Progress 10/01/08 to 09/30/09
Outputs
OUTPUTS: In order to disseminate the findings from HCFO paper, "Will the United States Have a Shortage of Physicians in 10 Years" I presented the key findings at a January 2009 meeting in Washington, D.C convened to discuss the implications of health care reform on health care markets. PARTICIPANTS: Nothing significant to report during this reporting period. TARGET AUDIENCES: Nothing significant to report during this reporting period. PROJECT MODIFICATIONS: Nothing significant to report during this reporting period.
Impacts
There is growing concern by the government that the United States will soon be experiencing a shortage of physicians, especially if health care reform is enacted that provides health insurance to those who are currently uninsured. In my HCFO research paper I evaluate the research on whether the US will or will not face a shortage of physicians in 2020.
Publications
- Dorsey, Ray E., Joel P. Thompson, Melisa Carrasco, Jason de Roulet, Philip Vitticore, Sean Nicholson, S. Claiborne Johnston, Robert G. Holloway, Hamilton Moses, 2009, Financing and Productivity of Biomedical Research across Therapeutic Areas, PLoS One 4(9): e7015.doi:10.1371/journal.pone.0007015.
- Casalino, Lawrence P., Sean Nicholson, David N. Gans, Terry Hammons, Dante Morra, Theodore Karrison, and Wendy Levinson, 2009, What Does It Cost Physician Practices to Interact With Health Insurance Plans Health Affairs web exclusive, May 14, 2009: w533-w543.
- Dorsey, E. Ray, Joel P. Thompson, Mark Frasier, Todd Sherer, Brian Fiske, Sean Nicholson, S. Claiborne Johnston, Robert G. Holloway, and Hamilton Moses III, 2009, Funding of Parkinsons Research from Industry and U.S. Federal and Foundation Sources, Movement Disorders 24: 731-737.
- Nicholson, Sean, 2009, Will the United States Have a Shortage of Physicians in 10 Years Changes in Health Care Financing & Organization report: www/hcfo.org.
- Epstein, Andrew, and Sean Nicholson, 2009, The Formation and Evolution of Physician Treatment Styles: An Application to Caesarean Sections, Journal of Health Economics 28: 1126-1140.
- Asch, David A., Sean Nicholson, Sindhu Srinivas, Jeph Herrin, and Andrew J. Epstein, 2009, Evaluating Obstetrical Residency Programs Using Patient Outcomes, Journal of the American Medical Association 302(12): 1277-1283.
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Progress 10/01/07 to 09/30/08
Outputs
OUTPUTS: In order to disseminate the findings from my book chapter, "Medical Career Choices and Rates of Return," I presented the key findings at a May 2008 meeting of the Council of Graduate Medical Education in Rockville, Maryland. This Council writes a report each year providing recommendations to Congress regarding whether and how to change the physician workforce in the United States. The Council invited me to describe why fewer U.S. medical students are entering primary care specialties and what types of policies might be effective at reversing this trend. PARTICIPANTS: Not relevant to this project. TARGET AUDIENCES: The target audience is health economists and health care policymakers. PROJECT MODIFICATIONS: Not relevant to this project.
Impacts
Currently many employers are skeptical that when workers arrive for work suffering from an acute or chronic condition (often referred to as "presenteeism", it has a substantial impact on the productivity of the worker and the company's costs and/or revenue. Our research shows that in some occupations, the cost of presenteeism is substantial both because it affects the worker's own productivity, and because the episode has spillover effects on an affected person's team mates. This finding could increase the amount of money that businesses are willing to invest in their workers' health. A majority of health insurers have recently introduced pay-for-performance programs that offer physicians and hospitals extra payments if they meet specified quality targets. Our recently published paper highlights the conditions under which pay-for-performance programs are likely to improve the quality of medical care and patients' health outcomes, and the conditions under which these programs might actual worsen health outcomes. We also describe the optimal way to design pay-for-performance under three different scenarios. Since the mid-1990s the percentage of U.S. medical students who are choosing to enter primary care specialties (family practice, pediatrics, and internal medicine) has declined due, in large part, to reductions in the incomes of these specialties relative to non-primary care specialties. In my book chapter I summarize the economics literature that examines the importance of expected income in a medical student's specialty choice, and discuss the likely effectiveness of various policies to try to encourage more students to enter primary care.
Publications
- Pauly, Mark V., Sean Nicholson, Daniel Polsky, Marc L. Berger, and Claire Sharda, 2008, Valuing Reductions in On-the-Job Illness: Presenteeism from Managerial and Economic Perspectives, Health Economics 17(4): 469-485.
- Nicholson, Sean, Mark V. Pauly, Anita Ya Jung Wu, James F. Murray, Steven M. Teutsch, and Marc Berger, 2008, Getting Real Performance Out of Pay-for-Performance, The Milbank Quarterly 86(3): 435-457.
- Nicholson, Sean, 2008, Medical Career Choices and Rates of Return, in Frank A. Sloan and Hirschel Kasper, editors, Incentives and Choice in Health and Health Care. Cambridge, MA: MIT Press.
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Progress 10/01/06 to 09/30/07
Outputs
In Valuing Reductions in On-the-Job Illness: Presenteeism from Managerial and Economic Perspectives, we reported on a study of manager perceptions of the cost to employers of on-the-job employee illness, sometimes termed presenteeism, for various types of jobs. We used data from a survey of more than 800 U.S. managers to determine the characteristics of various jobs and the relationship of those characteristics to the manager's view of the cost to the firm of absenteeism and presenteeism. Jobs with characteristics that suggest unusually high cost (relative to wages) were similar in terms of their absenteeism multipliers and their presenteeism multipliers. Jobs with high values of team production, high requirements for timely output, and high difficulties of substitution for absent or impaired workers had significantly higher indicators of cost for both absenteeism and presenteeism, although substitution was somewhat less important for presenteeism. However, managers
reported lower values of negative effects on the firm of presenteeism than in studies using employee evaluations of the effects of illness on their productivity at work. In Mergers and Acquisitions in the Pharmaceutical and Biotech Industries, we examine the determinants and effects of merger and acquisition (M&A) activity in the pharmaceutical/biotechnology industry using data on 383 firms from 1988-2001. We find that for large firms, mergers are a response to expected excess capacity due to patent expirations and gaps in a firm's product pipeline. For small firms, mergers are primarily an exit strategy in response to financial trouble (e.g., few marketed products). In estimating effects of mergers, we use a propensity score to control for selection based on observed characteristics. Controlling for merger propensity, large firms that merged experienced a similar change in enterprise value, sales, employees, and R&D, and had slower growth in operating profit, compared with similar
firms that did not merge. Thus mergers may be a response to trouble, but they are not a solution. In Evaluating Medical Training Programs by the Quality of Care Delivered by Their Alumni, we propose a new method to rank medical schools and residency programs by examining the health outcomes of the patients treated by the graduates of those schools/programs.
Impacts
Currently many businesses underestimate how costly it is when a worker shows up for work but is suffering from a health condition. Our research shows that in some occupations, the true cost of a presenteeism episode is higher than the affected worker's wage. This finding could increase the amount of money that businesses are willing to invest in their workers' health. The pharmaceutical and biotechnology industries have witnessed a great deal of consolidation over the past 10 years. Our research shows that the companies that merged with or acquired other companies tended to be distressed firms that viewed the merger as a means of improving their financial prospects, although in reality mergers did not live up to these expectations. As a result, there could be less consolidation in the future. Currently medical schools and residency programs are ranked by test scores. If our method is adopted, in the future programs could be ranked by patient outcomes, which presumably
is closer to what medical consumers are interested in.
Publications
- Asch, D.A., A. Epstein and S. Nicholson. 2007. Evaluating Medical Training Programs by the Quality of Care Delivered by Their Alumni, Journal of the American Medical Association 289(9): 1049-1051.
- Pauly, M.V., S. Nicholson, D. Polsky, M.L. Berger and C. Sharda. 2007. Valuing Reductions in On-the-Job Illness: Presenteeism from Managerial and Economic Perspectives, Health Economics.
- Danzon, P.M., A. Epstein and S. Nicholson. 2007. Mergers and Acquisitions in the Pharmaceutical and Biotech Industries, Managerial and Decision Economics 28: 307-328.
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Progress 01/01/06 to 12/31/06
Outputs
In Measuring the Effects of Workloss on Productivity With Team Production, we examine whether the cost of an absence differs between companies according to the nature of the work being performed. Using data from a survey of 800 managers in 12 industries, we find empirical support for the hypothesis that the cost associated with missed work varies across jobs according to the ease with which a manager can find a perfect replacement for the absent worker, the extent to which the worker functions as part of a team, and the time sensitivity of the worker's output. We then estimate wage multipliers for 35 different jobs, where the multiplier is defined as the cost to the firm of an absence as a proportion (often greater than one) of the absent worker's daily wage. The median multiplier is 1.28, which supports the view that the cost to the firm of missed work is often greater than the wage. In Mergers and Acquisitions in the Pharmaceutical and Biotech Industries, we examine
the determinants and effects of merger and acquisition (M&A) activity in the pharmaceutical/biotechnology industry using data on 383 firms from 1988-2001. We find that for large firms, mergers are a response to expected excess capacity due to patent expirations and gaps in a firm's product pipeline. For small firms, mergers are primarily an exit strategy in response to financial trouble (e.g., few marketed products). In estimating effects of mergers, we use a propensity score to control for selection based on observed characteristics. Controlling for merger propensity, large firms that merged experienced a similar change in enterprise value, sales, employees, and R&D, and had slower growth in operating profit, compared with similar firms that did not merge. Thus mergers may be a response to trouble, but they are not a solution. Rather than increasing co-payments for all drug classes, some employers are reducing co-payments for conditions such as diabetes, asthma, and hypertension
where the clinical evidence suggests there is a strong connection between adherence to drug therapy and health. Unfortunately, there is no single study that performs a complete analysis of the financial impact of changing diabetes drug co-payments on adherence, medical expenditures, absences, and on-the-job productivity from the perspective of an employer. In The Effect of Cost Sharing on Employees with Diabetes, I perform such an analysis for diabetes by constructing a financial model that links together results from several different published studies. The model predicts that reducing drug co-pays from their current levels could save money by reducing non-pharmaceutical costs, absence costs, and preesenteeism costs by more than the resulting increase in pharmaceutical costs.
Impacts
Currently most businesses believe that the cost of a worker's absence is the wage that the worker receives for the day missed. Our research shows that in some occupations, the true cost of an absence is much higher than the affected worker's wage. This finding could increase the amount of money that businesses are willing to invest in their workers' health. The pharmaceutical and biotechnology industries have witnessed a great deal of consolidation over the past 10 years. Our research shows that the companies that merged with or acquired other companies tended to be distressed firms that viewed the merger as a means of improving their financial prospects, although in reality mergers did not live up to these expectations. As a result, there could be less consolidation in the future. Businesses have been requiring their workers to pay more and more of the cost of prescription drugs in order to encourage them to purchase fewer drugs. Our research indicates that for
diabetes, this policy may actually increase total expenditures by increasing the number of workers who do not adhere to their physician's recommended treatment, worsening health, and increasing physician and hospital services. One implication is that businesses may begin reducing the cost of diabetes medicines for their workers.
Publications
- Nicholson, S., Pauly, M.V., Polsky, D., Sharda, C., Szrek, H. and Berger, M.L. 2006. Measuring the Effects of Workloss on Productivity With Team Production, Health Economics 15(2): 111-123.
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Progress 01/01/05 to 12/31/05
Outputs
Few economic studies examine whether people have accurate information about earnings. In How Much Do Medical Students Know About Physician Income?, I find that the median student underestimated physician earnings by 15 percent between 1974 and 1998, and the median absolute value of the estimation errors was 26 percent of actual earnings. Although assessments are relatively inaccurate, accuracy improved by 35 percent between the first and fourth years of school, so students learn a considerable amount before formally choosing a specialty. In Peer Effects in Medical Schools, Peter Arcidiacono and I examine whether the abilities and specialty preferences of a medical student's peer group affect his academic achievement in medical school and subsequent specialty choice. We find evidence of positive peer effects, but these effects disappear once we control for the endogeneity of a peer group. We find no evidence that peer effects are stronger for blacks, that peer groups
form along racial lines, or that students with relatively low ability benefit more from their peers than students with relatively high ability. In Biotech-Pharmaceutical Alliances as a Signal of Asset and Firm Quality, Patricia Danzon, Jeffrey McCullough, and I examine whether the market for drug development alliances between biotech and pharmaceutical firms is characterized by asymmetric information, and explore the implications of this market failure if it exists. First, we find that the payments a biotech company receives are discounted by 47 percent ($27 million), on average, for its first alliance, 28 percent for its second alliance, and not at all for subsequent alliances. Second, we show that drugs developed in an alliance are more likely to advance in clinical trials than drugs developed by the originating company. Third, we find that a biotech company forming its first alliance receives a valuation that is $19.5 million higher, on average, in its next financing round. This
financing premium is close in magnitude to the discounted payment the firm accepted on its first alliance. In Productivity in Biotech-Pharmaceutical R&D: The Role of Experience and Alliances, Patricia Danzon, Nuno Sousa Pereira, and I examine how a biotech or pharmaceutical firm's experience and alliances affect the probability that a drug will advance in clinical trials, separately for phase 1, phase 2, and phase 3. Using data on over 900 firms, we find that returns to experience are economically small for phase 1 trials. By contrast, there are large, positive, and diminishing returns to a firm's experience for the larger and more complex phase 2 and phase 3 trials that focus on a drug's efficacy. This suggests that firms learn a considerable amount from running late-state drug trials. Our results confirm that products developed in a collaborative alliance are more likely to advance, at least for the relatively complex phase 2 and phase 3 trials, and particularly when the
in-licensing firm is highly experienced.
Impacts
I find that medical students persistently underestimate how much physicians actually earn, which may affect the specialties they decide to enter and the number and type of college students who decide to enter medical school. This may inspire medical schools and universities to provide better information to their students regarding the mean incomes of various occupations and specialties. My results with Peter Arcidiacono imply that affirmative action policies at selective secondary schools and graduate schools may not have a substantial positive effect on the performance and career choices of under-represented minorities, nor will affirmative action impair the performance of non-minority students. Our results on deals between biotech and pharmaceutical forms indicate that venture capital firms should continue relying on deals to estimate the value of small biotech companies. Our results on R&D productivity may encourage small, inexperienced biotech companies to form
drug development alliances with larger, more experienced pharmaceutical firms, especially before Phase 2 and Phase 3 trials begin.
Publications
- Danzon, P.M., Nicholson S., and Sousa Pereira N. 2005. Productivity in Biotech-Pharmaceutical R&D: The Role of Experience and Alliances. Journal of Health Economics. 24(2):317-339.
- Arcidiacono, P. and Nicholson S. 2005 Peer Effects in Medical Schools. Journal of Public Economics. 89(2):327-350.
- Nicholson, S., Danzon P.M., and McCullough J. 2005. Biotech-Pharmaceutical Alliances as a Signal of Asset and Firm Quality. Journal of Business. 78(4):1433-1464.
- Nicholson, S. 2005. How Much Do Medical Students Know About Physician Income? Journal of Human Resources. 40(1): 100-114.
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Progress 01/01/04 to 12/31/04
Outputs
In a recently published article I find that health maintenance organizations (HMOs) benefited from favorable selection of patients during the 1997 to 1999 period. Specifically, HMOs attracted new enrollees who used relatively few medical services when they were enrolled in non-HMO plans, and HMOs lost enrollees (to non-HMO plans) who used a relatively large amount of medical services when they were enrolled in an HMO plan. Other projects funded by this grant are underway but have not been completed.
Impacts
The article on risk selection in health plans concludes that simple methods employers might use to risk-adjust health insurance premiums are not likely to create a level playing field between HMO and non-HMO health plans. This implies that HMOs will have a competitive advantage over non-HMO plans, and could lead to fewer non-HMO plans being available in the future.
Publications
- Nicholson, S., K. Bundorf, R. Stein, and D. Polsky. 2004. The Magnitude and Nature of Risk Selection in Employer-Sponsored Health Plans. Health Services Research 39(6): 1807-1828.
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