There is a good bit of political momentum behind the nascent plan, as Speaker of the House Tillis and President of the Senate Berger joined the Governor in pledging to move ahead with this direction. However, there is more political agreement that something called the Partnership for a Healthy North Carolina will be done, than there are details of exactly what shape the plan will take.

I think any fair observer would have to note than than sales pitch has been rocky so far. On May 10 in Reidsville, Sec. Wos said that the State Health Insurance Commissioner was the one who decided that N.C. would not expand Medicaid; this of course is not true. The N.C. House and Senate passed a bill declining that the Governor signed, and he stated clearly from the beginning of his term in January that he was not ready to move ahead with expansion because Medicaid was ‘broken.’

Did Secretary Wos just say this to survive a tough moment in the public hearing (she was being pressed about N.C. not expanding Medicaid; here is the audio of the snippet)?  Or did she not really understand what had happened with N.C. rejecting the Medicaid expansion? Neither explanation is particularly reassuring.

I attended the public meeting May 15, in Durham (~200 people)  and there were two sentiments that got rapturous applause:

• That North Carolina should undertake the expansion available under the ACA while improving the system
• That North Carolina should not privatize Medicaid via 3-4 ‘entities’ and instead should build from the success of Community Care of North Carolina (which is really an integrated primary care network that cares for Medicaid beneficiaries)

To say there was and is broad skepticism about the direction to which the Governor and now the leadership of the House and Senate have committed is a polite understatement. And to a person, the skeptics know that health reform in Medicaid and otherwise is ongoing and will likely never be done.

I will blog through some specific thoughts and concerns I have about this nascent plan over the next few weeks.

Here is a tag to many posts I have written on similar hospice policy themes if you want more.

One thing has become clear

• most people reflexively compare the (truly) high cost of something like assisted living to a cost of zero. “Oh my goodness, that is expensive!” is a correct statement, but it wrongly implies that the default, or current arrangement has a cost of zero.

The costs of the current living/long term care arrangement for my grandmother or anyone else can be difficult to estimate

• explicit costs such as paying for walkers, home modifications and paying helpers is straightforward
• implicit costs to caregivers are harder to estimate: the value of time, missed work, worry/anxiety/depression, feeling like you cannot travel, other health impacts, etc.

There are benefits of caregiving, such as connection with loved ones and of course the preferences of my grandmother are important. All of the costs and benefits must be netted out to make a decision. As with the societal level decision of what to do about long term care, having straight the counterfactual is the first step to making the best decision you can.

Several things became clearer about the opaque nature of college admissions and financial aid/scholarships for me while watching/assisting my daughter navigate these choices.

Universities offered my daughter extremely divergent amounts of scholarships, both merit awards offered via specified competitions (based on a weekend of interviews, etc), as well as money offered under the guise of a variety of names granted outside of an overt scholarship competition, and communicated at the same time that need based aid was denied. Lesson: apply for financial aid even if you know you will be denied.

Duke has a tuition benefit that has a fairly complicated structure but that roughly makes an expensive private University cost $30,000 instead of $60,000 +/-$5,000 depending on tuition versus room and board costs at a given school. This means that a University offering a scholarship simply replaces Duke’s tuition benefit up to its maximum amount. In two cases, my daughter was offered more money than the benefit, which would let me not “use” the benefit and save it for my other two kids (the Duke benefit is limited to two children). One University explicitly discussed this with me (wanting to know how much aid it would take for her to attend sans Duke’s benefit, thus saving it for one of my other kids). Lesson: talk to the financial aid folks at schools.

Back to the other side of the table, I had lunch today with a B.N. Duke scholar that I recruited to Duke several years back. S/he was picking between Duke, Princeton and Harvard. Upon being offered the B.N. Duke, this was communicated by the family to the other schools who upped the financial aid amounts offered (they do not have ‘merit’ scholarships). However, there were limits to what they offered (my experience is that this sort of ‘counter’ depends on the school and how bad they want the student), so the family was faced with a cost of very near zero to attend Duke versus lets say half price at the others (~$120,000 over four years). This family had income in the $150,00-$175,000 AGI territory, and lets say an underwater mortgage on their house. This is precisely the family income range/financial situation at which a scholarship like the B.N. Duke has the maximal recruitment effect.

Lets imagine a different student with family AGI of $40,000 who wins a B.N. Duke. They are going to be getting full financial aid from Harvard and Princeton and everywhere (including Duke, even without a B.N. Duke) if they are the type of kid who wins a B.N. Duke. In such a case, the recruitment effect of the B.N. Duke (or any other scholarship) is greatly reduced for a family with relatively low income; they are going to go to college gratis anywhere they want; they may pick Duke, but it won’t be because of money. And Harvard reports that its yield is 82%; that means Duke has a less than 1 in 5 chance of yielding a kid who is also admitted to Harvard if Duke is average against Harvard. The student I lunched with today came to Duke because of the scholarship (and is thrilled with, and has thrived at Duke).

One of the knocks on merit based aid is that it mostly provides money to families that don’t need the help as much as others. I basically agree and it has been proven to be correct in my experience. However, Universities are responding to incentives by using merit aid to recruit students who otherwise would be less likely to attend. And the maximum impact can be brought to bear on families just above the financial aid cut offs (~$150,000-$200,000) for places like Harvard, Princeton, etc.

Since the B.N. Duke is for kids from North and South Carolina only, we are able to recruit the parents directly as well, since most of them brought their child to campus for a scholarship weekend and we hosted them for dinner. Having a personal connection with the parents is a big advantage that the other scholarships at Duke don’t have (because the students come from all over the world, typically). Hence, the B.N. Duke could be expected to have a higher yield that the other Duke scholarships, which is borne out in most years.

In the end, if you want to provide more money to students based on financial need, that argues for a place like Duke to get rid of merit aid and put it all in needs-based pots of money. However, if you want to recruit kids away from Harvard, merit aid targeted towards families in the $150,000-$200,000 income level is the way to go. A merit scholarship is a surprisingly difficult way to recruit a top student from a low income family to a place like Duke.

*These are my personal thoughts and don’t reflect those of others at the University, or in the scholarship program(s).

• Charges are a fantasy amount that no third party insurance company would ever pay. However, the uninsured might pay this amount (they would often be ‘charged’ this amount and go bankrupt trying).
• Payments are the amount that is actually paid for care (in the data released it is combined amount paid by Medicare, other insurers, and patients).
• Cost is a truly elusive concept in health care, but hospitals of course have systems that state their costs (and likely have many versions depending upon what is included).

Payments are sometimes greater than costs, but in other cases less; this differs by type of care and payer. And of course it depends upon what measure of cost you might use (does it include capital financing costs? If you build a new Cancer hospital, how broadly are those costs apportioned, etc.). Note that no data on costs was released. Charges and payments are an imperfect means of saying something about costs.

The table below compares the charges (fantasy) with the total payments received (actual money changing hands) by UNC, Duke and Wake Med hospitals (Duke and UNC are ~ 8 miles apart, and Wake Med is about 20 miles from each) for 3 DRGs in which I have some interest and which Aaron McKethan was tweeting (280=Heart Attack; 292 Heart Failure & shock; 638 = Diabetes; note that there are other codes relevant to these conditions, I just picked 3; this is based on my analysis).

Several points:

• You cannot easily perform a significance test on the differences here because we don’t know the standard deviation or standard error of the total payments (is Wake Med’s $5,844 in total payments significantly different from Duke’s $8,267 on DRG 638)? And the sample sizes are fairly small. You could make some assumptions, but I haven’t done that.
• The spread on total payments is much less than on charges. Payments are a more meaningful number because it includes what Medicare actually paid to these hospitals and what patients paid OOP along with what other insurers (like private Medigap, employer provided retiree gap plans, or Medicaid) paid in the way of co-pays/deductibles.
• Why do hospitals bother to greatly inflate charges if they are a fantasy in the sense that no third party payer (other than the uninsured) would ever possibly pay them? Charges are likely a starting point for negotiations with private insurers for one thing, and having high charges also allows hospitals to estimate a larger value of charity care most likely.
• Were charges ever important? You betcha. In the ‘good ole days’ (from a hospital bottom line perspective, think late 60s-70s) Medicare paid hospitals on the basis of Usual, Customary and Reasonable (UCR) charges. This was essentially cartel pricing whereby the few sellers (think 3 hospitals in an area) had every incentive to elevate charges since they were typically paid a percentage of this by Medicare and private insurance.
• In the 1980s, Medicare began paying on the basis of prospective payment (average amount based on diagnosis plus adjustments for teaching, DSH payments for caring for the uninsured, capital expenses, etc. and so the rank ordering of private as highest and Medicare below was generally locked into place.
• Charges may/must have some impact on amount paid for care by different payers, but how is unclear. For example, UNC has explicit policies for the uninsured, but as you can see the discount is based on charges; so charges aren’t irrelevant.
• The real question is whether any differences in the amount paid to hospitals are related to quality? That is what we need to get after and it will be hard for both technical and political reasons.
  The ACA nudges us in that direction.
• I could imagine someone reasonably saying that the teaching mission of a hospital is a societal benefit that might not improve quality (could be the opposite). This would argue for more explicit support of this mission and not burying the indirect medical education support in each payment as is now done (there are also direct subsidies to medical schools/hospitals). Note all three of the above hospitals have a teaching mission.
• Any hospital administrator will answer when being questioned about anything related to charges/payments/costs: but we have to care for the uninsured. There is some true amount of cost shifting, that is likely smaller than many think. Expanding insurance coverage is also important for doing away with what you might think of as “the negotiating impact” of the uninsured; when hospitals answer most any question about charges/payments/costs by saying “but the uninsured”. I believe this is more consequential than actual cost shifting.
• I don’t think the release of this data is “a game changer” but I do think that it will serve to increase awareness among the public (along with this Time piece) about the opaque nature of hospital prices, and the word jumble that is charges, payments and costs.

A couple of points, especially for people in North Carolina and other states trying to use this research (a good thing!) to inform policy.

Internal validity is the degree to which a study design can allow you to judge whether X causes Y (in this case, comparing Medicaid coverage to being uninsured, on a variety of measures). Random assignment is about as strong as internal validity gets, though it should be noted that random assignment of a pill v. a placebo is less complicated in a causal sense that assigning an insurance plan. So, when people say things like “if Medicaid were a pill…” Medicaid is not a pill. Insurance gets you access, which leads to treatments, and so on….

This leads to the concept of external validity, which is the degree to which the findings of a given study are relevant and insightful for another population. In a RCT of a pill, you sometimes worry about this (has it been tested in children? Is there a reason to think persons of a different race will respond differently?) but the causal mechanism of swallowing a pill and seeing how it will impact a disease is causally fairly direct (the chemistry of the pill). The causal mechanism of assigning someone to an insurance program v. leaving them uninsured is more diffuse, or farther up the causal chain, say from addressing your high blood pressure. So, in a policy RCT the external validity is very important. The Oregon study actually only studied Portland Oregon, so people in North Carolina (and rural Oregon), for example, should be asking how similar are low income persons and the available health care system to which Medicaid is buying access in Portland to the situation in North Carolina? I will work on providing some data driven answers over the next few days.

The question of whether there was enough power to detect a meaningful change in the health measures used is a question of construct validity, in my opinion (though I could imagine it being characterized as a different type of validity, problem or error; or indeed just left as a problem that needs no further categorization):

Construct validity is the approximate truth of the conclusion that your operationalization accurately reflects its construct.

Restated, does how you measured health properly do so, and can a meaningful change in health in this area show up in the measure(s) you used given the size of the study? If you pick a measure designed to measure “health” that has little to no chance of rejecting the null hypothesis of no difference in the treatment (Medicaid) v. control (uninsured) group, then it is not a particularly insightful test because you will inevitably be unable to reject the null hypothesis of no difference. I think of this as closely related to external validity, because in geographic areas with worse controlled diabetics, for example, the same sample size might be able to detect a difference on the same measure used as being statistically significant.

To best understand the meaning of this study for North Carolina will require some data driven work to compare the populations of Portland, Oregon and North Carolina. More on that later.

While the rhetoric around health reform has been incendiary from day one, in policy terms, a compromise between Democrats and Republicans using the outline of the Affordable Care Act (ACA) has always been available. The two primary problems with the health care system are costs and lack of coverage. The ACA does pretty well on the second, and is a start on the first, but much more is needed. It will be very hard to get a handle on health care costs, and we will likely only succeed in doing this if both parties are on board.

I then proposed the outlines of a deal:

• Federally guaranteed catastrophic coverage implemented via Medicare
• Private insurance sold in state-based exchanges for gap amounts if individuals desired more coverage, with income based subsidies
• Federalizing the dual eligible Medicaid costs, and moving over time to buy low income persons into subsidized private gap insurance, thus transitioning the low income portion of Medicaid over time
• ending the tax preference of employer paid health insurance; make all subsidies explicit

I refined these ideas in an e-book called Balancing the Budget is a Progressive Priority in August, 2011, and revised it after the failure of the Super Committee to replace the sequester in a version published by Springer in April, 2012. The book claimed that we didn’t need short term cuts in discretionary spending for a sustainable long run budget, but instead needed the next (and the next and so on) steps on health reform, and an increase in taxes collected as a percent of GDP to at least 21% given the movement of the Baby boomers into Medicare, Medicaid and Social Security.

There are many ‘yeah buts’ about the above-outlined deal. I am unsure what the ideal health system would be, because what I think what we most need is a political deal so that we can move ahead with the policy, focusing on the goals of expanding coverage and addressing costs. We will never do the hardest work asking whether health spending is ‘worth it?’ without both sides bearing responsibility for it.

So why do both sides need a deal?

• For Liberals and Progressives, universal coverage is the holy grail, not just of health policy, but of all public policy. Conservatives don’t have a similarly focused top health policy interest, and that makes finding a deal more difficult (lengthy debate between myself and Jim Capretta touching on this). We need a deal because the continued Republican opposition to the ACA, which is made more effective by the Supreme Court’s decision making the Medicaid expansion voluntary, thwarts achievement of our goal of universal coverage (that I also believe to be a precursor to having a hope of addressing costs/wasteful spending).
• Conservatives need a deal because they have no politically viable health reform plan embraced by elected Republicans, and without one they have no hope of what they claim to be their pre-eminent policy objective of smaller government, because the biggest long run spending side issue is health care costs. Keep in mind that Gov Romney ran on a platform of doing nothing to Medicare for 10 years (rescind House Budget cuts that mirrored the ACA; premium support starting in a decade). Further, the Republicans have controlled the House of Representatives for 28 months now, and have voted to repeal Obamacare numerous times, but never seem to get around to the replace part.  Last month they couldn’t even muster the votes for a modest risk pool plan.

I obviously thought we needed a deal a long time ago, and my proposal to move away from Medicaid’s current structure has been the part of the ‘deal’ that has gotten me the most heat from my friends (here is a less grand deal). However, the discussion of the recent Medicaid study has reinforced my belief that the political warring over health reform crowds out our ability to make policy based on evidence. Every study is now just another salvo in a never ending political war around Obamacare, without the offer of a credible alternative. I am a strong supporter of the ACA which expands Medicaid, and would be happy to implement and revisit it when we know more. The passage of the ACA has put the entire health care system into play, and whatever final result we land on, its passage will have been the first step.

However, it is clear to me that both sides would benefit from a political deal to allow us to take the next steps with at least some of the heat removed from the conversation.

The doodle is of a hypothetical RCT of Duke’s employees to 3 arms: Duke’s typical health insurance options, a catastrophic insurance plan (that doesn’t now exist as an option), and cash payment in lieu of health insurance. Outcome measures would be health, financial impact of illness, and employee satisfaction with the benefit package. Of course this will never be done (and there are many reasons it could not be done). However, in theory, this sort of thing could answer the question what impact does health insurance have on health and other outcomes.

Based on reading the many tweets this afternoon about the study, I was surprised when I actually read the study. Basically, they find that Medicaid coverage:

• reduced depression, improved or maintained self reported quality of life, increased the likelihood of having a usual source of primary care, increased the uptake of several preventive measures such as cholesterol screening, pap smear and mammography, and increased perceptions that patients received quality care. Again, this is the estimated impact of Medicaid as compared to being uninsured.
• Medicaid also greatly reduced the financial burden of health care and nearly eradicated catastrophic health expenditures that they defined as being greater than 30% of family income (or ~$4,500 for family of two at the federal poverty level in Oregon).

There was bad news too. They found, for example, that Medicaid did not:

• decrease blood pressure, reduce cholesterol, or decrease the proportion of diabetics with A1C levels above 6.5%, or reduce the Framingham risk score significantly (a global measure of 10 year heart disease mortality risk). There was also no significant difference in persons reporting no, or mild pain. There were also some prevention screening procedures that those with Medicaid were not more likely to receive (Table 5), for example: fecal-occult blood test, colonoscopy for those age 50+, flu shot. Again, this is the estimated impact of Medicaid as compared to being uninsured.

In terms of health care use/spending, those with Medicaid:

• had more doctor visits, but there were no differences in hospitalizations, ED visits, or outpatient surgery. Persons with Medicaid had an estimated health care expenditure on their behalf of $4,428, or $1,171 more than someone who was uninsured. Keep in mind other parts of Medicaid that were not a part of this study, or the proposed expansions, cost lots more.

Several things of note:

• This study is focused on Portland, and not even all of Oregon (see 1st para of second column on page 1714). The internal validity of the study (does x cause y) is as good as it gets. The external validity (do these results generalize) depends upon how similar Portland, Oregon is to another state thinking of expanding Medicaid.
• There are a few things about the study subjects that leap out. First, these are some seriously well controlled diabetics in Portland, with 5.1% of the control group (uninsured) having A1C of 6.5%+; those with Medicaid were not statistically better. I honestly think this must be a typo (Table 2) and instead of 5.1% of diabetics in control group with A1C of 6.5% or greater they meant 5.1% with 6.5% A1C or less (though it is repeated in the text). This is a presentation to the results of an incredibly successful diabetes disease management company in Mississippi that is absolutely thrilled to have 64% of patients with A1C less than 7% after one year (see slide 25); the Oregon study says that 95% have levels of 6.5% or less.* Nationally, between 15-30% of diabetics have A1C of greater than 9. I just don’t see how what is written can be true, or if it is, the country should be studying diabetes care in Portland. Update 11:50pm on 5/1; further updated 5/2 at 7:05am: This is a A1C of everyone on the study and not only diabetics. I was thinking in terms of diabetics, so that is my error. This link says prevalence of diabetes over age 20 is 11.3%….but what is needed for comparison to see the similarity of the study population is prevalence between 18-64….going to bed will get after that tomorrow. and this one also has 11.3% prevalence for age 20+, but 26.9% for age 65+. I don’t think the A1C prevalence of 6.5% or greater is that different from the national average, but I can’t find a precise age comparison for the study population (ages 18-64).
• This sample of patients went to the doctor a lot. The uninsured reported an average of 5.5 office visits annually, with those covered by Medicaid having 2.7 more per year, on average. Using this CDC report (Table 10, No. 252, page 115), I found that nationally 69% of persons age 18-44 in the US in 2010 had between 0 and 3 office visits and only 19% had 4-9 visits; for the age group 45-64, it was 57.7% with 0-3 and 25% with 4-9. Yet the mean of the uninsured group in this study is 5.5 visits annually, with those covered by Medicaid having an average of 2.7 more.

The bottom line is that this is a well done study with high internal validity, and it finds some positive health impacts of Medicaid on health as compared to being uninsured. It also finds some areas in which health is no better (or worse) for those covered by Medicaid. The study unambiguously shows that Medicaid reduces the financial burden of health care for beneficiaries. There are some aspects of the study findings that may reduce the applicability of the findings to other parts of the country, but that doesn’t mean it isn’t an important study. It is just another piece of the puzzle.

However, for all the tweeters saying this study showed Medicaid is utterly flawed and there is no way anyone should expand Medicaid coverage I can only think they didn’t actually read the study. More tomorrow on the political and policy ramifications of this study and how people talked about it within 5 minutes of its release.

*Disclosure: I am a consultant for Diabetes Care Group, Inc. and have done cost estimations for them based on their clinical A1C results; some of them are excerpted in that publicly available slide deck.

• North Carolina has announced what I would call aspirational plans to put all Medicaid beneficiaries into private plans, of their choice. The notion is that via competition for patients, quality will rise and costs will drop. However, the New York experience shows the downside. I call the N.C. plan aspirational because there are scant details, but they do say they will ‘risk adjust’ to prevent cherry picking, but this will be hard. (this links to many posts I have written about N.C. Medicaid reform)
• The key is to remember that Medicaid is not one program, but has a variety of types of patients unified by having low income. It is not hard to imagine children and pregnant women and low income adults being placed in managed care; many states have already done so, with better and worse effects. Doing so is no panacea, nor is it the worst thing ever. However, the idea that disabled and elderly Medicaid beneficiaries are going to be put into private plans, and more to the point for N.C., that persons in Nursing Homes who suffer from dementia, etc. are going to be picking plans so as to improve quality and reduce costs is a pretty long walk in the woods as my grandaddy would have said (aka not likely to work). This table shows the per capita spending differences by category of beneficiary in N.C.
• 
• To belabor the point, it is not that the theory of competition cannot work in health care, it is that the groups of Medicaid beneficiaries who comprise the dual eligibles and the long term disabled have so many complicated and expensive acute and long term care health needs that I think private companies will mostly be trying to avoid the most expensive and difficult patients. Put another way, tell me the private, for profit “entity” (to use Gov. McCrory’s language) that will be bidding to care for the dual eligibles on a straight capitated basis so that I can make sure that I don’t own their stock.
• This doesn’t mean we cannot have Medicaid reform in N.C. However, caring for “the least of these” will always be hard and expensive. I still think federalizing the cost of the dual eligibles at least, and allowing states more flexibility in especially the children and low income adult categories is the best policy approach with any hope of a political consensus of any sort. You could also move toward pushing dual eligibles into Special Needs Plans to get the ‘one payer’ coordination impact, but then see the N.Y. experience. Here is a proposal for SPN with opt-out the dual eligibles, but then you just make cherry picking officially ok. [I remain unsure about the care of the long term disabled; such a heterogeneous group of people with vast array of needs, sometimes for decades; will always be hard and expensive]
• Bottom line, we need Medicaid reform in North Carolina. I don’t see how the outline suggested by Gov. McCrory can work if it is to include all Medicaid beneficiaries. Either no one will want to bid if they really must take all comers, or it will simply be cherry picking if there is an opt out.

updated: revised for typos/clarity.