The relationship between costs and health benefits of branded pharmaceuticals remains controversial. This paper examines the incremental costs incurred for incremental health benefits gained from the largest available sample of cost-effectiveness studies of branded drugs in the USA, the 1994–2015 Tufts Registry of Cost-Effectiveness Analyses. Earlier studies used small, specialized samples of drugs. We use linear regression analysis to estimate the association in those studies between additional quality-adjusted life years (QALYs) and incremental pharmaceutical costs. The preferred sample uses 476 studies involving branded pharmaceuticals with both higher costs and increased effectiveness compared to the previous standard of care. Regressions of costs on QALYs imply that an additional QALY is associated, on average, with a $28,561 increase in cost (95 % CI, $18,853–$38,270). This regression explains 20 % of the variation in sample costs. In this analytical sample, a share of the variation in the cost of pharmaceuticals is, therefore, not random but rather associated with variation in QALYs; prices are to some extent “value-based.” Our results are robust to varying sample inclusion criteria and to the funding source. In subgroup analyses, the highest cost per QALY was $44,367 (95 % CI, $35,373–$53,361). Costs of pharmaceuticals in this data set are, on average, lower than common estimates of the monetary value of a QALY to American consumers. As in other studies, we find that sellers of patent-protected beneficial new technology appear to capture only a fraction of the benefits provided.

OBJECTIVES:Cost-effectiveness analysis of branded pharmaceuticals presumes that both cost (or price) and marginal effectiveness levels are exogenous. This assumption underlies most judgments of the cost-effectiveness of specific drugs. In this study, we show the theoretical implications of letting both factors be endogenous by modeling pharmaceutical price setting with and without health insurance, along with patient response to the prices that depend on marginal effectiveness. We then explore the implications of these models for cost-effectiveness ratios.METHODS:We used simple textbook models of patient demand and pricing behavior of drug firms to predict market equilibria in the drug and insurance markets and to generate calculations of the cost-effectiveness ratios in those settings.RESULTS:We found that ratios in market settings can be much different from those calculated in cost-effectiveness studies based on exogenous prices and treatment of all patients at risk rather than those who would demand treatment in a market setting. We also found that there may be considerable similarity in these market cost-effectiveness ratios across different products because drug firms with market power set profit-maximizing prices.CONCLUSIONS:We found that market cost-effectiveness ratios will always indicate an excess of benefits over cost. Insurance will lead to less favorable ratios than without insurance, but when insurers bargain with drug firms, rather than taking their prices as given, cost-effectiveness ratios will be more favorable.

"International Journal of the Economics of Business Best Paper Prize Announcement." International Journal of the Economics of Business, 27(1), p. 157

Almost 100 years ago, Ludwig von Mises and Friedrich Hayek argued that a socialist state could not determine marginal cost prices and therefore could not allocate resources rationally. Oskar Lange and Abba Lerner responded with the market socialist model. Subsequent scholars have refined the model (Leeman, Roemer). Views on market socialism for an entire economy are mixed (Phelps, Shleifer and Vishny, Roemer). We briefly review the debate. We argue that a form of market socialism exists and is especially important in education, health care, and health insurance. In these sectors, prices are often set or restricted centrally, while many providers are state-owned, nonprofit, or mutual firms. We argue in favor of applying market socialist principles to health care and to health insurance policy. In particular, we show that these principles imply that community rating of health insurance is a source of major inefficiencies and harmful regulatory pressure. We suggest moving in the market socialist direction – toward marginal cost pricing and therefore away from community rating. The desire for universal or expanded coverage can be fulfilled by explicit, politically transparent subsidies paid to consumers who are both poor and high risk.

I. Qualifications I am Professor of Economics, College of Letters and Science, and Professor of Technology Management, College of Engineering, at the University of California, Santa Barbara. I am past director of the M.A. and Ph.D. programs and past Chairman of the Economics Department. I am an adjunct scholar at the American Enterprise Institute. I have been a visiting professor at Harvard, the University of Chicago and at Curtin University in Australia. I have also been an adjunct professor at the U.S. Naval Postgraduate School and at Sciences Politiques de Paris. I hold a B.S. in industrial engineering from the University of Missouri, and an M.A. and a Ph.D. in economics from the University of California, Los Angeles.

This article extends the existing literature on optimal provider payment by accounting for consumer heterogeneity in preferences for health insurance and healthcare. This heterogeneity breaks down the separation of the relationship between providers and the health insurer and the relationship between consumers and the insurer. Both experimental and market evidence for a high degree of heterogeneity are presented. Given heterogeneity, a uniform policy fails to effectively control moral hazard, while incentives for risk selection created by community rating cannot be neutralized through risk adjustment. Consumer heterogeneity spills over into relationships with providers, such that a uniform contract with providers also cannot be optimal. The decisive condition for ensuring optimality of provider payment is to replace community rating (which violates the principle of marginal cost pricing) with risk rating of contributions combined with subsidization targeted at high risks with low incomes.

The Areeda–Turner rule in U.S. antitrust jurisprudence limits successful predatory pricing cases to circumstances where prices can be shown to have been set below marginal costs. While not cast so, the rule reflects the view that predatory pricing is rarely attempted; and even where attempted is rarely successful; and even where attempted and successful, is difficult to identify. In this paper, we examine the theoretical and empirical foundations of this rule, and conclude that it is time to demote the Areeda–Turner analysis from the status of a rule to that of a potentially useful form of inquiry in predatory pricing litigation, but one which is neither necessary nor dispositive.

BACKGROUND:Rankings from the World Health Organization (WHO) place the US health care system as one of the least efficient among Organization for Economic Cooperation and Development (OECD) countries. Researchers have questioned this, noting simplistic or inappropriate methodologies, poor measurement choice, and poor control variables. Our objective is to re-visit this question by using newer modeling techniques and a large panel of OECD data.METHODS:We primarily use the OECD Health Data for 25 OECD countries. We compare results from stochastic frontier analysis (SFA) and fixed effects models. We estimate total life expectancy as well as life expectancy at age 60. We explore a combination of control variables reflecting health care resources, health behaviors, and economic and environmental factors.RESULTS:The US never ranks higher than fifth out of all 36 models, but is also never the very last ranked country though it was close in several models. The SFA estimation approach produces the most consistent lead country, but the remaining countries did not maintain a steady rank.DISCUSSION:Our study sheds light on the fragility of health system rankings by using a large panel and applying the latest efficiency modeling techniques. The rankings are not robust to different statistical approaches, nor to variable inclusion decisions.CONCLUSIONS:Future international comparisons should employ a range of methodologies to generate a more nuanced portrait of health care system efficiency.

Adverse selection death spirals in health insurance are dramatic and, so far, exotic economic events. The possibility of death spirals has garnered recent policy and popular attention because the pricing regulations in the Affordable Care Act (ACA) of 2010 make health plans more vulnerable to them (though some other aspects of the ACA limit them). Most death spirals tracked in the literature have involved selection against a group health plan that was dropped quickly by the employer. In this article, we empirically document a death spiral in individual health insurance that was apparently triggered by a block closure in 1981 and developed slowly because the insurer partially subsidized the block. We show that premiums rose dramatically from around the time of the block closure to at least 2009 (the last year of available data). By 2009, some, but very few, policyholders remained in the block, and premiums were roughly seven times that of a yardstick we developed. The history of this slow-moving event is directly relevant to current policy discussions because of both adverse selection in general and the particular problems induced by closing a block.

ACOs were promoted in the 2010 Patient Protection and Affordable Care Act (ACA) to incentivize integrated care and cost control. Because they involve vertical and horizontal collaboration, ACOs also have the potential to harm competition. In this paper, we analyze ACO entry and formation patterns with the use of a unique, proprietary database that includes public (Medicare) and private ACOs. We estimate an empirical model that explains county-level ACO entry as a function of: physician, hospital, and insurance market structure; demographics; and other economic and regulatory factors. We find that physician concentration by organization has little effect. In contrast, physician concentration by geographic site —which is a new measure of locational concentration of physicians—discourages ACO entry. Hospital concentration generally has a negative effect. HMO penetration is a strong predictor of ACO entry, while physician-hospital organizations have little effect. Small markets discourage entry, which suggests economies of scale for ACOs. Predictors of public and private ACO entry are different. State regulations of nursing and the corporate practice of medicine have little effect.

Accountable care organizations (ACOs), one of the most recent and promising health care delivery innovations, encourage care coordination among providers. While ACOs hold promise for decreasing costs by reducing unnecessary procedures, improving resource use as a result of economies of scale and scope, ACOs also raise concerns about provider market power. This study examines the market-level competition factors that are associated with ACO participation and the number of ACOs. Using data from California, we find that higher levels of preexisting managed care leads to higher ACO entry and enrollment growth, while hospital concentration leads to fewer ACOs and lower enrollment. We find interesting results for physician market power markets with concentrated physician markets have a smaller share of individuals in commercial ACOs but a larger number of commercial ACO organizations. This finding implies smaller ACOs in these markets.

"International Journal of the Economics of Business Best Paper Prize Announcement." International Journal of the Economics of Business, 21(1), p. 163

Objectives: Examine how differences in state regulatory environments predict geographic disparities in the utilization of cancer screening.Data sources/setting: 100% Medicare fee-for-service population data from 2001-2005 was developed as multi-year breast (BC) and colorectal cancer (CRC) screening utilization rates in each county in the US.Study design: A comprehensive set of supply and demand predictors are used in a multilevel model of county-level cancer screening utilization in the context of state regulatory markets. States dictate insurance mandates/regulations and whether alternative providers (nurse practitioners) can provide preventive care services supplied by MDs. Controlling statistically for the supply of both types of providers, we study the joint effects of two private insurance regulations: one mandating that insureds with serious or chronic health conditions may receive continuity of care from their established physician(s) after changing health insurance plans, and another mandating that external grievance review is an option for all health plan coverage/denial decisions. These private insurance plan regulations are expected to affect the degree of beneficial spillovers from managed care practices, which may have increased area-wide cancer screening rates.Principal findings: The two private insurance regulations under study were significant predictors impacted by local market conditions. Managed care spillovers in local markets were significantly associated with higher BC screening rates, but only in states lacking the two forms of regulation under study. Spillovers were significantly associated with higher CRC cancer screening rates everywhere, but much higher in the unregulated states. Area poverty dampened screening rates, but less so for CRC screening in the states with these regulations.Conclusions: Two state insurance regulations that empowered consumers with more autonomy to make informed utilization decisions varied across states, and exhibited significant associations with screening rates, which varied with the degree of managed care penetration or poverty in the state's counties. Beneficial spillover effects from managed care practices and negative influences from area poverty are not uniform across the United States. Both variables had stronger associations with CRC than BC screening utilization, as did state regulatory variables. CRC screening by endoscopy was more subject to market and regulatory factors than BC screening.

This article was downloaded by: [University of California Santa Barbara] On: 26 February 2015, At: 14:47 Publisher: Routledge Informa Ltd Registered in England and Wales Registered Number: 1072954 Registered office: Mortimer House, 37-41 Mortimer Street, London W1T 3JH, UK North American Actuarial Journal Publication details, including instructions for authors and subscription information: http://www.tandfonline.com/loi/uaaj20 Measuring Healthcare Efficiency a b Ian Duncan & H. E. Frech III a Department of Statistics & Applied Probability, University of California, Santa Barbara, California b Department of Economics, University of California, Santa Barbara, California Published online: 24 Nov 2014. Click for updates To cite this article: Ian Duncan & H. E. Frech III (2014) Measuring Healthcare Efficiency, North American Actuarial Journal, 18:4, 443-444, DOI: 10.1080/10920277.2014.984563 To link to this article: http://dx.doi.org/10.1080/10920277.2014.984563 PLEASE SCROLL DOWN FOR ARTICLE Taylor & Francis makes every effort to ensure the accuracy of all the information (the “Content”) contained in the publications on our platform. However, Taylor & Francis, our agents, and our licensors make no representations or warranties whatsoever as to the accuracy, completeness, or suitability for any purpose of the Content. Any opinions and views expressed in this publication are the opinions and views of the authors, and are not the views of or endorsed by Taylor & Francis. The accuracy of the Content should not be relied upon and should be independently verified with primary sources of information. Taylor and Francis shall not be liable for any losses, actions, claims, proceedings, demands, costs, expenses, damages, and other liabilities whatsoever or howsoever caused arising directly or indirectly in connection with, in relation to or arising out of the use of the Content. This article may be used for research, teaching, and private study purposes. Any substantial or systematic reproduction, redistribution, reselling, loan, sub-licensing, systematic supply, or distribution in any form to anyone is expressly forbidden. Terms & Conditions of access and use can be found at http:// www.tandfonline.com/page/terms-and-conditions

OBJECTIVE:To determine whether Medicare managed care penetration impacted the diffusion of endoscopy services (sigmoidoscopy, colonoscopy) among the fee-for-service (FFS) Medicare population during 2001-2006.METHODS:We model utilization rates for colonoscopy or sigmoidoscopy as impacted by both market supply and demand factors. We use spatial regression to perform ecological analysis of county-area utilization rates over two time intervals (2001-2003, 2004-2006) following Medicare benefits expansion in 2001 to cover colonoscopy for persons of average risk. We examine each technology in separate cross-sectional regressions estimated over early and later periods to assess differential effects on diffusion over time. We discuss selection factors in managed care markets and how failure to control perfectly for market selection might impact our managed care spillover estimates.RESULTS:Areas with worse socioeconomic conditions have lower utilization rates, especially for colonoscopy. Holding constant statistically the socioeconomic factors, we find that managed care spillover effects onto FFS Medicare utilization rates are negative for colonoscopy and positive for sigmoidoscopy. The spatial lag estimates are conservative and interpreted as a lower bound on true effects. Our findings suggest that managed care presence fostered persistence of the older technology during a time when it was rapidly being replaced by the newer technology.