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Agenda

Agenda. Medicare Dialysis Model. Established 1965 President Johnson Who’s covered? 65+ and legal and paid Medicare taxes for +10 years Social Security disability for +2 years Social Security disability and ALS On dialysis or need kidney transplant. Part A Hospital stays +1 night

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Agenda

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  1. Agenda • Medicare • Dialysis • Model

  2. Established 1965 President Johnson Who’s covered? 65+ and legal and paid Medicare taxes for +10 years Social Security disability for +2 years Social Security disability and ALS On dialysis or need kidney transplant Part A Hospital stays +1 night Skilled nursing facilities (short term) Part B: Most medical care Part C: Medicare Advantage Established 1997. Complicated 22% of Medicare population A+B through private providers Part D: Established 2003. Complicated Private plans that cover drugs Medicare

  3. Medicare Insurance • Premium: $96.40/mo. for Part B • Higher for higher incomes • Deductibles • $1069 for hospital stays (Part A) • $135 for Part B • Co-Pays for Part B • 20% for most • 0% for lab work • Out of pocket expenses can be covered by • Medicaid for poor • Private insurance (Medigap) • Except “donut hole” for drug coverage

  4. for Part A for Parts B & D

  5. Medicare Reimbursement • Fee for service • Sets rates • Lower than private health insurance • Sometimes using Average Sales Price (ASP) • Does not negotiate drug prices for Part D • Moving towards “pay for performance” • Paper looks at optimal contract for dialysis

  6. Agenda • Medicare • Dialysis • Model

  7. Kidneys • Renal = kidney related • Produce urine • Remove toxins from blood • Homeostasis = regulate • Electrolytes (salts) • pH • Produces renin regulating blood pressure • Absorbs glucose and amio acids • Metabolizes vitamin D into calcitrol (calcium balance) • Erythropoietin (EPO) production(hormone for red blood cell production)

  8. Kidney Function • estimated glomerular filtration rate (eGFR) +90% normal +60% hardly noticeable < 60% Chronic kidney disease (CKD) 30-59% anemia + weak bones ≤ 20% causes serious health problems ≤ 10%, 15% End Stage Renal Disease (ESRD) • Need dialysis or transplant (long waitlist)

  9. Chronic Kidney Disease (CKD) • Chronic = deterioration over time ≠ acute • Most diseases attack both kidneys • 0.2% prevalence • Common causes • Diabetes • High blood pressure • Treatment can slow progression • 10-20 years until ESRD

  10. Dialysis • Hemodialysis (hemo = blood) • 3x week, 3-4 hr sessions in clinic • Alternatively at home more frequently • Vein in hand/arm • Most common (focus of paper) • Peritoneal dialysis • Pump fluid into peritoneal cavity • Exchange through peritoneal membrane • Permanent tube in abdomen • 4-5x day, less equipment • Also inject drugs

  11. What can go wrong? • Hospitalized ~ 30% of the year • Causes • Heart problems • Fluid build-up • Infection • Dosage = Urea Reduction Ratio (URR) • Adequate = +65% • Anemia = Hematocrit level (red blood count) • Optimal = 33-36%

  12. Drugs billed separately (40% of revenue) • Lab work billed separately • New rule would bundle them (9/15/2009)

  13. Stylized Medicare Payments • $130/session • When hospitalized • No payment to provider • Costs Medicare $30,600 / year

  14. Evidence-Based Incentive Systemsfor Medicare Dialysis Payments • Incentives matter • Optimal contract design • With data! • Dialysis is a good example.

  15. Agenda • Medicare • Dialysis • Model

  16. 2. Agent takes hidden action e 1. Principal announces contract  • 3. Outcome o(e) observedPrincipal receives E[U(o,-(o))] • Agent receives E[u(e,(o))] Principal Agent Model • 2 player game • Principal = Medicare • Agent = Dialysis provider • Sequential game

  17. 2. Agent takes hidden action e 1. Principal announces contract  • 3. Outcome o(e) observedPrincipal receives E[U(o,-(o))] • Agent receives E[u(e,(o))] Principal Agent Model • Agent optimality: e*() in arg maxe E[u(e,(o(e)))] • Principal optimality:* in arg max E[U(o(e*),-(o(e*)))] s.t. Agent participation constraint holdsU0 ≤ E[u(e*,(o(e*)))]

  18. Intermediate and Downstream • int = Intermediate, ds = downstream (final) • Outcome a vector: o = (oint,ods) • Action a vector: e = (eint,eds) • o(e) = simple function + correlated noise • oint = eint + int • ods = oint + ´ds = eint + eds + ds • noise mean 0 and  = Cov (int, ds) • E[oint] = eint, E[ods] = eint + eds

  19. Simplifications • Affine contract: (o) = 0+intoint+dsods • Aligning incentives: oint = E[ods | oint ] • Action/effort has cost g(e) = cTe+0.5 eTQ e • Increasing costs to effort • Agent has exponential utility • u(x) = -exp (-r x) • Constant absolute risk aversion • u(e,(o)) = - exp (-r [(o) - g(e)]) • Principal risk neutral • E[U(o,-(o))]= v ods - (o)

  20. Dialysis Application • Outcomes o = (oint,ods) • ods = fraction of hospital free days in year • oint = f(DOSAGE,ANEMIA)DOSAGE = % of treatments URR ≥ 65%ANEMIA = % of treatments hematocrit in [33%,36%] • Current payment scheme: (o) = current ods • Reservation utility U0 set by current payment scheme

  21. Risk Adjustment • Principal able to observe patient characteristics(part of the noise) • intint,i + hint(PATi) • dsds,i + hds(PATi) • Payment scheme is risk adjusted • (o) = 0+int (oint-hint(PATi))+ds (ods- hds(PATi)) • Similar to adjustment for case-mix in current scheme

  22. Parameters • r unknown, baseline 2·10-5 • paying $10 ~ 50-50 chance of winning/losing $1k • v = $30,600 / year hospital free • g(e), , f(DOSAGE,ANEMIA) fit from data • g(e) adjusted R2 = 0.034

  23. Results • Current payment scheme ds = $27,900/year close to optimal for int = 0 • Optimal scheme: (o) = $27,700oint+ $400ods $2,140 increase in Medicare payments to provider +27 hospital free days $123 savings for Medicare Reward (and risk) increased for provider • 266k Medicare patients on dialysis +20k hospital-free life years, $32M savings

  24. Sensitivity • Higher risk aversion leads to small 0 • Diminishing returns for increasing v

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