Finding a Cure

Kevin Lewis

November 30, 2020

How Would Medicare for All Affect Health System Capacity? Evidence from Medicare for Some
Jeffrey Clemens, Joshua Gottlieb & Jeffrey Hicks
NBER Working Paper, November 2020


Proposals to create a national health care plan such as "Medicare for All" rely heavily on reducing the prices that insurers pay for health care. These changes affect physicians' short-run incentives for care provision and may also change health care providers' incentives to invest in capacity, thereby influencing the availability of care in the long term. We provide evidence on these responses using a major Medicare payment change combined with survey data on physicians' time use. We find evidence that physicians increase their time spent on capacity building when remuneration increases, and that they are subsequently more willing to accept new patients -- especially those who may be the residual claimants on marginal capacity. These forces imply that short-run supply curves likely differ from long-run supply curves. Policymakers need to account for how major changes to payment incentives would influence the investments that determine health system capacity.

Mis(sed) Diagnosis: Physician Decision Making and ADHD
Kelli Marquardt
University of Arizona Working Paper, November 2020


While the presence of disparities in healthcare is well documented, the mechanisms of such disparities are less understood, particularly in relation to mental health. This paper develops and estimates a structural model of diagnosis for the most prevalent child mental health condition, Attention Deficit Hyperactivity Disorder (ADHD). The model incorporates both patient and physician influences, highlighting four key mechanisms of mental health diagnosis: true underlying prevalence, patient stigma, diagnostic uncertainty, and physician costs from type I and type II diagnostic errors. I estimate sex-specific structural model parameters using novel electronic health record data on doctors’ notes together with machine learning and natural language processing techniques. In raw comparisons, males are 2.3 times more likely to be diagnosed with ADHD than females. Counterfactual simulations using model estimates show that less than one-half of this disparity can be explained by true differences in underlying ADHD prevalence, very little explained by patient preferences, and about 50% attributed to differences in physician decision-making. I show that physicians view missed diagnosis to be costlier than misdiagnosis, especially for their male patients. Back of the envelope calculations estimate the national economic impact of ADHD diagnostic errors to be $60-$117 billion US dollars, suggesting a need for public and/or medical policy responses aimed at increasing diagnostic accuracy and reducing disparities in mental health care.

Mental Health and Criminal Involvement: Evidence from Losing Medicaid Eligibility
Elisa Jácome
Princeton Working Paper, November 2020


This paper explores whether access to mental healthcare can reduce criminal activity. Specifically, I study the effect of losing insurance coverage on low-income men’s likelihood of incarceration using administrative data from South Carolina that has been linked across six state government agencies. Leveraging a discrete break in Medicaid coverage at age 19 and a difference-in-differences strategy, I find that men who lose access to Medicaid eligibility are 15% more likely to be incarcerated in the subsequent two years relative to a matched comparison group. The effects are concentrated among men with mental health histories, suggesting that losing access to mental healthcare plays an important role in explaining the observed rise in crime. By their 21st birthdays, men with mental health histories who lost Medicaid coverage are 22% more likely to have been incarcerated than the comparison group. Cost-benefit analyses show that expanding Medicaid eligibility to low-income young men is a cost-effective policy for reducing crime, especially relative to traditional approaches like increasing the severity of criminal sanctions. These findings have important implications for the design of criminal justice policies if low-income young men are more deterred from participating in illegal activity through the provision of healthcare than through harsher punishments.

The Effect of Medical Loss Ratio Regulation on Insurer Pricing
Xiaoxi Zhao
Boston University Working Paper, November 2020


The Affordable Care Act Medical Loss Ratio (MLR) regulation limits each insurers' profit by setting a minimum requirement on the ratio of medical spending to premium revenue. However, this regulation may undermine the incentives for insurers to bargain for lower prices when negotiating prices with health care providers. I build a bargaining model of how MLR constraint affects price negotiation between insurers and providers. This model illustrates the insurer trade-off between lower premiums and higher service prices and reveals how bargaining for lower prices is reduced. Predictions from the model are tested in a structural model of MLR regulation on negotiated prices and insurers' costs using data from the individual Health Insurance Exchange Marketplace. Welfare calculations using estimated demand, cost, and bargaining parameters suggest that the MLR regulation led to higher health service prices and higher out-of-pocket payments.

Regulatory review time and pharmaceutical research and development
Anna Chorniy et al.
Health Economics, forthcoming


In the United States, all newly developed drugs undergo a lengthy review process conducted by the US Food and Drug Administration (FDA). These regulatory delays have direct immediate costs for drug manufacturers and patients waiting for treatment. Under certain market conditions, regulatory delays may also affect future research and development (R&D) strategies of pharmaceutical companies. To estimate the magnitude of this effect, we match data on drugs in the development pipeline in 2006 to data that we collect on FDA review times for all drugs approved between 1999 and 2005. Employing a rich and novel set of controls that affect drug R&D decisions and, potentially, regulatory review lags, we find that on average, three additional months of delay result in one fewer drug in development in that drug category. Our results suggest that the length of the regulatory delay matters for pharmaceutical firms' R&D decisions and that the firms are likely unable to pass on these costs onto consumers.

Hospital Allocation and Racial Disparities in Health Care
Amitabh Chandra, Pragya Kakani & Adam Sacarny
NBER Working Paper, October 2020


We develop a simple framework to measure the role of hospital allocation in racial disparities in health care and use it to study Black and white Medicare patients who are treated for heart attacks – a condition where virtually everyone receives care, hospital care is highly effective, and hospital quality has been validated. We report four facts. (1) Black patients receive care at lower-performing hospitals than white patients, even when they live in the same hospital market or ZIP code within a hospital market. (2) Over the past two decades, the gap in performance between hospitals treating Black and white patients shrank by over two-thirds. (3) This progress is due to more rapid performance improvement at hospitals that tended to treat Black patients, rather than faster reallocation of Black patients to better hospitals. (4) Hospital performance improvement is correlated with adoption of a high-return low-cost input, beta-blockers. Closing remaining disparities in allocation and harnessing the forces of performance improvement, including technology diffusion, may be novel levers to further reduce disparities.

Medicaid Expansion Increased Preconception Health Counseling, Folic Acid Intake, And Postpartum Contraception
Rebecca Myerson, Samuel Crawford & Laura Wherry
Health Affairs, November 2020, Pages 1883-1890


The period before pregnancy is critically important for the health of a woman and her infant, yet not all women have access to health insurance during this time. We evaluated whether increased access to health insurance under the Affordable Care Act Medicaid expansions affected ten preconception health indicators, including the prevalence of chronic conditions and health behaviors, birth control use and pregnancy intention, and receipt of preconception health services. By comparing changes in outcomes for low-income women in expansion and nonexpansion states, we document greater preconception health counseling, prepregnancy folic acid intake, and postpartum use of effective birth control methods among low-income women associated with Medicaid expansion. We do not find evidence of changes on the other preconception health indicators examined. Our findings indicate that expanding Medicaid led to detectable improvements on a subset of preconception health measures.

The Value of Medicaid Long-Term Care: Evidence from the Deficit Reduction Act of 2005
Yinan Liu
University of Southern California Working Paper, November 2020


Public long-term care (LTC) insurance helps the elderly protect against financial risks, yet its value is hard to measure. This paper provides a novel answer to this question by employing a quasi-experiment from the Deficit Reduction Act (DRA) that restricts seniors’ Medicaid LTC access. I find that in response to the DRA, single elderly individuals reduced their home equity by $66.75K (12.1%), while increasing non-LTC consumption by $10.5K (22.5%). Using these findings and a two-stage budgeting model, I then estimate that seniors’ willingness to pay for Medicaid LTC is $1.2 per dollar of its net resource cost. This evidence shows that the government’s intention to limit the provision of Medicaid LTC harms social welfare.

Has the Affordable Care Act affected health care efficiency?
Russ Kashian, Nicholas Lovett & Yuhan Xue
Journal of Regulatory Economics, December 2020, Pages 193–233


We utilize health care input and output data to evaluate how state-level efficiency in health care has changed in the wake of the Affordable Care Act (ACA). We use a Stochastic Frontier model to estimate annual measures of technical and cost efficiency before, and after, ACA implementation. Results show that following the ACA, states’ technical efficiency scores improved and converged across states. However, cost efficiency scores declined suggesting health outputs rose by a proportionally smaller margin than health care costs. We further investigate efficiency changes for ACA-induced Medicaid expansions. We find Medicaid expansion led to decreased cost efficiency scores, but may have led to increased technical efficiency scores. Overall, results suggest the ACA represents a package of reforms that present a trade-off between technical and cost efficiency.

Net Spending On Retail Specialty Drugs Grew Rapidly, Especially For Private Insurance And Medicare Part D
Steven Hill, Edward Miller & Yao Ding
Health Affairs, November 2020, Pages 1970-1976


Specialty drugs are expensive, but spending on specialty drugs is difficult to measure because of proprietary rebate payments by manufacturers to insurers, pharmacy benefit managers, and state Medicaid agencies. Our study extends recent research that documented growing use of and spending on specialty drugs by incorporating manufacturer rebates for both public and private payers. Although specialty drugs make up a small portion of retail prescriptions filled, we found that they accounted for 37.7 percent of retail and mail-order prescription spending net of rebates in 2016–17. From 2010–11 to 2016–17, spending net of rebates tripled for Medicare Part D beneficiaries and more than doubled for people with private insurance. Medicaid spending net of rebates rose more slowly. These results can help inform decision makers as they strive to balance the costs and benefits of innovative drugs.

The effects of medical malpractice tort reform on physician supply an analysis of legislative changes from 2009 to 2016
Charles Baum
Southern Economic Journal, October 2020, Pages 540-575


Advocates of tort reform blame medical malpractice lawsuits for rising healthcare costs, prompting politicians in some states to pass tort reform capping noneconomic damages. In this analysis, I examine the effects of caps on noneconomic damages between 2009 and 2016 on the supply of physicians. I use multiple model specifications, examine physicians in high‐risk specialties, young physicians, and physicians in state‐border counties, and explore the potential for asymmetric effects using instances where tort reform has been declared unconstitutional and removed. I find few statistically significant effects. Supplemental analyses show that this may be because the noneconomic damage caps do not significantly affect malpractice insurance premiums, payouts, or claims in the first place.

Unintended Consequences of Products Liability: Evidence from the Pharmaceutical Market
Eric Helland et al.
Journal of Law, Economics, and Organization, forthcoming


We explain a surprising effect of tort liability in the market for prescription drugs. Greater punitive damage risk seems to increase prescription drug utilization in states without non-economic damage caps but decrease utilization in states with such caps. We offer an explanation for this puzzle. The vertical production process for drugs involves national upstream producers (drug companies) and local downstream producers (doctors). When a single state reallocates liability from downstream to upstream producers, national drug companies see little reason to alter their nationwide output decisions, but local physicians have incentives to increase their prescriptions in that state. The net result is higher local output. We show how this dynamic can explain our puzzle by demonstrating that punitive damages shift liability upstream from doctors to drug companies, but not when non-economic damages caps limit physician malpractice liability. We provide evidence explaining when, how, and why this type of liability shifting occurs.

Health Professional Shortage Areas and Physician Location Decisions
Stephanie Khoury, Jonathan Leganza & Alex Masucci
University of California Working Paper, August 2020


In order to address geographic disparities in healthcare provision, the U.S. government designates primary care Health Professional Shortage Areas (HPSAs), and the Centers for Medicare and Medicaid Services (CMS) provide ten percent bonus payments for Medicare services billed by physicians in these areas. We link together several sources of administrative data from CMS covering the near-universe of Medicare-billing physicians and employ a matched difference-in-differences design to identify the causal effects of shortage area designations on physician location decisions. We find evidence that counties designated as HPSAs experience a 23% increase in the number of early-career primary care physicians, many of whom are likely making initial location decisions for their practices. The increase is driven entirely by physicians who attended ranked medical schools, perhaps reflecting the ability of the program to attract high-quality physicians just completing residency. However, we find no evidence that HPSA designation induces physicians in later career stages to relocate to shortage areas. Overall, our findings suggest that targeting financial incentives to locate in shortage areas towards newer physicians may improve the effectiveness and cost-efficiency of policies aimed at addressing physician shortages.


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