Are the Aggregate Studies Misleading? Why?

I asked:

Do you claim the existence of identifiable treatments with positive benefits, which are cut when spending is cut, shows that aggregate spending variations do give substantial aggregate health gains?

Dana Goldman replied:

My response is yes. The research on the use of ACE inhibitors by diabetics is a good place to start, but there are many more drug therapies that qualify. And the reason the variations literature ignores it is because they look at treatment after a serious event occurred ­ when many of the dollars are spent. Heart attacks are the canonical example. And price sensitivity is non-existent once you have had a heart attack. Raising patient cost-sharing will not affect whether the doctor does angioplasty or not, because any reasonable effort to apply prices will have a marginal cost of zero once a catastrophic cap is met.

Dana, since you did not mention the first or fifth options I offered, I’ll presume you grant that simple crude cuts would produce disturbances similar to those seen in aggregate studies, and that such aggregate studies appear, at least to the untrained eye, to show little relation between health variations and medical spending variations. So the question is: why exactly do you think aggregate studies are misleading?

You complain the variations literature ignores ACE Inhibitors “because they look at treatment after a serious event occurred.” Yes, such studies often focus on post-event variations, to better control for initial patient health variations, but many variation studies also consider completely aggregate health and medical spending. Could you explain why you think these other aggregate studies are misleading, in our usual statistics terminology? That is, for example, are specific important controls missing, are the models mis-identified, or is there publication selection bias? Also, if you accept the post-event results, then you should at least support crude cuts to reduce post-event spending.

And how could the existence of a few “identifiable treatments with positive benefits” be much evidence against the claim that extra medicine has roughly equal amounts of helpful and harmful medicine, relative to the claim that it has more helpful than harmful medicine. Perhaps if you had randomly sampled from possible treatments, then the fact that a sample turned out to be helpful might be weak evidence. But surely you aren’t claiming ACE inhibitors are randomly sampled.

Also, you complain the RAND HIE “was only for those with generous insurance, and it only applied to late 1970’s medical care.” But this at least suggests cutting spending for those with generous insurance, at least to the extent that the relative mix of helpful and harmful medicine has not changed. And what would be the evidence that this mix has changed? Again, it cannot simply be the existence of some known-to-be-helpful medicine, right?

Also from This Issue

Lead Essay

  • Cut Medicine in Half by Robin Hanson

    In this month’s lead essay, the iconoclastic George Mason economist Robin Hanson argues that “our main problem in health policy is a huge overemphasis on medicine.” Hanson points to a spate of studies – especially the huge RAND health insurance experiment – to show that “in the aggregate, variations in medical spending usually show no statistically significant medical effect on health.” Hanson lays down the gauntlet and “dares” other health policy experts to publicly agree or disagree with this seemingly well-confirmed claim and its implications for policy. For Hanson, those implications are clear: “Cutting half of medical spending would seem to cost little in health, and yet would free up vast resources for other health and utility gains.”

Response Essays

  • Use a Scalpel, Not a Meat Cleaver by David M. Cutler

    Harvard’s David M. Cutler agrees with Robin Hanson’s claim that “a lot of medical spending doesn’t add much value.” However, he is “surprised by Hanson’s argument that this hasn’t been much noted,” pointing to major media coverage of this point and to his own work. According to Cutler, Hanson’s argument is “too simplistic,” suggesting that people in 1975 were better off with half today’s average medical spending. New technologies are both very successful and very expensive, and Cutler argues this extra cost is worth it. Citing research that demand-side approaches to cutting wasteful spending, such as raising consumer prices, are ineffective, Cutler plumps for a supply-side approach: “invest in information technology, monitor what physicians do, and pay providers more for better care than for less good care.”

  • Half Right by Dana Goldman

    Robin Hanson is half right, says Dana Goldman, the RAND Chair of Health Economics and Founding Director of RAND’s Bing Center for Health Economics. Medicine can only do so much, and most recent increases in longevity are the effect of healthier habits and living conditions, Goldman says. However, Goldman notes, the RAND Health Insurance Experiment, which Hanson leans on, is more than thirty years old, and many new therapies have emerged since then. In particular, new drugs have been shown to have a large impact on health. Patients required to pay for more of their care often cut out what they neeed, not what they don’t. Improved living conditions may do more for future health than more medicine, Goldman suspects. “But it may also turn out society should be spending more, not less, on medical care – just doing so in a more prudent manner.”

  • Watch Where You Cut by Alan Garber

    According to Alan Garber, the Henry J. Kaiser, Jr. Professor at Stanford, “Hanson’s diagnosis … is not particularly controversial. His solution is.” Efforts to trim excess medical spending must confront the highly variable benefits of certain medical treatments. Garber argues that Hanson’s eagerness to implement cuts, largely regardless of the details, risks cutting high-value treatments along with lower-value ones. According to Garber, what we need, first, is more and better information about the value of particular interventions. Second, we need incentives not to guide people away from overconsumption generally, but to guide them away from low-value care. Third, we need to increase the sensitivity of consumers to the costs of their health care by exposing them more to prices. Improved information and education, Garber says, will help consumers choose wisely.