One of the core heuristics in health policy is it is a good to keep people out of the hospital. It is a good as hospitals are expensive. It is a good as hospital admissions are an indicator of declining function and capacity. It is a good as hospitals are a reservoir of germs. It is a good as hospital stays are just not where most people want to be.
Prescription drugs can serve as a partial substitute for hospitalization. If someone takes a pill that lowers their heart attack risk, the drug is replaces a hospitalization for a heart attack. If the number of pills needed to avoid a hospital day costs less than a hospital day, we as a society should encourage it on cost, quality and quality of life grounds.
Austin Frakt at the Upshot looks at how Medicare crosses the incentive structure by how it is structurally fractured.
some conditions — diabetes and asthma, to name a few — certain drugs are necessary to avoid more costly care, like hospitalizations. This simple principle gives rise to a little-recognized problem with Medicare’s prescription drug benefit…
Medicare stand-alone prescription drug plans do. They achieve lower premiums by raising co-payments. This acts to discourage the use of drugs that would help protect against other, more disruptive and serious health care use, like hospitalization….
A stand-alone plan never has to pay for hospital or physician visits — those are covered by traditional Medicare. Another way to get drug benefits from Medicare is through a Medicare Advantage plan that also covers those other forms of health care and is subsidized by the government to do so….
A study by the economists Kurt Lavetti, of Ohio State University, and Kosali Simon, of Indiana University, quantifies the cost. Compared with Medicare Advantage plans, stand-alone drug plans charge enrollees about 13 percent more in cost sharing for drugs that are highly likely to help patients avoid an adverse health event within two months.
The business model for the stand along drug plans is a hack on the fact that hospitalizations are someone else’s problem. They are off-loading risk to Medicare Part A and Part B. Medicare Advantage prescription drug benefits don’t have the ability to off-load their cost to someone else so they have a different behavioral incentive to actually look at the total cost of care for a patient. In most cases, that means working really hard to find the simplest and cheapest ways to keep people out of the hospital.
Austin suggests integrating a prescription drug benefit directly into Medicare fee for service. I have a hard time seeing how that works for traditional Medicare as Medicare is not allowed to say no and their active care management capacity is limited. I think it could make sense for Medicare Fee for Service Accountable Care Organizations and other alternative payment methodologies to push value based incentive compatible prescription drug plans. But this only works well, I think, when the payer has near universal responsibility for the cost of care.
At the same time, things like this reiterate why I am fundamentally optimistic about healthcare reform over the time span of decades:
Things like this is why I am fundamentally optimistic about health care reform in the United States. This is not genius level work. It is basic work and rejiggering of incentives to avoid being stupid. We have several iterations of being less stupid before we actually have to get too smart.
japa21
To some degree, this issue, as you point out, is solved with Medicare Advantage plans, where the prescription benefit comes out of the same dollar pool as the hospitalization benefit. MA plans have other issues which are negative, but this is a positive. Before we start talking about making Medicare for All the way to go, perhaps we should look at how Medicare can be improved.
Wag
Very interesting. In the large hospital system that I work for we have a program where pharmacist help patients to assess different Medicare part D prescription plans to see which would be the best for them. It might be worth me exploring with them whether their “recommended” programs are standalone programs or part of integrated programs.
Frank Wilhoit
You overlook (as does everyone) the fact that stupid carries emotional rewards, whereas smart does not.
mai naem mobile
You could mandate the supplement to have a part D attached being that most people on traditional medicare ffs have a supplement.
BillCinSD
@japa21:
Is there some reason both can’t happen simultaneously?