Everything We Are Doing in Health Policy May Be Completely Wrong

A relatively obscure paper (gated) published in an academic journal the other day was completely ignored by the mainstream media. Yet if the study findings hold and if they apply to a broad array of health services, it appears that the orthodox approach to getting health services to poor people is as wrong as it can be.

At first glance, the study appears to focus on a rather narrow set of issues. Although most states try to limit Medicaid expenses by restricting patients to a one-month supply of drugs, North Carolina for a period of time allowed patients to have a three-month supply. Then the state reduced the allowable one-stop supply from 100 days of medication to 34 days and at the same raised the copayment on some drugs from $1 to $3. Think of the first change as raising the time price of care (the number of required pharmacy visits tripled) and the second as raising the money price of care (which also tripled).

The result: A tripling of the time price of care led to a much greater reduction in needed drugs obtained by chronically ill patients than a tripling of the money price, all other things remaining equal.

This study pertained to certain drugs and certain medical conditions. But suppose the findings are more general. Suppose that for most poor people and most health care, time is a bigger deterrent than money. What then?

If that idea doesn’t immediately knock your socks off, you probably haven’t been paying attention to the dominant thinking in health policy for the past 60 years.

“You just kinda wasted my precious time.”

Uninsured patients wait outside a clinic to be treated.

Photo credit: Thomas B. Shea/USA Today

What I call health policy orthodoxy is committed to two propositions: (1) The really important health issue for poor people is access to care and (2) to insure access, waiting for care is always better that paying for care. In other words, if you have to ration scarce medical resources somehow, rationing by waiting is always better than rationing by price.

[Let me say parenthetically, that the orthodox view is at least plausible. After all, poor people have the same amount of time you and I have, but (unless you are a student) a lot less money. Also, because their wages are lower than other people’s, the opportunity cost of their time is lower. So if we all have to pay for care with time and not with money, the advantage should go to the poor. This view would be plausible, that is, so long as you ignore tons of data showing that whenever the poor and the non-poor compete for resources in almost any non-price rationing system, the poor always lose out.]

The orthodox view underlies Medicaid’s policy of allowing patients to wait for hours for care in hospital emergency rooms and in community health centers, while denying them the opportunity to obtain care at a Minute Clinic with very little wait at all. The easiest, cheapest way to expand access to care for millions of low-income families is to allow them to do something they cannot now do: add money out-of-pocket to Medicaid’s fees and pay market prices for care at walk-in clinics, doc-in-the-boxes, surgical centers and other commercial outlets. Yet in conventional health policy circles, this idea is considered heresy.

The orthodox view lies behind the obsession with making everyone pay higher premiums so that contraceptive services and a whole long list of screenings and preventive care can be made available with no copayment or deductible. Yet this practice will surely encourage overuse and waste and in the process likely raise the time prices of these same services.

The orthodox view lies at the core of the hostility toward Health Savings Accounts, Health Reimbursement Arrangements (HRAs) and any other kind of account that allows money to be exchanged for medical services. Yet it is precisely these kinds of accounts that empower low-income families in the medical marketplace, just as food stamps empower them in any grocery store they choose to patronize.

The orthodox view is the reason so many Obama Care backers think the new health reform law will expand access to care for millions of people, even though there will be no increase in the supply of doctors. Because they completely ignore the almost certain increase in the time price of care, these enthusiasts have completely missed the possibility that the act may actually decrease access to care for most low-income families.

The orthodox view is the reason why there is so little academic interest in measuring the time price of care and why so much animosity is directed at those who do measure such things. It explains why Jon Gruber can write an NBER paper on Massachusetts health reform and never once mention that the wait to see a new doctor in Boston is more than two months.

Yet the orthodox view may be totally wrong. Clearly, time prices matter to low-income patients. As the new study concludes:

The observed decreases from the days’ supply policy were larger than those from the copayment policy, indicating that the increase in the time costs from more frequent trips to the pharmacy were more of a barrier to medication adherence than the increased copayment…. The decrease in adherence occurred at a mean level of usage generally thought to show clinical effects. The probability of being 80 percent adherent decreased between 1 and 13 percentage points, implying that the policy changes resulted in a substantial decrease in medication adherence for the chronic medication users.

Comments (23)

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  1. Virginia says:

    An excellent point!

    One thought that came to me while reading your post was this: We assume that the opportunity cost of waiting is low for poor people. However, I would argue that the opposite is true. They are the ones who stand to lose the most by waiting for their healthcare, since losing an hour or two in wages could mean the difference between eating dinner and going without.

    Theoretically, we should be ambivalent if an hour of waiting will save us the same amount that we would save by paying for prompt care. If lost wages (due to prolonged waits) increases too much, then poor people will forego care and/or seek cheaper care elsewhere.

  2. Devon Herrick says:

    Advocates for the poor often assert that any cost-sharing in Medicaid is a barrier to care. Yet, rationing by waiting is common among state Medicaid programs. States with the most generous eligibility often have the lowest physician fees making it difficult for enrollees to find a doctor willing to treat them. This study illustrates that inconvenience is a bigger barrier than money. It should not come as a surprise that Medicaid enrollees would value their time more than the $2 co-pay.

  3. Ron Bachman says:

    The pearl of wisdom I picked out of your article was the thought to allow Medicaid patients the opportunity to add their own monies to cover the added cost of going to a minute clinic. Of course, I do not fully understand why states don’t set up minute clinics across the street from every major Medicaid emergency department and offer voluntary triaging to them with full coverage.

  4. Carolyn Needham says:

    It is interesting how on a macro level people are more drawn to that which is actually quantifiable — i.e. the money actually exchanged, as opposed to the hypothetical money lost.

  5. Greg Scandlen says:

    A related point is that it is a “burden” for anyone to pay more than 10% of their income directly on health care services, but it is somehow not a burden to pay higher taxes to avoid paying that 10%.

    And, btw, I’ve been poor and I’ve been prosperous. As Virginia points out, I have had a lot more free time available when I’ve been prosperous — time off with pay, the money to pay others for services like lawn care and cooking, etc. Poor people need every hour just to survive.

  6. Ken says:

    There is no “maybe” about it. We are doing everything the wrong way.

  7. Kevin Stuckey says:

    The points made are right on target. Immediate care facilities (retail clinics, urgent care centers & etc.) are set up to handle a volume of patients PROMPTLY and EFFICIENTLY. These are the ideal points of access to medical care that can serve to promote wellness rather than much more expensive “rescue care” in an ER at the time a patient has become more acutely ill due to simple neglect and/or inconvenience. If CMMS will adequately compensate providers for “immediate care”, the care will be more readily provided and significant time and dollars can be saved in comparison to inadvertently encouraging Medicaid patients to use the most expensive (in time & dollars) venues available.

    One has to ask, “Is it inadvertent, or is it intentional?” When the populace becomes dependent upon the government for healthcare, food, housing & etc., the populace will keep that government in office as long as others foot those bills. Do our friends in Greece come to mind?

  8. Frank Timmins says:

    Interesting, and a useful autopsy of the corpse of the traditional Medicare/Medicaid model. Once this monster is opened up the problems are obvious, and Dr. John has done a good job.

    It also supports the notion that the new approach to Medicare and Medicaid should revolve around the idea of tax credits and vouchers. Everyone should be involved in the market process.


    John, you attribute this to Medicare, but I have the same issue with Humana’s Rightsource Pharmaceutical, which will only refill a needed prescription once a month rather than the every 90 days as prescribed by my physician, who feels I will be on this medication for years

    Humana calls monthly to take my order and authorization for another monthly supply which they ship to my door, but won’t send a 3 month supply. I figure they are making money on the handling and shipping part of the transaction which allows them a method to mark up their service. Of course you need a reliable patient to work with, and many Medicaid patients are not as reliable as a paying patient.

    But your point is well taken. I wonder if government wants prices higher to justify their programs and need to control incoming and outgoing funds; taxes and spending.

  10. Al says:

    “cheapest way to expand access to care for millions of low-income families is to allow them to do something they cannot now do: add money out-of-pocket to Medicaid’s fees and pay market prices for care at walk-in clinics, doc-in-the-boxes, surgical centers and other commercial outlets. Yet in conventional health policy circles, this idea is considered heresy.”

    I wonder why one couldn’t expand that thought to Medicare by permitting balance billing and at the same time saving Medicare money because the pressure on raising physician fees and testing fees could be partially eliminated. Additionally since patients would themselves be rating quality there could be a saving in things like P4P that likely don’t work in the first place.

  11. David Lenihan says:

    Great to hear Joan Baez again after such a long time. Question: who benefits from having patients show up at the pharmacy every thirty days instead of every three months?

  12. John Goodman says:

    On the one month supply rule:

    One theory is that you will have fewer patients obtaining unneeded drugs. For example, if the patient improves or is switched to another drug during the period, there is more potential waste if he has a 90 day supply.

    Another poosibility is that the insurer gains when people obtain fewer drugs. It has to spend less money.

  13. Al says:

    In addition to other rationales, when patients show up at the pharmacy every 30 days instead of 90 they may pay more in co-payments and the pharmacy gets 3X the number of chances to sell non-pharmaceutical items.

  14. John R. Graham says:

    Something does not compute: The time price had a much larger effect in reducing Rx consumption than the monetary price, but the increase in monetary price caused overall Medicaid spending to go up, whereas the increase in time price did not.

    One argument often used to not increase co-payments or limit prescriptions is that patients will stop taking meds, increasing risk of hospitalization. So, how did it happen that the time price had no effect on increasing total Medicaid costs but the monetary price did?

    With respect to non-price rationing: It has a very beneficial effect on the bureaucrats who impose it.

    First (as demonstrated by the photo above): A Picture is worth a thousand words. The photo above, if distributed to the media, is “evidence” that the Medicaid system needs more money. The absence of people lined up outside the clinic would remove the “evidence.”

    Second, there is a great feeling in having power over other people. Nothing satisfied my ego more than when, as a pipsqueak 22-year old lieutenant in the peacetime army, I’d have the troops lined up for reward or punishment. People lined up outside the door validates the officeholder’s otherwise meaningless life.

    Third, giving Mediciad beneficiaries the money to spend as they see fit would render almost all of the jobs in the Medicaid bureaucracy obsolete. Compare the number of workers in the Social Security Administration with the number of workers in the federal, state, and county Medicaid offices. In 2008, the SSA had a total of 64,000 employees (according to the Bureau of Labor Statistics). Still too many, for sure. However, San Francisco City & County alone had 5,798 employees in the Department of Public Health and 1,787 in the Human Services Agency.

    (I should probably do a research project adding up the numbers for the whole country.)

  15. John Goodman says:

    @ Al

    That’s a very good reason why pharmacies want to dribble out meds 30 days at a pop, but it doesn’t explain why the insurer wants to do that.

    @ John Graham

    Good point about the affects on overall spending. I don’t have an answer for that.

  16. Larry Wedekind says:

    I agree John, but increasing the value of a Medicaid beneficiary to a physician provider by allowing the physician provider to charge an additional fee to the patient has a certain value only if the market is free of price colusion among doctors and the additional fee is reasonable. However, I am rather doubtful that either condition is practical simply because the supply of physicians willing to provide a Medical Home to Medicaid patients is insufficient to cover the demand for such care currently; thus the additional OOP premium needed to get physicians to treat Medicaid patients quicker might be too high.

    Having seen the operation of Medicaid from the Provider’s (Hospital and physician) perspective and the Payor’s perspective for many years now, it is quite obvious to me that there is only one solution to this problem and it lies in financially incentivizing physicians to provide a true Medical Home (A Medical Home philosophy does not allow waiting times of more than 30 minutes) for these Medicaid Beneficiaries. This financial incentive must be in the form of Integrated Physician Delivery Network risk and profit sharing with Health Plans.

    This IDN risk and profit sharing methodology also provides another very powerful rationale for decreasing the waiting times for the poor in physician offices. As other Commenters have pointed out, Medicaid and CHIP beneficiaries MUST work every hour that they can in order to “just make ends meet”. This often causes them to become sicker as they attempt to balance their need to work another hour to their need for medical attention for themselves or their children. As a result, they often end up in the hospital ER in the evening or during the weekends when they are not working. This, of course, costs the government much more than if the Medicaid beneficiary had simply gone to the physician office and waited for an hour or two. IDN’s provide the finanical incentive to physicians for cutting office waiting times and for keeping their patients out of hospitals needlessly.

  17. Al says:

    John both the insurer and pharmacy are after the same piece of pie. I am sure that since the pharmacy seems to derive additional financial benefit from the 30 instead of 90 day cycle that they will see to it that the insurer benefits as well even if it means doing a bit more of their bidding or being paid a trifle less for the medications.

    Running a pharmacy is an expensive business and I have known pharmacies in the past that barely broke even off the most commonly prescribed drugs. One company was actually selling the 10 or 20 most common drugs at cost and when the wholesale price went up didn’t raise their prices for a month or so.

  18. John Goodman says:

    @ Larry Wedekind

    Even if you are right, it would take a long time to get all of that in place. Also I admit there is a problem dealing with providers who just maximize against reimbursement formulas.

    However, an immediate thing we can do to improve access is let Medicaid patients pay out of pocket for the extra cost at outlets that are competing for cash-paying patients and whose prices are real market prices.

  19. Al says:

    I do not quite understand what “real market prices” are or how the determination is made as to what are or are not “real market prices”. if it is the patient that is paying the balance of the bill I am not sure if that phrase was superfluous or had a special meaning.

  20. Frank Timmins says:

    Al writes, “I do not quite understand what “real market prices” are or how the determination is made as to what are or are not “real market prices”.”

    Real market prices are those that are not artificially established by monopolistic practice or regulatory fiat. For example, if you want to have lasik surgery you will be able to get a “market price” because there is no third party involved in the transaction. The market price for lasik surgery has shrunk in price to a fraction of its cost two decades ago. If other medical services were subject to “market pricing” we could see much more efficient healthcare.

  21. Linda Gorman says:

    My insurer claims that the 30 day limitation comes from the pharmaceutical manufacturer via the contracted price.

    Which would make sense if pharmaceutical companies are price discriminators and are trying to tamp down on legal or illegal reselling below their list price.

    Everyone is happy to sell a 3 month supply at the list price. The limits apply only to purchases at the insurer contract price.

  22. Al says:

    Thanks Frank. I recognize what you say to be “real market prices”, but in the context of John’s remark it seemed superfluous to what John was saying so I wondered if he was referring to a more limited meaning that was different then what it would customarily mean to most people. (He had used a very specific entity/type in his dialogue, Minute Clinic.). After all if a Medicaid patient is paying the balance of the bill and seeks out a provider that is “competing for cash-paying patients ” in the market place I would presume that whatever price was decided upon by the two parties would be the real market price.

  23. Frank Timmins says:

    Al writes, “After all if a Medicaid patient is paying the balance of the bill and seeks out a provider that is “competing for cash-paying patients ” in the market place I would presume that whatever price was decided upon by the two parties would be the real market price.”

    Al, I certainly took what he said at face value, as you describe it above. Then again, I may be over simplifying.