Kevin Drum

The Rich Are Getting Richer

| Sat Apr. 10, 2010 4:10 PM EDT

Martha Coakley may have lost her Senate race against Scott Brown last January, but she's still attorney general of Massachussetts. So a couple of weeks ago she released a report about the wide variance in prices for medical services throughout the state, which the chart on the right illustrates in a nutshell. It's for one of the state's major insurers (Harvard Pilgrim) and it shows astonishing variation in payment rates. There's a 4x difference from the lowest paid to the highest paid hospital.

Why is this? We'll get to that, but first let's walk through all the things that don't explain the differences. Here's what the report found:

  1. Wide disparities in price are not explained by differences in quality of care.
  2. Wide disparities in prices and total medical expenses are not explained by the relative sickness of the population being served or the complexity of the care provided.
  3. Wide disparities in prices are not explained by the extent to which a provider cares for a large portion of patients on Medicare or Medicaid.
  4. Wide disparities in prices are not explained by whether a provider is an academic teaching or research facility.
  5. Wide disparities in prices are not explained by differences in hospital costs of delivering similar services at similar facilities.

So this astonishing variation isn't explained by quality of care, older/sicker patients, Medicare rates, or even differences in underlying costs. What could possibly be left?

Answer: leverage. If a hospital group owns most of the hospitals in an area, it's got the whip hand and can demand higher payment rates. Insurers can't afford to be shut out of entire market, so they have to pay up. Conversely, if a single insurer is dominant in an area with lots of providers, it can squeeze the local hospitals, who can't afford to be dropped.

The chart on the right demonstrates the relationship. It's also for Harvard Pilgrim, and it shows payment rates to six similar adult academic medical centers. The small ones get low rates, the big ones get high rates. What's worse, there's a vicious cycle in which high-cost hospitals use their higher rates to fund more expansion, giving them even more leverage:

Higher priced hospitals are gaining market share at the expense of lower priced hospitals, which are losing volume....[Highly paid hopspitals] are able to build new buildings, purchase new equipment and technology, and add to their cost structure. In contrast, hospitals with lower prices are unable to put comparable resources toward building maintenance or equipment acquisition....This results in a loss of volume to better capitalized, more expensive hospitals.

....As patient volume shifts from lower-priced to higher-priced hospitals, overall health care costs increase because those patients are now receiving their care in the higher-priced setting....[Low-cost] providers continue to lose volume to higher-priced hospitals, making it increasingly difficult for them to remain competitive, or sometimes even viable.

This is, obviously, just one study in one state — and just as obviously, it's not the whole story. But it's suggestive of a widespread problem, and one that's not just confined to hospital bargaining power. Coakley's report, for example, showed that a big part of her state's increase in medical costs was due to rising prices, not increased utilization of services. At the same time, a recent study in Health Affairs shows that doctors who own a stake in outpatient surgery centers operate on twice as many patients as non-owners. In both cases — whether it's extracting higher prices or driving up utilization of questionable surgery — it's money that's motivating healthcare choices, not good medicine.

Via Austin Frakt.

Advertise on

The Texas Mystery Revisited

| Sat Apr. 10, 2010 12:42 PM EDT

So how did Texas escape the housing bubble? I blogged about this a couple of days ago, and I was skeptical that it could really be explained by the mortgage regulations that Texas had in place during the bubble years. Ryan Avent is skeptical too, but he suggests that I'm asking the wrong question in the first place. There's really no mystery about Texas, he says: most cities outside coastal areas didn't see huge price appreciation, so Dallas and Houston aren't really outliers. They escaped the bubble because land there is cheap and plentiful. The real question is why there are a couple of non-coastal cities like Phoenix and Las Vegas, where land is also cheap and plentiful, that did participate in the boom. His explanation:

As it turns out, you can "catch" a bubble from elsewhere. Migration to Las Vegas and Phoenix came overwhelmingly from Southern California. Residents of Los Angeles would cash out their homes and move east, buying one or two properties in cheaper markets, investing in those properties, and generally transmitting the bubble mentality that characterised the real estate markets of the California coast. Analysis of price movements has identified ripple effects from the Los Angeles property market to the Las Vegas property market, and thence on to the Phoenix property market. It seems likely that a similar phenomenon took place in Florida, which absorbed a great deal of migration from bubbly northeastern markets.

The academic backup for this is here. I suppose it makes sense, though I'm not thrilled with the reliance on a "bubble mentality" as the proximate cause. There's no question, I think, that people are far more likely to migrate from Southern California to Phoenix (or Las Vegas) than they are to Dallas, but what about, say, Denver or Salt Lake City? Perhaps it's more accurate to call this a general Mountain West phenomenon rather than just a Phoenix/Las Vegas phenomenon, and since Texas isn't part of the Mountain West it got left out.

Still, "bubble mentality" might be as good an explanation as any. Some years ago Paul Krugman explained the dynamics of the housing bubble by comparing Flatland — the middle of the country where you just build outward when demand rises — to the Zoned Zone, the coastal areas where land is at a premium and prices skyrocket when demand goes up. But there's always been a problem with that. Here in California, prices in built-up locations like Los Angeles, Orange County and San Francisco did indeed skyrocket, but if anything, the prices out in areas like Riverside and Stockton may have appreciated even more. That's crazy, since Riverside has plenty of room to expand. But if the bubble mentality is sort of like a virus, as Ryan suggests, then that's that. Even with plenty of land, prices went up because everyone thought prices would go up. In Dallas, not so much. Additionally, as Krugman pointed out earlier this year, even though they have plenty of land, areas like Phoenix and Las Vegas (and Riverside and Stockton) have more building restrictions than most places in Texas.

There are still some questions here. But to my ears, anyway, treating Phoenix and Las Vegas as the outliers actually makes a little more sense than treating Dallas as the outlier. So that's where we are for now.

Friday Cat Blogging - 9 April 2010

| Fri Apr. 9, 2010 3:11 PM EDT

Domino was uncooperative today. Every time I aimed the camera in her direction she immediately perked up and walked straight toward it. She thinks it's a giant eye, and she's mesmerized by eyes. If I want her to come to me, she resolutely ignores everything I do1 unless I get down on the floor and look at her from eye level. Then she immediately trots over. This is actually kind of fun except when I want to take a picture of her. So instead of a nice spring-ish garden picture, you get one I took yesterday as she was rolling over in her afternoon patch of sunshine. Inkblot, however, who is oblivious to everything,1 remained right where he was when I went out in the garden today. So he gets a nice spring-ish garden picture. If the weather cooperates in your neck of the woods, I hope you get to spend some time in your garden too.

1Other than opening a can of cat food, of course.

Where Has All the Money Gone?

| Fri Apr. 9, 2010 2:58 PM EDT

Business Insider promises us today "15 Mind-Blowing Charts About Wealth And Inequality In America." I don't think any of them will come as a big surprise to readers of this blog, but it's nice to see them all in one place. Below is the chart on average hourly earnings, which I've modified to show (approximately) what it would look like if you added income in the form of rising healthcare premiums. Basically, even if you do that, average income has only increased from $20/hour in 1972 to about $23/hour today. That's roughly 12% over four decades, or about 0.3% per year, during an era in which per-capita productivity has grown at something like five times that rate. Our economy has generated a ton of increased income over the past few decades, but hardly any of it has trickled down to the average worker.

The Other Shoe

| Fri Apr. 9, 2010 2:13 PM EDT

Felix Salmon is relatively sanguine about Greece's problems:

The first option is default. If it happens, it'll happen, as Thomas says, in the form of a debt restructuring....Debt restructurings are messy and unpleasant things at the best of times, but what we're really talking about here is the sovereign equivalent of a loan modification which, if it goes according to plan, makes both the borrower and the lender better off. What we're most emphatically not talking about here is an Argentina-style default, where the country simply unilaterally stops paying any interest on its debt, and then takes years to address the issue, trying to drive the hardest bargain it can all the while.

Then there's devaluation. If Greece leaves the euro, that would allow it to devalue its currency. If it redenominated its debt from euros into drachmas, that alone would constitute a default, even without a bond exchange. But again, in the event that Greece did leave the euro, it wouldn't see its currency plunge overnight to a third of its previous value, as Argentina did.

First question: is leaving the eurozone a realistic option? Quite a while ago Barry Eichengreen persuaded me that it wasn't, and I haven't seen anything since then to change my mind.

As for default — well, maybe Greece's version will be kinder and gentler than Argentina's. And maybe that will work out. But Peter Boone and Simon Johnson are skeptical:

The default on debt would have major ramifications. The government would need to take actions to avoid a run on all the Greek banks — this would need to be coordinated with the ECB to ensure there was liquidity support. Private creditors would pull loans wherever possible from Greek entities. In short: Greece would suffer a large financial and economic collapse, and GDP would decline substantially.

This financial collapse would mean Greek debt would need to be written down substantially. We would guess that a 65% write down of face value, bringing total Greek debt to around 50-60% of a lower new GDP, would be reasonable. Such write downs roughly match the terms that Argentina received after its debt restructuring.

This draconian cut to government debt would not solve Greece’s problems. It would still need to cut budget spending in order to lower the deficit — and in the aftermath of defaults, there are generally few sympathizers. Greece could save on interest (which to data it never paid in any case), but it would not be a panacea for the budget or economy.

For what it's worth, I think I'm in the pessimistic camp. Everyone keeps waiting for the other shoe to drop in Greece, and it's hard to believe that it's not going to happen soon. As every shaky financial firm learns, there's a tipping point at which the market isn't just skeptical anymore, it's actively attacking you and working toward your demise. That point doesn't seem too far away to me, and when it happens everyone is going to go into full scale panic mode. And there's no guarantee that the fallout will be restricted to Greece.

But that's just my gut reaction, and I'm an inherent pessimist. Maybe things won't turn out as badly as I think.

The Shack

| Fri Apr. 9, 2010 1:11 PM EDT

Every once in a while you run across something that makes you feel like an idiot. Or, maybe not an idiot exactly, but certainly out of touch with a big chunk of the world. That happens to me regularly since I don't watch American Idol or imbibe much popular culture, which means there are huge swaths of American life that I'm ignorant of. But books? That's different. And yet, yesterday Tyler Cowen linked to a list of 2009 bestsellers, and down in the trade paperback category here's what led the list:

The Shack: Where Tragedy Confronts Eternity. William P. Young. Orig. Windblown (3,595,467).

The Shack? And it sold 3.5 million copies? That doesn't quite make it the biggest selling book of the year (Dan Brown gets that honor), but it's a pretty strong second and a massive publishing phenomenon. And I've never heard of it. For the record, here's the Wikipedia summary:

Young originally wrote The Shack as a Christmas gift for his six children with no apparent intention of publishing it. After letting several friends read the book he was urged to publish it for the general public. In 2006, Young worked closely with Wayne Jacobsen, Brad Cummings (former pastors from Los Angeles) and Bobby Downes (filmmaker) to bring the book to publication. They had no success with either religious or secular publishers, so they formed Wind Blown Media for the sole purpose of publishing this one book.

....The Shack went largely unnoticed for over a year after its initial publication, but suddenly became a very popular seller in the summer of 2008, when it debuted at number 1 on the New York Times paperback fiction best sellers list on June 8. Its success was the result of word of mouth promotion in churches and Christian-themed radio, websites, and blogs....As of January 2010, The Shack had over 7 million copies in print, and had been at number 1 on the New York Times best seller list for 70 weeks.

This is a really fascinating story — and obviously since it was a NYT #1 bestseller for 70 weeks it's not exactly a big secret. Still, I'd never heard of it. Why? Even if I don't make a habit of reading the NYT bestseller list or perusing Christian websites, this is a big enough phenomenon that you'd think I would have seen it on CNN or the Washington Post or Newsweek or something. But I haven't. Is it just me? Or has it somehow not generated much mainstream attention even though it's practically a made-for-Hollywood story?

UPDATE: Douglas Harrison, an English professor at Florida Gulf Coast University, emails to add this:

You haven’t heard about it for the same you reason you probably didn’t hear about Rick Warren’s Purpose Driven Life series of books until Warren become a lightning rod figure in the news or about the Gaither Homecoming Friends Gospel Music Series, which outsold Elton John, Fleetwood Mac and Rod Stewart for worldwide ticket sales not too long ago. MSM and mainstream American culture just doesn’t know where to look and/or how to talk about or take seriously evangelical culture if it’s not through the culture war or political polarization lens. I study and write about evangelical culture for a living and it used to be astonishing to me how many otherwise very bright and engaged, informed and curious intellectuals and scholars of American culture and literature I’d meet who simply had NO CLUE about vast swaths of contemporary American (religious) culture that isn’t exactly hiding. After a decade or so of this work, I’ve come to expect it, and indeed, to capitalize on it (I’m writing a book right now about the cultural function of white gospel music — yes there is such a thing ... gospel doesn’t only mean BLACK gospel). But in general, you aren’t alone in having no clue about this stuff.

True. But this is such a great Oprah-esque story that I'm still surprised it hasn't gotten a little more attention.

Advertise on

The Party Line on Prague

| Fri Apr. 9, 2010 12:28 PM EDT

So what's going to be the Republican position on the START nuclear treaty with Russia? Fox News has already set the tone, Sarah Palin has set the party line ("It's unbelievable"), and now the Republican leadership has officially jumped in with supporting details. "There's been no ambiguity in our position on a strong missile defense, nuclear triad and the need to verify any treaty," says Mitch McConnell's flack. Spencer Ackerman is flummoxed about what the hell they're talking about:

This is quite a curious set of objections. The “unilateral” Russian references to missile defense don’t appear to be more than the Russians expressing dissatisfaction with missile defense, none of which bind the U.S. from deploying a missile shield. As for verification, for the first time in nuclear-arms treaties with the Russians, New START allows on-site inspections of Russian missile silos and nuclear storage areas — and the main reason for that is if the treaty relied on what’s called telemetry, or information about U.S. missile launches, that would potentially jeopardize missile defense by giving away too much information about the missiles that a missile-defense system relies upon. How’s that for a commitment to missile defense?

And what’s this stuff about the triad? (The “triad” is a shorthand for the three kinds of delivery systems for nuclear weapons: missiles, submarines and bombers.) Not only are all three aspects of the triad preserved in the treaty, the Nuclear Posture Review released this week explicitly preserves it. And, again, it commits the U.S. to deploying a missile defense system. All of this is public information available on the Internet.

It doesn't make much sense, but then, it's an election year. Making sense doesn't pay well. I'd say that with perhaps the exception of a few rogues, the GOP party line on START is going to be about the same as it is on everything else: No.

Which reminds me: has Obama said whether he plans to submit this as a treaty, requiring 67 votes in the Senate for ratification, or an executive agreement, which only requires 60? I haven't seen this discussed anywhere, but maybe I just missed it.

The Genius of Sarah Palin

| Fri Apr. 9, 2010 12:02 PM EDT

Andrew Sullivan comments on Sarah Palin's latest vapid comments about — well, it doesn't really matter what they were about, does it?

And so you return to the Palin conundrum. The sheer crudeness of her rhetoric, the vast ignorance it champions, and the charisma of a beautiful white woman rallying heartland male voters against commie evil is a combination it's simply impossible to grapple with effectively.

She can plagiarize Slate writers in a stream of consciousness at the Wine and Spirits Wholesalers Convention, and chirpily host a clip show, and headline Tea Party events with writing on her hand ... and somehow remain a credible figure, getting world-weary, post-everything encomiums from the likes of David Carr. And the sane WTF response — how does one do otherwise? — simply feeds the Palin media machine.

Palin is a media genius. She is a PR genius. My only question is whether she can keep it up. A big part of her success, I think, has been an instinctive notion of just how much exposure is enough, but that seems to be fading a bit. If she becomes a constant presence on our TVs, the way, say, Newt Gingrich is, she might not wear as well as she has so far. We'll see.

The Closing of the Conservative Mind

| Fri Apr. 9, 2010 1:24 AM EDT

Noah Millman asks today, "Who closed the conservative mind?" It's a pretty interesting essay written from the point of view of someone who's a conservative, but not a movement conservative. He offers several possible answers, but I want to focus on just one of them:

Is there a major patron of conservative intellectuals who is a patron primarily because he or she wants to generate new ideas, insights, works of the spirit that do not already exist in the world, as opposed to advancing arguments for ideas that are already well-established in defense of interests that are well-entrenched?

....If a multi-millionaire says: I am interested in education, and I believe that vouchers are the answer, so I’m going to give $100,000 per year to a think-tank to produce pro-vouchers research and advocate for vouchers, well, that’s not really intellectual patronage. If, on the other hand, that same multi-millionaire says: I am interested in education, and I am skeptical of the way the system works now, how we train teachers to how our schools are financed, and impressed with some of what’s been achieved following new models. I’m going to find the smartest, most informed, most independent-minded people I can, who are also skeptical of established practice, and give them money to do whatever research they want. If they can impress me with their independence and intelligence, then I want to know what they can learn with a bit of money to work with — and I want other people to know as well.

....My general impression is that the money going to purportedly intellectual conservative organs is vastly more interested in advocacy than in developing intellectual talent or generating new insights. If I’m right, then that is something that has to change if you want an open conservative mind.

But if I’m right, the question that must next be asked is: has this changed? Were things different in 1975, and if so — why? I think it would be highly instructive to see a study done on the sources of funding for conservative organs and see how these sources have changed over time — is the money coming more or less from individuals over time, from more or fewer sources, from the same or different industries, is the age of donors changing, has the place in American life of donors changed over time, etc.

My guess is that this hasn't really changed much over the years. It just seems like it. Take vouchers. I imagine that conservative think tanks of the 70s were just as single-mindedly dedicated to producing pro-voucher advocacy as today's think tanks. But in the 70s, the intellectual superstructure to support that advocacy didn't exist because the big mainstream center-left institutions like Brookings or the Ford Foundation weren't studying the issue. So conservative think tanks got busy doing research, writing white papers, developing talking points, writing op-eds, etc. This was responsible for the "intellectual ferment" that Millman associates with conservative advocacy of that era.

Today, that intellectual superstructure has long since been built. So the only thing left is to keep pressing the argument. That means repeating the same talking points, issuing slight variations on the same research, rewriting the same op-eds, and so forth. It's really the same thing they were doing in the 70s, but without the excitement of actually constructing all the arguments in the first place. That makes it seem duller and more closed-minded than it used to be.

But I suspect it's not, really. It's just that things always seem more exciting when you're doing them for the first time and fighting an insurgent campaign against an entrenched power. But once you win — or, in the case of vouchers, reach a stalemate — it's not as exhilarating anymore. That's the real difference between the 70s and today. The goals of the funders, the entrenched interests they serve, the ideas they want to promote, and the desire to construct arguments to support preordained conclusions are probably much the same.

(And why haven't conservatives been more willing to entertain new ideas over time? Good question. Liberals have retained many of the same goals over the past few decades too, but for some reason have been more willing to consider different approaches and open up whole new areas of inquiry. Global warming is entirely new, for example, and Barack Obama's healthcare reform was quite different from Teddy Kennedy's or Bill Clinton's. I'm not entirely sure what accounts for the difference, though Millman's essay proposes some fairly plausible mechanisms.)

Banks Still Playing Games

| Fri Apr. 9, 2010 12:37 AM EDT

Tonight we have good news and bad news on the bank front. The bad news is that big banks are still playing games with their reported leverage levels. In fact, as the Wall Street Journal reports, the gameplaying is getting worse:

Major banks have masked their risk levels in the past five quarters by temporarily lowering their debt just before reporting it to the public, according to data from the Federal Reserve Bank of New York.

A group of 18 banks — which includes Goldman Sachs Group Inc., Morgan Stanley, J.P. Morgan Chase & Co., Bank of America Corp. and Citigroup Inc. — understated the debt levels used to fund securities trades by lowering them an average of 42% at the end of each of the past five quarterly periods, the data show.

...."You want your leverage to look better at quarter-end than it actually was during the quarter, to suggest that you're taking less risk," says William Tanona, a former Goldman analyst who now heads U.S. financials research at Collins Stewart, a U.K. investment bank.

And the good news? The absolute level of short-term borrowing is going down over time. This might just be an artifact of the current low-interest-rate environment and the general deleveraging of the financial sector following the 2008 crash, but it's welcome regardless.