America Spends More on Emergency Medicine Than Previously Thought. Good or Bad?

American emergency departments take a lot of heat from critics who assert that they are one of the places in our health care system where resources are wasted in abundance. These arguments have less to do with the emergency departments themselves, and more to do with people using emergency departments for non-emergent conditions. One estimate puts the excess spending at $38 billion a year. By contrast, the American College of Emergency Physicians (ACEP) claims that care received in emergency departments accounts for only 2% of national health expenditures. However, new research from Michael Lee and colleagues appearing in the Annals of Emergency Medicine, finds that, because of data limitations, previous estimates of emergency department spending are misleading.

The 2% figure appears to be based on a faulty interpretation of the Medical Expenditure Panel Survey (MEPS) conducted by the Agency for Healthcare Research and Quality. The MEPS figures that ACEP uses for their calculations did not include more expensive admitted patients (only those that were seen in the ER and released), did not include institutionalized patients such as elderly nursing home patients, and significantly undercounts the total number of ER visits nationally compared to a number of other established surveys.

In their study, Lee and colleagues use a variety of data sources and construct estimates using several different assumptions to generate a more reliable range of emergency department spending in the U.S. Their conclusion is that emergency department care likely represents 5 or 6% of national health expenditures, although the true figure could be as high as 10%. That’s a figure 3 to 5 times as great as what the American College of Emergency Physicians is reporting, so it’s safe to say that, to the extent one trusts these new numbers (and I do), the argument that emergency care isn’t a big contributor to national health expenditures pretty much falls apart.

What is left, then, is the question of whether that level of spending is inherently wasteful. On this point, the authors review the economic literature on the costs of providing emergency care. The accepted paradigm had been that the ER was a high fixed cost, low marginal cost enterprise. But the authors show that empirical studies testing that hypothesis using regression analysis have been variable and poorly designed. They favor an accounting-based approach rather an econometric one, using principles from time-driven activity based accounting popularized by Kaplan and Porter. That approach puts greater emphasis on the scalability of resources such as labor, space and equipment that might otherwise be viewed as fixed.

I asked Lee about the implications for policymakers from their line of work:

On the topic of diverting low acuity care: “Diverting low acuity visits may save payers some money but I’m skeptical that there would be large aggregate savings….Studies that look at ex-ante measures of severity or urgency (as opposed to diagnosis-related measures which are ex-post) generally show that the volume of non-urgent care is lower than the public perceives. And a further point is that the actual reimbursements for non-urgent care is likely to be on the low side to begin with since it’s a population more likely to be uninsured or underinsured. Finally, you have to also take into account the fact that primary care offices and clinics may not have the capacity to see high volumes of unscheduled care, so diverting care will simply shift the cost burden. I think there is far more promise in understanding and questioning expensive decisions ER physicians make such as admitting patients to the hospital or the volume of diagnostic testing ordered.”

Lee and his co-authors want to move beyond the issue of minimizing costs, however, and in their paper they call for a greater emphasis on value, writing:

“With 130 million visits, 28% of all acute-care visits, and accounting for nearly half of all admissions, emergency medicine should be expected to represent a large share of health care spending….More attention should be devoted to quantifying the value of specific aspects of emergency care. Rather than minimize the issue of cost, we should recognize the economic and strategic importance of the ED within the healthcare system and demonstrate that costs are commensurate with value.”

Lee acknowledges that this remains a challenge for the field of emergency medicine. “The core of our business is ruling out critical diagnoses. Many of the things we look for are low probability but highly dangerous conditions. The big question is how do you quantify value when your work is often focused on trying to demonstrate the absence of something?”

 

Joe Paduda Hosts Health Wonk Review

It’s another excellent edition. Check it out here.

 

Making Sense of the Oregon Experiment

Last Thursday, an article by Kate Baicker and colleagues came out in the New England Journal of Medicine. Almost immediately, the article received widespread attention in the media where headlines claimed that giving people Medicaid coverage doesn’t improve their health. This is not exactly what the article said, but most journalists aren’t scientists, so we should cut them a bit of slack. But, before I give you my interpretation of the study’s findings, let me provide you with some background.

The state of Oregon has a waiver to provide Medicaid coverage to a group of low-income adults that would not otherwise be eligible for Medicaid under traditional law. They call this the Oregon Health Plan Standard. The problem is, states are required to balance their budgets annually, and there is more demand for this Medicaid program than there is money in the state budget to meet that demand. So, the state created a waiting list, and in 2008, the state had enough money to expand the Medicaid program slightly. To be fair, they held a lottery among the nearly 90,000 waitlisted individuals, and some 30,000 of them won the right to enroll in Medicaid. The reason that’s important is that the lottery introduces a random selection process that is extremely valuable when conducting research. I’ll spare you the additional details, because if you’re the kind of person who needs to know them, you’ll go read the NEJM article for yourself.

Two years after the lottery, the study authors interviewed both the group that won the lottery and a “control” group that didn’t win the lottery. According to the authors, they asked about “health care, health status, and insurance coverage; an inventory of medications; and performance on anthropometric and blood pressure measurements.” They assessed both depression and self-reported health-related quality of life. The goal, in short, was to see what difference obtaining Medicaid coverage makes compared to being uninsured.

The story making headlines is that people didn’t get healthier by gaining Medicaid coverage. This is because there were no statistically significant improvements in blood pressure, cholesterol levels, or controlled diabetes. Indeed, that is one thing the study found, but that’s not all. They also found that people who gained Medicaid coverage were more likely to have their diabetes diagnosed, which is the first step in getting it treated. Additionally, they found that those with Medicaid coverage were less depressed, reported a better quality of life, used more health care, and were far less likely to encounter financial hardship because of health care.

Since a central component of the Affordable Care Act is the expansion of Medicaid to a population similar to that studied in this Oregon expansion, these findings are being viewed as evidence that expanding Medicaid will just mean more money spent on increased use of health care without anything to show for it. The flaw in that thinking comes from the fact that insurance coverage is a necessary, but not sufficient, cause of improvements in health outcomes. In other words, just giving people Medicaid coverage isn’t going to fix everything. We still need to make sure that they have access to a doctor, have the ability to make and keep their appointments, understand and comply with their doctor’s orders, and help them navigate the complexities of the health care system. We also need to make sure that the treatments they are provided are effective. This is where other components of health reform are poised to play a major role. Accountable care organizations and patient-centered medical homes are designed to focus on integrated, high-quality care that puts the patient first and shifts health care providers’ focus from volume to value. The Patient-Centered Outcomes Research Institute (PCORI), headed by Dr. Joe Selby, is funding comparative effectiveness research that seeks to identify what works and what doesn’t. But this study by Baicker and colleagues provides extremely strong evidence that health insurance insulates people from the financial risk of illness, and that seems to give them peace of mind that makes them report a better quality of life–even if their blood pressure hasn’t yet been lowered.

So, to conclude that Medicaid doesn’t do what it is supposed to isn’t true. It does precisely what it is supposed to. We just have to make sure that all of the other components of a high-performance health care system are in place and doing what they are supposed to. When that happens, the health care outcomes we seek will follow.

 

Health Wonk Review at InsureBlog

Hank Stern does an excellent job hosting the latest Health Wonk Review. Check it out here.

 

High-Risk Pools and Reinsurance: Potential Shock Waves to Insurers

Due to poorer health, higher cost services and pent up demand for health care, there are numerous concerns about high-risk and expensive individuals. These are people who were previously uninsured or enrolled in high-risk plans that will soon be covered by exchanges. Further, there is concern that premiums could skyrocket in 2014 if the unhealthy disproportionately move to exchanges for coverage while younger, healthier individuals slowly and cautiously join.

The Affordable Care Act was partially designed to mitigate these concerns. One method in particular is aimed at spreading the risk amongst the individual market for the first three years through “reinsurance”.

The initial description of reinsurance was that all insurers would be responsible for paying into the program.  Insurers were eligible to get funds in return, if a large portion of their enrollees were high-risk and expensive. The plan was designed to pay out $10 billion in year one, $6 billion in year two and $4 billion in year three to insurers of high-risk plans, incentivizing them to phase in their high-risk (and higher cost) individuals onto the exchanges.

The goal was to keep the individual market premiums low by balancing out costs in the exchanges, so that the young and healthy would equally participate. The gradual transition would give further funding to insurers to support their high-risk population, hopefully, mitigating the obvious discrimination of not allowing those high-risk persons equal, free market participation in the individual market.

Recent changes made by the federal government however, now have states and insurers concerned about the program they are required to pay into and get funding from, once the health care law takes effect.

The Department of Health and Human Services (HHS) has released regulation clarifying that state high-risk pools are no longer eligible for the return of funds, and that the government money will not be given for anyone with medical costs  around$60,000 per year. This shifting of incentive has many health policy analysts worried that states now have no reason not to dump their high-risk pools onto the exchanges on opening day.

Under the new regulations it actually makes sense for insurers to move high-risk enrollees as quickly as possible to get larger shares of the reinsurance funds. Therefore, insurers like the Blue Cross Blue Shields of the world will most likely have to ask HHS for more flexibility, and perhaps assistance during the transition period.

Reinsurance was anticipated to slowly maneuver high-risk people from the state’s pre-existing condition plans and high-risk pools plans onto the exchanges in a manner that prevented a substantial jolt to the individual market. However the recent clarification may actually have the opposite effect on its intended goal, forcing insurers to quickly move high-risk individuals en masse to the exchanges. This drastic shift in health care dollars may in fact destabilize the individual market, rather than slowly coaxing a change.

 

Health Wonk Review Tackles New Questions In Health Reform

Health reform continues to be implemented, and new questions keep rising to the surface. In the latest edition of the Health Wonk Review, some of the best bloggers around take a look at these questions and provide some possible answers. Hop on over to the Colorado Health Insurance Insider and check it out!

 

Why “Obamacare Credits Could Trigger Suprise Tax Bills” Is Misleading

A few days ago, Stephen Ohlemacher wrote an article for the Associated Press entitled “Obamacare credits could trigger surprise tax bills.” For those who haven’t read it, a quick synopsis: Thanks to the Affordable Care Act, starting this fall, individuals and families will be able to apply for federal subsidies to help them offset the cost of health insurance in 2014. These subsidies are appropriately income-based, meaning that the amount of financial assistance you get decreases as your income increases until, eventually, you are eligible for no subsidy at all (presumably because you can afford the full cost of coverage on your own). However, the federal government only has income data on you and your family from the income taxes you just filed this year, which reflect your 2012 income. If your income goes up in 2014, you may not actually qualify for as much of a subsidy as you were initially deemed eligible to receive, and the IRS will require you to repay the difference, up to a certain point. This has people concerned about surprise tax bills, but I’d like to explain a couple of things here.

First, it’s vitally important to realize that the amounts people would have to repay are capped according to their income. As Ohlemacher writes in his article, for a family of four, the maximum repayment amounts are capped at $600 for those with incomes up to $47,000; $1,500 for those with incomes between $47,000 and $70,000; $2,500 for those with incomes between $70,000 and $94,200; and no cap (the entire subsidy must be repayed) for those with incomes above $94,200.

Second, it is essential to consider what these scenarios mean. If, for example, a family was earning $40,000 a year in 2012 and then their income increased to $75,000 a year in 2014, they would have to repay up to $2,500. While that is being labeled as a “surprise tax bill” here’s why it shouldn’t be anything of a surprise: The individuals were never actually eligible for the subsidy they received, and now they are just being asked to return something that was not theirs to begin with. Moreover, because this only happens when they enjoy a near doubling of their income, the “bill” they will have to pay should be easily absorbed. By contrast, low-income families who remain low-income are not going to find themselves somehow subject to these “surprise bills.”

The flawed thinking here is similar in type to the flawed thinking that people tend to have with regards to the opposite scenario: tax refunds. People get very excited when, a few weeks after they file their income taxes, they get money back from the government. On the surface, it’s understandable. At first, you don’t have this money, and then, suddenly, you do. But the reality is that you were owed this money all along. You earned it in each one of your paychecks, but the government kept it from you for the entire year, without paying you any interest. A refund is really returning to you what you should have had all along. You gave the government an interest-free loan, and you’re just grateful that they returned the principal to you.

The subsidy “tax bill” issue is the same issue in reverse: Your subsidy eligibility is based on your 2014 income, but because of lag time, it will be determined based on your 2012 income. If your income has changed substantially between 2012 and 2014, you will know it. And if you’ve read this article, now you know to determine the amount of subsidy you’re eligible for using that 2014 income. When the time comes, you’ll know if you’ve received a larger subsidy than you’re actually eligible for, and the only one to blame if you’re surprised by a tax bill will be looking back at you in the mirror.