Why is health spending in the US high?

This terrific episode of Freakonomics is focused on End Stage Renal Disease (ESRD). The issue is a window into why we spend a lot on health care in the US and the dysfunction in the system.

Glad Freakonomics took it on

A thread (rant).
ESRD is on the rise in the US. In part, this is driven by the rise in diabetes in the US, which leads to ESRD. So, poor health management --> downstream problems.

A patient with ESRD can be 'cured' with a kidney transplant. While waiting for a transplant, they need dialysis.
Dialysis became available in the middle of the 20th century. But it was expensive. Individuals with ESRD who didn't have a transplant would die without dialysis. How do you scarce resources? Ultimately, the Medicare program took over funding of individuals with ESRD.
Today, because of this, ESRD is 7% of the Medicare budget and 1% of the entire federal budget.
The dialysis industry has been taken over by two large firms - DaVita and Fresenius. They have gobbled up the entire industry via mergers and acquisitions. Most of these deals went without antitrust scrutiny because they were under merger reporting thresholds.
Thomas Wollmann at @ChicagoBooth has amazing work on stealth consolidation in the dialysis industry. He has found the consolidation has led to higher mortality rates. nber.org/papers/w27274
Other work by Eliason et al. in @QJEHarvard looks at what happens when DaVita acquires a dialysis clinic. They increase supply of profitable drugs, the de-skill their work force, they refer fewer patients for transplants. Overall, death rates increase. academic.oup.com/qje/article-ab…
In short, consolidation in the dialysis industry has raised prices, lowered quality, hindered innovation, and ultimately increased mortality rates.

Then there's the bull💩 the firms have done to exploit regulatory loopholes.
The Medicare program pays for the majority of ESRD care in the US. The Medicare program isn't the most 'dynamic' payer. Fresenius and DaVita have run circles around the payment rules established by Medicare to boost profits.
The big dialysis firms have been sued and fined repeatedly for various schemes to overcharge Medicare for drugs, for kickback to doctors for referrals, and for basically buying patients private insurance plans with higher commercial reimbursements.
DaVita and Fresenius are the main funders of the American Kidney Foundation. Why? The AKF buys patients private health insurance plans that reimburse more for dialysis than the Medicare program. So, a dollar donation to AKF nets the firms $3.
Why is this a window into high health care costs in the US?

There are pockets of health care that are unsavory, where firms can exploit regulatory loopholes. The returns from gaming regulations and what some would term fraud are higher than returns to good quality care.
With big profits to be had, more firms want to enter, so incumbents merge. They can then raise prices and lobby to preserve the regulatory loopholes that allow them to exist in the first place.

This is why PE invests in places like emergency medicine and addiction clinics.
The health care system is replete with these shady nooks and crevices. Surprise billing is an example. So is the dialysis industry. There are long term care hospitals that @nealemahoney has written about.
There aren't systemic fixes that would address all of these problems. We need to play whack-a-mole and keep fighting to reform each sector. This is where politics intersects with health care. Passing laws are tough and these firms can lobby hard.
This, in my perhaps naive view, is where research matters. Folks like Tom Wollmann, Paul Eliason, Been Heebsh, Ryan McDevitt, and James Roberts highlighted in rigorous journals, the crap in the dialysis industry. @nealemahoney has done it for LTACs. @timothyjlayton in MA
One growing strand of economics has to be studying firms and showing where 'fraud' is happening. We can also use economics to show the motivation for the behavior and propose solutions. This can really help the day to day lives of the American public.
A final note: one huge frustration I have is the MDs who work at these big public companies and try to portray the firms as MD led and patient focused. The episode highlights the Chief Medical Officers at Fresenius and DaVita basically saying there's not gambling in Casablanca.
In the ED industry, the 'physician' leaders at the big staffing firms tried to do the same thing. It's sad and it gives physicians a bad name. I thought @Freakonomics handled this well.
Zero shame working for a for-profit firm. For-profit firms are vital. They brought me the amazing Covid vaccine I took yesterday. But MDs in senior leadership positions at for-profit firms are not a guarantee that bad actions aren't happening. Incentives matter, even for MDs.

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More from @zackcooperYale

10 Feb
🚨How do you reduce health spending?🚨
We are launching a new project - ‘1% Steps for Health Care Reform’. We're working with leading health policy scholars and the goal is harness research to illustrate tangible steps to reduce health care spending.

The core idea-if the US health system was a country, it’d be the 4th largest country in the world. There’s not 1 thing wrong in a system so big. There are lots of little problems that add up. We asked experts to identify discrete problems & propose reforms healthaffairs.org/do/10.1377/hbl…
The project (onepercentsteps.com) brings together an amazing group of scholars who are making concrete policy recommendations on steps to reduce health spending.

(all the authors even got an avatar...I think Jon Gruber's is most realistic).
Read 16 tweets
10 Feb
🚨New Paper Alert (actually, old paper that just got published, but hey)🚨

@Michael_Chernew @ProfFionasm Columbia PhD student Eugene Larsen-Hallock and I examine whether health care is 'shoppable' by looking at how patients consume lower-limb MRI scans.
This dovetails nicely with paper out by @amitabhchandra2 and @oziadias earlier this week. Predictions from price theory are that if you ratchet up cost-sharing and give patients transparency tools, they'll consume health care services they way they consume peppers.
A bunch of work shows that this just isn't the case. We were interested in why patients tend not to price shop.

Focusing on how patients consume planned lower-limb MRIs is a useful setting because this is really a pure commodity with (as we show), no quality variation.
Read 18 tweets
12 Dec 20
Big news on surprise billing .

There's a bicameral agreement on addressing surprise billing.

Overall, this isn't what I would have done, but arbitration linked to in-network payments isn't crazy.

A thread with a summary + initial thoughts: 1/n

The bipartisan proposal includes a hold harmless provision that requires patients, if treated by an out-of-network doctor at an in-network facility, only be subject to in-network cost-sharing & no balance billing (eg MDs/staffing companies can't go after them for charges). 2/n
Providers & insurers have a 30-day window to negotiate over out-of-network bills. If they fail to reach an agreement, bills go to baseball rules arbitration: one bid from payers, one bid from MDs. Program is administered by independent entity without MD/insurer affiliation. 3/n
Read 13 tweets
10 Jul 20
New @politico op-ed by @stevenberry + me. We argue that Congress is grossly underfunding efforts to combat Covid-19 & that White House's wish it away strategy won't work. We need humility - we don't know what will work, so we should fund redundant programs politico.com/news/agenda/20…
Less than 8 percent of the trillions in funding that Congress has allocated so far in response to the virus has been for solutions that would shorten or mitigate the virus itself: increasing the supply of PPE, expanding testing, developing treatments, vaccine development.
In the face of competing proposals, our suggestion is to do all of them. Nobody knows what will work best, or work at all, or in what time frame. Our relative inaction seems predicated on the idea that we will have an effective vaccine in 12 months. What if it takes three years?
Read 10 tweets
12 Jun 20
.@ACEPNow pro ports to represent ED physicians. They trade on the good will of hardworking physicians but seem to be really benefitting EmCare and TeamHealth. In fact, as reporting by @sangerkatz @ReedAbelson and others show, they are actually working with the PE firms on comms
See this great piece in the @UpshotNYT that identified the PE firms and ED physician staffing companies behind the tsunami of political ads on surprise billing. nytimes.com/2019/09/13/ups…
We all should have profound respect & appreciation for ED docs. Nothing makes this more clear than the pandemic. However, it enrages and saddens me to see leaders of ACEP and firms like EmCare + TeamHealth tradeoff that goodwill in an effort to make profits for their investors
Read 4 tweets
12 Apr 20
🚨 To better advise some policy-makers we’re speaking with, what do we view as the key barriers to scaling up testing and strategies to overcome them. See thread below. Figured public sourcing would be helpful here.
@ScottGottliebMD @paulmromer @steventberry @erikbryn
The returns to testing are MASSIVE. @ATabarrok has written about this. This is @Austan_Goolsbee first rule of virus Econ. If we assume daily costs of shutdown are in $billions, we should be spending huge amounts (100s of billions) to speed reopening marginalrevolution.com/marginalrevolu…
One constraint a la @paulmromer might be regulatory - e.g. FDA says you need to use swab x even though unapproved swab Y is nearly a perfect substitute
Read 13 tweets

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