Healthcare

Predicted Effects of Price Transparency on Healthcare Economics

March 29, 2022
Administrative Law, Health, Healthcare

David Edholm, MJLST Staffer

In 2019, the Centers for Medicare and Medicaid Services (CMS) promulgated the Price Transparency Rule in order to allow patients to access healthcare pricing information. The stated purpose of the Price Transparency Rule is as follows:

By disclosing hospital standard charges [including payer-specific negotiated charges and discounted-cash prices], we believe the public (including patients, employers, clinicians, and other third parties) will have the information necessary to make more informed decisions about their care. We believe the impact of these final policies will help to increase market competition, and ultimately drive down the cost of healthcare services, making them more affordable for all patients.

There is significant debate whether compliance with the Price Transparency Rule will actuate its intended purpose.

On the proponent side, economic theory to support this purpose statement comes from a market advocacy perspective. In order to drive down the cost of healthcare through competition, consumers must know the prices in advance in order to bargain between providers. By giving consumers the ability to shop around and barter, the thinking goes, providers will undercut competitors by lowering their own prices, even slightly below a competitor’s rate.

Another theory that supports price transparency is that shining light onto healthcare pricing will lead to more public outcry, guilting providers to lower overinflated or unconscionable gross charges or hospital fees. Public outcry may also compel states to create global healthcare budget caps, which have been shown to have positive price-lowering effects. A recent study from Rice University found that Maryland’s all-payer global budget policy reduces costs while increasing quality of care.

Skeptics of the rule, however, including the American Hospital Association (AHA), argue that price transparency will induce institutions that currently charge less than competitors to increase their prices to match their competitors, ultimately raising costs. In litigation, the DC Circuit responded to that argument, holding that, based on available research, this result is unlikely. Secretary Azar was not required to rely on definitive rather than predictive data in writing the requirements because of the novelty of the price disclosure scheme and the unique complexity of healthcare pricing. The DC Circuit held that relying on studies of similar price disclosure schemes in other industries was sufficient to inform a stable policy judgment.

However, the healthcare service market is of a unique nature in that quality of care may be a consumer’s primary consideration before seeking treatment, trumping price considerations. Alternatively, a consumer may assume that paying more means receiving higher-quality care. Quality of care is incredibly hard to measure and report, and unless a consumer has access to quality-of-care information alongside pricing information, they are more likely to make fallacious assumptions about this correlation. Another unique factor about healthcare shopping is that many consumers have a strong relationship with their physician, thus would base their decision primarily on receiving advice from one they trust, rather than the out-of-pocket cost of care, especially if the difference is negligible.

Last is the complexity of healthcare viewpoint. Opponents of the price transparency rule emphasize the nature of healthcare as an unpredictable trade. For example, if a patient consumer undergoes surgery to fix one problem, a surgeon may discover another problem amidst the procedure. The standard of care likely prompts the surgeon to correct both problems, thus the patient consumer will be charged an amount higher than they could have reasonably predicted. The AHA brought this argument to court to support its assertion that the price transparency rule violated the Administrative Procedure Act (APA) by overstating the rule’s benefits. The DC Circuit court responded that the rule did not require hospitals to publish every potential permutation of finalized charges, rather that the baseline charges are publicized. Thus, in the surgery scenario, a patient consumer should have access to the payer-negotiated rate to fix the initial problem.

The jury is out, so to speak, on the effects that Price Transparency Rule compliance will have on healthcare economics. But from a consumer perspective, rapidly increasing healthcare costs are at the forefront of relevant political issues.

A Farm Bill for Hansel and Gretel

February 18, 2014
Food and Agriculture, Healthcare, Public Health

Ke M. Huang, MJLST Staff

Once upon a time, a farmer and his new wife, who had no means to support the farmer’s first wife’s children, decided to abandon the children in the woods. These children–Hansel and Gretel–found in the woods a charming little house made of sweets. A wicked witch lived in that house.

Earlier this month, President Obama signed into law the Farm Bill of 2014. According to a New York Times article, the President called the Farm Bill a “jobs bill,” and “innovation bill,” a “research bill,” and a “conservation bill.” Yet, amid the provisions of the Farm Bill that addressed topics such as crop insurance, conservation, and trade, there were also provisions that touched on the issue of healthy nutrition of families.

Senator Stabenow (D-MI), chairwoman of the Senate Agriculture Committee and the author of the Farm Bill, emphasized that part of the Bill’s purpose was to improve nutrition choices in families. Changes such as doubling SNAP benefits (formerly called food stamps) for buying healthier foods and financing new grocery stores in underserved areas reflect that purpose.

A question remains whether the Farm Bill of 2014 will be effective in achieving that purpose. Especially for nutrition among the children, the article by Termini et al. in the Volume 12, Issue 2 of the Minnesota Journal of Law, Science & Technology offers some answers. In other words, the article addresses the predicament of modern day Hansel and Gretel who are lured by sugared snacks, french fries, and company.

In Food Advertising and Childhood Obesity (2011), Termini et al. (1) provide some alarming data about nutrition-related health complications among American children, (2) discuss the relationship between the health complications and food advertising, and (3) propose several solutions to address these health complications. While Termini et al. mention advocates of consumer choice, the authors primarily propose measures for the food industry, the government, and parents. For example, akin to the SNAP benefits for buying healthier foods, Termini et al. propose tax incentives for buying healthy food.

In final analysis, even if the often-regarded villain in the story of Hansel and Gretel is the witch, at least the government was partly responsible for the predicament of the children. Had the government funded a SNAP benefit program for the children’s family, or even subsidized the family farm through a crop insurance program, the parents would not have to leave the children alone in the woods. Just some food for thought.

Is Obesity a Disease?

October 4, 2013
Healthcare, Public Health

by Katelyn DeRuyter, UMN Law Student, MJLST Note and Comment Editor

The fact that many Americans are obese is hardly news. Obesity in America has been a source of news reports, social commentaries and literature for well over a decade. In her book review of “The Omnivore’s Dilemma: A Natural History of Four Meals” by Michael Pollan, published in Issue 8.1 of the Minnesota Journal of Law, Science & Technology, Morgan Holcomb discusses how obesity rates in America were part of Pollan’s motivation to write “The Omnivore’s Dilemma.” More recently, American obesity has been described as an epidemic, and the health risks associated with obesity are gradually becoming common knowledge. Obesity is even compared, by some, to smoking and alcoholism. A recent LawSci blog post, “Is Food the New Tobacco: Science, Advertising, and the War against Obesity?” looks at Roseann Termini’s article, “Food Advertising and Childhood Obesity: A Call for Action for Proactive Solutions,” and draws parallels between the role of advertising in the rise of cigarette addiction and the current obesity epidemic.

A question that is overlooked in this dialogue is whether obesity is, in fact, a disease. Whether obesity is considered a disease has real consequences including altering social stigmas, increasing funds allocated for research and expanding treatment accessibility. The debate over whether obesity should be considered a disease is not new. However, new life has been breathed into the debate following the American Medical Association’s (AMA) official recognition of obesity as a disease. The New York Times quoted Dr. Harris, a member of the AMA’s board, as stating that “[r]ecognizing obesity as a disease will help change the way the medical community tackles this complex issue that affects approximately one in three Americans.” A recent Forbes article, “Declaring Obesity a Disease: the Good, the Bad, the Ugly,” provides a closer look at how the AMA reached its decision.

In reaching the conclusion that obesity is a disease, the AMA overruled its own council’s recommendation. The AMA’s Council on Science and Public Health (Counsel on Science) had been tasked with studying this issue over the past year. The Council on Science’s recommendation against categorizing obesity as a disease rested, in part, on the concern that body mass index (BMI) is a simplistic and inaccurate tool; BMI is the tool generally used to define obesity. The Council on Science was also concerned that recognizing obesity as a disease might increase reliance on drugs and procedures and decrease the emphasis on lifestyle changes.

From a legal perspective, this classification raises interesting questions regarding future interpretation of Congressional intent when “disease” is used without a specific definition. While only time will be able to tell the actual effects of this classification, this is certainly a “must watch” area for health law attorneys.

Reviving GRAS(E): Bringing Reform to the Drug Approval Process

April 3, 2013
Food and Agriculture, Healthcare, Healthcare Reform, Pharmaceuticals, Public Health

by Maya Suresh, UMN Law Student, MJLST Staff

Bringing new drugs to the market has turned into a time consuming and costly process. Resulting in a process that takes roughly 12 years and 1.2 billion dollars to develop a single new drug and move it through the approval process, the current laws administered by the FDA have the potential to stifle potential economic growth. Current laws and FDA regulations require new drugs to go through three phases of clinical trials focusing on safety, optimal dosage, and effectiveness. It is in the prolonged third phase (where effectiveness is tested through extensive clinical trials) that many manufacturers decide to pull the drug from the program as the clinical trials threaten the firm’s financial viability. Ultimately, it is consumers that are hurt by the process, as they are unable to benefit from the drugs.

The negative effect on consumers is what Emily Puchalski hopes to eliminate with the recommendation detailed in her note published in Issue 14.1 of the Minnesota Journal of Law, Science & Technology. In “Bringing Dormant GRAS(E) to Bloom: Reviving The GRASE Concept for Drugs,” Puchalski suggests that a revival of the Food and Drug Administration’s (FDA) “generally recognized as safe and effective” laws and regulations, commonly reffered to as “GRASE”, could minimize the negative effects on consumers. Many drugs, once discovered, have formulations found in earlier drugs that have already been established as safe for consumer use. The GRASE law is grounded in this understanding, and provides a way for these “already established as safe” drugs to get to the market quicker without having to go through extensive clinical trials.

The problem with GRASE however, is that it is very difficult for a drug to achieve GRASE status. Due to this difficulty, GRASE has fallen out of use as manufacturers have stopped trying to achieve the status. Puchalski suggests that if the FDA were to revive GRASE, it could convince manufacturers to apply for GRASE status, allowing already established safe and effective drugs to come to market more quickly, thus benefiting consumers.

It would appear that Puchalski’s recommendation is being heard. In late February Micropharma Limited was able to obtain GRASE status for their new heart health probiotic. Ryan Jones, CEO of Micropharma Limited, echoed Puchalski when he spoke of the benefits the company has been able to reap with the highly coveted status. GRASE status will allow the company to accelerate development of the drug within both the United States and international markets. Further, it provides strong reputational benefits for the company, as it makes clear to the public that Micropharma is committed to investing a significant amount of time and energy into providing safe and effective drugs to the market.

The ability for Micropharma to obtain GRASE status could serve as evidence of a potentially reformed drug approval process. However, the full benefits realized by consumers and the market will only become clear with time.

New Medicine into Old Bottles, Quality and the US Medical System

March 12, 2013
Healthcare, Healthcare Reform, Public Health

by Eric Nielson, UMN Law Student, MJLST Staff

This entry discusses some of the challenges identified in Grout et al.’s article Mistake-Proofing Medicine: Legal Considerations and Healthcare Quality Implications from Volume 14.1 of the Minnesota Journal of Law, Science, and Technology. If you don’t have any health problems, have family with health problems, or pay taxes then the problem probably doesn’t impact you. The rest of this paragraph is about me establishing my credentials on the subject, if you don’t care, feel free to skip ahead. I have worked as an R&D engineer developing medical devices for more than 15 years. I have a Masters in Medical Engineering from the University of Washington. I am an inventor on several medical device patents. I have worked for a very large company and for several startups. I have conducted market research, physician training, product design, FDA filing preparation, process development, product development, and implementation, etc. I have worked at nearly every stage of medical device development. Devices I have worked on are in literally millions of people in the United States.

The medical delivery system in the United States is fundamentally unchanged in its approach to quality management since the sixties, with the notable exception of anesthesiology (consider how, malpractice pressure forced reform of anesthesiology in the 80s). The public sector of our economy had to make major revisions when foreign competition in the eighties meant that domestic manufacturing could not compete with other countries. American automotive manufacturers took it in the chops because they could not effectively compete with Japanese and Korean companies. Only in the last decade have the automotive manufactures achieved economic efficiencies similar to their competitors (and finally shed some of their legacy costs). Hospitals and private practices never had this wave of foreign competition and so have never had to reinvent themselves to stay in business. Hospitals are heavily subsidized both directly by the taxpayer and through the federal system. The result has been local monopolies with limited real competition, just like the big three automakers before the Japanese entered the picture.

Japan did not invent quality manufacturing. Japanese industry was known for cheap, poor quality goods well into the sixties. What changed is that Japan got serious about producing quality products as a way to compete internationally and move up the value chain. To do this they relied on the work of several notable Americans: Demming, Juran (University of Minnesota graduate), and Crosby. These three together with Taguchi constitute the key founders of the discipline of Quality Management. There are some key concepts that I want to explore in relation to medical providers.

1) “Quality is free.” It is inherently cheaper to do it right the first time than to have to fix it. It is cheaper to spend more on the process to make it so reliable that you don’t have to continue to monitor the output. Your current business is probably externalizing the costs or hiding them and thus minimizes the real cost of defects in the products you make. Time and money are spent to prevent customers from knowing what the actual quality of health care provided by hospitals.

2) Nobody understands the problem better than all of us together. To find the best solution, you need to understand the system from the point of view of everyone who interacts with it. This requires that line personal have the ability to discuss problems and solutions without fear of negative job impact. This does not exist in modern hospitals. Nurses and staff doing the work are not free to identify problems or concerns with physicians. Decisions are not made with consensus but are top down, command and control by people with very limited information. This prevents identification of effective, realistic solutions and instead encourages ineffective window dressing committees.

3) Quality improvement depends on good information and systematic effort. Bluntly Medical providers have systematically hidden outcomes information in an effort to prevent the consuming public from being aware of how bad a job they’ve done. This includes not gathering the information, not publishing information they have, and playing malpractice claims to keep quiet. Take a typical medical procedure and go find the published complication rate. Then take those numbers and talk with specialists in that field about those numbers. What you’ll find is that the published data invariably understates the prevalence of complications at top flight institutions. This is generally a result of selection bias, where only data sets with exceptional outcomes are submitted for publication (so as not to reflect poorly upon the institution). In the absence of good information, these Potemkin village studies underestimate the scope and cost of the problem and encourage administrators and staff to ignore the problem. Nobody ever says Institution X published a study with only a 3% complication rate for procedure Y, we need to get our numbers to that level. They instead say, I wonder what their real rate is or I wonder how they selected their patients for that study.

4) Management needs to lead or it will not happen. This is a system problem. This is not a problem of people not doing their jobs. It is not about people not trying to do their best. The highly complex medical delivery system does not hold anyone responsible for the error rate. It doesn’t not impact salaries, reputation, or stock price the way it does at private companies. Look at the response from hospitals that are killing people every day compared with Toyota’s response to the “sudden acceleration” fiasco. Is the executive team involved? Are resources focused on the problem? Etc. FDA holds management personally, legally responsible for failures of the quality systems at medical device companies. The same standard hasn’t been applied to medical delivery systems. Maybe it’s time to apply this principle outside of Anesthesiology.

Improving Healthcare Quality: Electronic Prescribing

February 26, 2013
Healthcare, Healthcare Reform, Pharmaceuticals

by Johanna Smith, UMN Law Student, MJLSTStaff

A new study published online on February 20, 2013 in the Journal of the American Medical Informatics Association found that when hospitals used electronic prescribing, it prevented 17 million drug errors–and if implemented more widely and consistently, it could prevent more than 50 million drug errors. But as of 2008, only about one in three acute care hospitals used electronic prescribing. Although there are various methods suggested to improve healthcare quality, one of the simplest is to make medical errors public. If hospitals, and the general public, were more aware of the safety benefits of electronic prescribing, this could lead to increased use and standardization. Another option to increase the use of electronic prescribing is to connect funding or reimbursement to the use of electronic prescribing.

An article in the January 23, 2013 Journal of the American Medical Association reported that once Medicare and Medicaid stopped reimbursing costs due to certain medical errors, the number of times a foreign item was left in a surgical patient dropped by half. The authors note that this number may not be truly accurate, since the hospitals would have financial incentives to hide the errors. Currently, reporting relies mainly on self-reporting by the hospitals, which is not always accurate. A new article in the Minnesota Journal of Law, Science, and Technology (MJLST) by John R. Grout, John W. Hill, and Arlen W. Langvart entitled “Mistake-Proofing Medicine: Legal Considerations and Healthcare Quality Implications,” discusses how to mistake-proof medicine and looks at healthcare quality on a broader level, including electronic prescribing. The MJLST article highlights that many hospital administrators are concerned more with the finances of the hospital than with patient safety. Connecting these two items increases the probability that patient safety will become a priority for hospitals. Although electronic prescribing is not a complete fix for incorrect prescriptions, it is an important part of improving the process. Compared to the cost of medical errors–including incorrect prescriptions–mistake-proofing is generally less expensive.

States Move to Implement Health Insurance Exchanges

February 13, 2013
Healthcare Reform, Public Health

by Brianna Rohne, UMN Law Student, MJLST Articles Editor

Proponents of the Affordable Care Act breathed a collective sigh of relief in June 2012 when the U.S. Supreme Court upheld most of the law in its decision in National Federation of Independent Business v. Sebelius. As Minnesota Lawyer reports, the health care law will have a major impact in 2013 as state and federal agencies rush to implement the ACA’s key features.

Chief among those features are the Health Insurance Exchanges, which are insurance marketplaces designed to help carry out the ACA’s key feature–the individual mandate–by simplifying the process for purchasing health insurance for consumers and small businesses in every state. As Kathleen Sebelius comments, the Exchanges will provide “one stop shopping for health insurance with better information about plan benefits, quality and cost.” The Exchanges, which will be administered at the state level, must be ready for open enrollment in October 2013 and full operation on January 1, 2014.

Department of Health and Human Services rulemaking has stressed flexibility in the creation and operation of the Exchanges, encouraging each state to take the lead in shaping their Exchange in a way that best accommodates local needs and market conditions. For example, states may choose the type of entity to operate the Exchange, limit the insurance plans eligible to participate, and partner with other states to establish regional Exchanges. HHS also offers support in the way of formal partnership, grant funding, technical assistance, and guidance on key topics.

HHS also allows states to opt out of Exchange planning altogether, leaving it up to the federal government to implement Exchanges in those states. As of early January, the New York Times reported that 23 mostly Republican-run states had indicated that they will not set up their own Exchanges. Another 17 states and the District of Columbia are moving to set up their own Exchanges and seven states have asked to collaborate with the federal government.

Ensuring health coverage and subsequently affordable health care for millions of uninsured and under-insured Americans is an ambitious undertaking, fraught with challenges that states and the federal government are just beginning to work through. In a recently published article from the current issue of the Minnesota Journal of Law, Science and Technology titled Developing a Durable Right to Health Care, Erin C. Fuse Brown discusses the momentous shift in policy accomplished by the ACA’s statutory right to health care. She goes on to warn that the ACA’s right to health care is fragile–especially early in its lifespan–and faces significant political and market challenges. Ultimately, the success or failure of the ACA’s most ambitious goals may become apparent as the federal government and states begin its roll-out over the next few years.

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