Health Affairs’ June Issue: Markets, Prices, And Incentives

The June issue of Health Affairs, a variety issue, includes a number of articles examining how health care markets function — and how the policies that set prices create incentives for behavior, both desirable and undesirable. Another featured article examines incentives for public health in an area close to many of us: reducing teen driving fatalities.

The Top Fifty Highest-Markup Hospitals: Forty-Nine Are For Profit

In the United States, individual hospitals establish billing rates for services, which are not subject to any limit in most states. These rates are often several times the Medicare-allowable costs. Patients going to out-of-network providers, casualty and workers’ compensation insurers, and the uninsured are expected to pay these rates.

Ge Bai of Washington & Lee University in Virginia and Gerard Anderson of Johns Hopkins Bloomberg School of Public Health in Baltimore used 2012 Medicare cost reports to examine the fifty US hospitals with the highest charges relative to their costs — hospitals that charge, on average, more than ten times their costs. The study found that all but one operate for profit, and twenty of them are in Florida. Few of these hospitals are in states that place any restrictions on allowable hospital charges.

A chart of the geographic distribution of these hospitals is below. A list of the hospitals, ranked by charge-to-cost ratios, appears in the study’s Appendix.

Distribution Of The Fifty Hospitals With Highest Charge-To-Cost Ratios, By State, 2012

Source: Authors’ analysis of Healthcare Cost Report Information System (HCRIS) computer files obtained from the Centers for Medicare and Medicaid Services (CMS) for 2012.

The Unintended Consequences Of A Medicare Payment Policy

In 2002 Medicare changed the payment method for long-term care hospitals and established lengths-of-stay thresholds. Hospitals with stays longer than the threshold are paid a lump sum per admission, while stays shorter than the threshold are paid at a much lower rate, thus creating a strong financial incentive to keep patients just past the threshold to qualify for the full payment.

Yan Kim of Kaiser Permanente Northern California and co-authors examined discharge patterns for a national sample of Medicare patients with respiratory system diagnosis needing prolonged mechanical ventilation, comparing data from 2002 to data from 2005–10. The authors found that before 2002, discharges were evenly distributed around the day that later became the short-stay threshold. From 2005–10, however, very few patients were discharged before the short-stay threshold, and there was a substantial spike in the percentage of discharges on and immediately after the threshold. These findings highlight how responsive long-term care hospitals are to payment incentives.

In another study about medical costs, Eric Sun and Laurence Baker of Stanford University examined the effects of trends toward greater market concentration in orthopedic practices; they found that from 2001–10, greater concentration was associated with a 7 percent increase in physician fees for total knee replacement surgery. While the authors found that physician fees for this procedure fell overall by $261 during this period, the fees increased by $168 in markets that moved from lowest to highest level of concentration.

Higher Penalties For Violating Night Driving Ban Reduce Teen Car Crashes

In 2007, Massachusetts greatly enhanced the graduated driver licensing program, which included toughened penalties for violating the nighttime driving restriction and mandatory driver education. A study by Shantha Rajaratnam of Australia’s Monash University and Brigham and Women’s Hospital in Boston and co-authors evaluated the impact of these penalties and the related program. According to the study, which compared car crashes in the Bay State between 2006 and 2012, crash rates declined a dramatic 18.6 percent for drivers ages 16–17,  and by 6.7 percent for 18–19-year-old drivers, during that period.

This is the first known study to systematically examine the impact of individual features of a law, such as penalties. Changes to the Massachusetts legislation were initiated by then-State Senator Richard Moore in consultation with Charles Czeisler—they are both coauthors of the article—after a high-profile drowsy driving crash in which a teen driver, asleep at the wheel, killed a decorated military serviceman.

Rise In Male Employment Generates Economic Benefits For AIDS Relief

Zachary Wagner of the University of California, Berkeley and coauthors examined the economic impact of the President’s Emergency Plan for AIDS Relief—or PEPFAR—in sub-Saharan Africa. PEPFAR has provided over 6.7 million people infected with HIV access to antiretroviral therapy, yielding significant health improvements. The authors looked at PEPFAR’s less-studied economic impact and identified a 13 percent increase in male employment in countries the program assisted, although they found no change in female employment.

According to the authors, the rise in employment generates economic benefits equal to half of PEPFAR’s cost. They recommend considering these findings when making future aid allocation decisions.

Program Incentives Unlikely To Sway Physician EHR Use

Hye-Young Jung of Weill Cornell Medical College in New York and coauthors looked at patterns of adoption and participation among New York State physicians in Medicare and Medicaid Electronic Health Record (EHR) Meaningful Use Programs. Using a cohort of New York State physicians during 2011 and 2012, the authors found that while many physicians did not join either program during those two years, participation in the Medicare incentive program grew from 8.1 percent in 2011 to 23.9 percent in 2012, and Medicaid program participation increased from 6.1 percent to 8.5 percent. Prior EHR use, access to financial resources, and organizational capacity were physician characteristics associated with early and consistent participation in meaningful-use initiatives.

Also of interest in the June issue:

• Understanding Pay Differentials Among Health Professionals, Nonprofessionals, And Their Counterparts In Other Sectors: Sherry Glied of New York University and co-authors.

• A Public-Private Partnership Improves Clinical Performance In A Hospital Network In Lesotho; Nathalie McIntosh of the Veterans Affairs Boston Healthcare System and coauthors.