project to a complex, time-consuming, project involving business and technical staff.

You build a complex, mission-critical system through a process of continual negotiations among business units and technical people. You do not treat it as a procurement process. You cannot just write up a spec, put it up for bid, and parcel it out to dozens of contractors.

The development of the computer system probably would fall under operations, but you would want a project executive with a lot of authority to negotiate with all of the business units and to make project decisions. When conflicts arise, the project executive should be able to go straight to the CEO and get them resolved.

The project executive’s main focus is keeping the project’s complexity from getting out of control. The project executive must have the authority to trim features in order to meet deadlines.

You go through a lot of analysis and many painful meetings before anyone writes a line of code. The technical staff have to be able to challenge the business units, because sometimes the business unit asks for something to be done in a really complicated way, when a much simpler solution is available to solve the business problem.

One of the worst things that can happen on a systems project is to find yourself revisiting the business-technical negotiations process after writing a lot of code. If that is what is happening now, this project is in an unbelievable amount of trouble.

5. I suspect that the technical problems are mere symptoms. Probably what is fundamentally messed up in this health insurance brokerage business is the org chart.

There is more here.

Saving Lives with Distributed Intelligence

One of the general features of information technology is that through coordination it makes better use of distributed resources, such as workers, automobiles or energy. An excellent case in point is being tested in Stockholm, Sweden. SMSlivräddare (in Swedish) has a large list of people who are trained in cardiopulmonary resuscitation (CPR). When an emergency call is received indicating a possible heart attack, SMSlivräddare finds the mobile phone user(s) closest to the potential victim and alerts them with a text message. The message also contains a map to the victim’s location.

Survival rates for heart attack outside a hospital in Sweden are low, only about 5-10% but every minute shaved off the time it takes to begin CPR increases the survival rate by 10%. When notified, SMS responders arrive faster than ambulances about 50% of the time so the potential for saving lives is quite large (final data on the research project are not yet in).

Could such a system work in the United States? Maybe, a similar but more passive app is available in a few locations. Legal issues are a threat. Good Samaritan laws offer some protection although they often apply only to medical professionals. The threat, however, is not really to the responder but to the service. It’s interesting to watch Shark Tank, anytime a medical entrepreneur makes an appearance the sharks run away for fear of liability. Still, if the service were attached to a hospital and integrated with ambulances services, it ought to be possible to be insulated but this will require significant political entrepreneurship.

Hat tip: Connor Tabarrok.