Freakonomics take on “How Do You Reopen a Country?”

Listen to this entire Podcast at:

https://freakonomics.com/podcast/covid-19-reopen/

Here are some excerpts:

Steve Dubner recently called up Steve Levitt, his Freakonomics friend and co-author. He’s an economist at the University of Chicago — which, like all schools, has moved to remote teaching.

DUBNER: So, Levitt, how’s your sheltering in place going, generally?

LEVITT: Not too bad. I’m lucky I didn’t lose my job and I’m healthy. I don’t really like people that much in the first place so I don’t mind being isolated. So I know other people are really suffering, but I’ve been super lucky.

DUBNER: So let me ask you this: How useful would you say that economists have been so far during this pandemic?

LEVITT: I think economists didn’t really have a very big role in the beginning and the middle, in the sense that it was really more like a medical issue or a policy issue. But I think on the exit from quarantine, economists can be really important because the tradeoffs we’re talking about here are the kind of tradeoffs that regular people don’t think about very much, like the tradeoff between life and death versus economic activity. I think there’s also just a lot of room for economists here to be sensible guides as we think about what will work and what won’t work.

Levitt, like everyone we’ve already heard from, agrees that an exit from quarantine won’t work without a lot more testing.

LEVITT: I think there’s been an enormous failure on the part of the government in not getting testing in place. That any sensible plan we have now requires millions and millions of tests per day, far more than the capability we have, and really some of the plans suggest 20 million tests a day.

The U.S. is now performing around 200,000 tests a day.

Zack COOPER: The economy’s losing $16 to $19 billion a day, half a trillion, nearly, a month. It would just seem like the right thing to do would be to just dramatically scale up the investment.

And that is Zack Cooper, a healthcare economist at Yale. He’s part of a group of economists who routinely collaborate with policymakers.

COOPER: Yeah, so this is reaching out to folks on the Hill, in the Senate and the House, folks in the executive branch, at the White House, at H.H.S.

Cooper, like Levitt, was quickly convinced that lack of testing was a huge problem.

COOPER: So I think right now, we’re in the fog of war, where we just don’t even know how widespread Covid is across the population.

If you’ve been keeping up with the news, you’ve probably heard about several studies that do claim to measure the spread of Covid-19. But most of these studies aren’t very reliable. They don’t measure a truly random sampling, like the studies that use Facebook to solicit people — people who may already be feeling sick. Or the studies that test people who are shopping at a grocery store — people who may be less isolated than the average person.

COOPER: So I think the best studies we actually have, are some of the studies that look at the prevalence of Covid among pregnant moms.

That is, women in hospitals — New York, in this case — who are having babies.

COOPER: That’s probably the most reliable estimate of the prevalence of Covid in the population, because there is a group of folks who are very, very health-conscious, were probably avoiding going out, whereas if you start testing shoppers, that group just looks different than the folks who are sitting at home.

And what was the Covid incidence among these women?

COOPER: You’re seeing in New York that those numbers are on the order of like 15 percent.

New York, keep in mind, has been the Covid epicenter. Does that mean the numbers elsewhere are much lower? No one really knows yet. That’s why a pair of Dartmouth researchers — the mathematician Daniel Rockmore and the political scientist Michael Herron — have proposed a truly random testing of just 10,000 Americans that they claim would predict how many people are infected. Another way to know, of course, would be to have much higher testing capacity.

How will this happen? Let’s first talk about what Covid tests are and what they can do. There are two kinds of tests: a molecular, diagnostic test, usually taken with a nasal swab, that looks for the virus itself; and a blood test that looks for antibodies, which signals that a person has already been fighting the coronavirus. The idea — the hope — is that a positive antibody test means that you’ve got immunity. Germany, for instance, is considering immunity certificates for people who test positive for antibodies. But former C.D.C. official Julie Gerberding says that science isn’t clear yet.

GERBERDING: First of all, many of the tests that are now becoming available for antibody testing are not performing very well. And by that I mean they are giving false positives and false negatives. So it’s hard to interpret unless your test is one of those that has been done by a laboratory in a major medical center that’s undergone this sophisticated approval testing, or has come out of the F.D.A. as an emergency-use evaluation test.

Second problem is that we don’t know what the antibody result means. You might have an antibody, which means you’ve been exposed to the virus, but it doesn’t necessarily mean you’re not going to get it again because we don’t know if the antibodies are protective or not. I hope they will be. Usually, after infectious diseases, you do see the antibodies confer some protection, but not always. I think some people have the misunderstanding that if we could know someone has an antibody that would be a return-to-work ticket. That’s just not really the case. And if you think about H.I.V., for example, everybody with H.I.V. infection has antibodies, but nobody is cured or protected because of those antibodies. So we have to know the answer to the meaning of the antibody tests before we can really decide who should be tested and when.

The F.D.A. has granted emergency-use authorization for more than 60 versions of the Covid test from multiple manufacturers. Most of these tests are diagnostic, but a few are antibody tests. The first such authorization went to the C.D.C. on Feb. 4.

COOPER: I think there was a recognition that initially there was way too much regulation of testing and that that regulation was really choking off production. And they loosened the reins quite a bit, which allowed a lot of manufacturers to get expedited review and approval of their testing.

But, as we’ve been hearing, there’s still not nearly enough testing available. Why not? One reason is that the U.S. medical-supply chain, much of which runs through China, has been significantly disrupted. But Cooper says that’s only part of the answer.

COOPER: So I think there are two market failures. The first is just the sheer scale of the externalities associated with testing, meaning that we are literally paying way too little per test we perform.

That is, there should be stronger financial incentives to produce test kits, given how valuable testing is to society.

COOPER: The second is we’re looking to scale up huge numbers of tests on a scale that we’ve never done before, for a problem that’s going to dissipate pretty dramatically in 18 to 24 months. You’re asking all of these firms to put out more than they ever have, and bear the cost of doing so, without the ability to recoup those costs the way we normally think about costs being recouped over fairly long periods.

In other words, if this were your company, would you invest a lot of money in ramping up to make millions of a product now for which there may not be much demand in a year or two? If there’s a Covid-19 vaccine, there won’t be nearly as much need for a Covid-19 diagnostic test.

COOPER: So the solution to that is just paying them a ton to do that now.

And just how much is a ton?

COOPER: There just aren’t that many production issues that $250 billion can’t solve.

That is precisely 10 times what Congress just directed toward coronavirus testing in the latest relief package. But as Cooper points out: if the economy is losing between $16 and $19 billion a day, and if greater testing capacity could help restart the economy 30 days earlier, that’s a savings of roughly $500 billion. Which makes $250 billion for testing look pretty affordable. Cooper has a plan to ramp up production. The first thing to do is get prices aligned.

COOPER: We basically need the federal government to set a payment rate for Covid tests that applies to all parties in the healthcare system. Right now, you’ve got Medicare paying a different rate from Medicaid, which is paying a different rate from each private insurer. That needs to change because it just drives contracting frictions.

As you likely know, economists aren’t typically in favor of fixing prices — at least under normal market conditions. But plainly, these aren’t those. So that’s one solution: a single price.

COOPER: The second is, that payment rate really needs to be quite high, sort of on proportion to the social value of testing. I think in many ways, it would be almost impossible to underspend on testing right now.

At the outset, the Centers for Medicare and Medicaid Services, C.M.S., was paying between $30 and $50 per Covid test. It has since raised payments to $100 per test.

COOPER: Now, I actually think they should be paying dramatically more. I think if you’re paying $250 per test, that wouldn’t be crazy. Frankly, I think if you’re paying a $1,000 per test, given the scale of harm we’re facing, that itself wouldn’t be crazy either.

But price alone, Cooper says, won’t increase the supply of test kits.

COOPER: There are going to be supply-chain problems in the production of tests and in the material necessary to support testing. One of things that we’ve called for is using the Defense Production Act to guarantee the production of some of the inputs to testing, like re-agents and like swabs.

In case you haven’t been following the news lately and reading about the Defense Production Act:

COOPER: So the Defense Production Act broadly allows the federal government to steer the behavior of private firms to produce necessary supplies. And then there’s a mechanism for those firms to get reimbursed. So the crude way to think about it is we say to G.M., “Look, G.M., we are going to force you into the production of Covid-testing swabs.”

The Trump administration has already invoked the Defense Production Act to get several firms to make mechanical ventilators — although, as we discussed in a recent episode, ventilators haven’t been in as short a supply as predicted; nor do they help Covid-19 patients as much as was anticipated. But, again, in the fog of war decisions are made fast, with much uncertainty and no guarantees. The next logical step, according to Zack Cooper, and just about everyone else we’ve been speaking with, is to boost production of testing very substantially and very fast.

So let’s say that happens. Let’s say Congress gets the message that testing is vital enough to spend $250 billion on, and that there are suddenly millions upon millions of diagnostic and antibody tests available. What happens next? Where, when, and how does all this testing take place? With many hospital systems already under strain from Covid-19, policymakers are talking about building separate infrastructure to deliver testing. But what if that infrastructure already existed?

Steve CHEN: Ninety percent of Americans live within five miles of a pharmacy. And in urban areas, it’s less than 1.8 miles of a pharmacy.

That’s Steve Chen. He’s a practicing pharmacist and also:

CHEN: I’m the associate dean for clinical affairs at the University of Southern California’s School of Pharmacy.

There are roughly 67,000 pharmacies in the U.S., compared to 5,500 hospitals. And how does the training of a pharmacist compare to that of a physician?

CHEN: Pharmacists study to get a four-year doctorate degree after completing an undergraduate degree. So years of training are really no different than physicians and other healthcare professionals that get a formal degree. And then furthermore, when pharmacy students are out in experiential training, they’re training side-by-side with physicians, nurses, other members of the healthcare team. Pharmacists are always there, behind the scenes or sometimes upfront, managing complex, dangerous medications, dosing medications, making recommendations or treatment changes with antibiotics for infectious diseases.

So you might think that pharmacists would be considered “healthcare providers.” Due to a quirk of history, however, they are not.

CHEN: It really starts back with the Social Security Act. In the Social Security Act, healthcare providers are defined and there’s a long list of who is a healthcare provider — everyone, of course, from physicians, all the way down to nurses and chiropractors, nutritionists, psychologists. Pharmacists are not on that list.

The Social Security Act was written in 1935.

CHEN: And back then, pharmacies were thriving businesses. And they did very well with compounding medications. And it was felt to be a critical role. There wasn’t any push at that time to be recognized as a healthcare provider.

But today, that’s more of a problem for pharmacists.

CHEN: You fast forward to today, now, reimbursement from Medicare, reimbursement from Medicaid, from health plans, it’s all tied to who is a provider, officially a provider, in the Social Security Act. So states use that to say, “Hey, we can’t pay pharmacists because they’re not officially healthcare providers.”

Chen and other pharmacist-researchers have done work showing that when pharmacists are actively involved in monitoring and adjusting medications, patient outcomes are considerably improved. But there’s no mechanism that allows them to be compensated for such work. I asked Chen what’s keeping that from happening.

CHEN: So physicians don’t necessarily want to see pharmacists carving into that limited source of funding for healthcare and being paid fee-for-service.

And this has left pharmacists, as Steve Chen describes it, overtrained and underutilized, especially during a crisis like Covid-19. Again, there are more than 10 times as many pharmacies in the U.S. as there are hospitals, with 90 percent of Americans living within five miles of a pharmacy. So: would it maybe be a good idea to authorize pharmacists to administer Covid-19 tests? That’s exactly what the U.S. Department of Health and Human Services decided to do a couple weeks ago.

CHEN: I was pleasantly surprised that it got done because we’re often the forgotten stepchild.

DUBNER: How many Covid tests have been administered in California, where you are, by pharmacists now to date?

CHEN: Zero. Absolutely none.

DUBNER: Because?

CHEN: Any time any authorization occurs at any government level, there’s somewhat of a regulatory process that has to be established. There’s the authorization and there’s a translation of how it actually works and what can be done within each state. And in California that clarity was sought from the Department of Public Health. And the answer we got back is no, pharmacists are not allowed to do Covid testing in California.

That’s even though pharmacists in California can test for diabetes and high cholesterol. These regulations differ widely from state to state. Some states, for instance, allow a pharmacist to adjust medication doses, or even write prescriptions themselves. Other states don’t even allow a pharmacist to take a patient’s temperature. In New York State, governor Andrew Cuomo acted upon the H.H.S. guidance and just authorized the state’s roughly 5,000 pharmacies to conduct Covid-19 testing. As supplies permit, of course.

DUBNER: So pretend for a moment that I am Governor Newsom, governor of California, which has this ruling that forbids pharmacists from administering the Covid test, and you’ve got an audience with me. I say, “Steve Chen, you are a notable figure in the field of pharmacy. Give me your best reasons why it should happen and then tell me the biggest downside.”

CHEN: I would say that there needs to be an exception made because the number of tests for 40 million Californians that you need to get done every day is not going to get done in the current available outlets that you’re thinking of, whether hospitals or clinics or other similar locations. Pharmacists are healthcare professionals. They’re trained. They’ve been able to do this type of testing. And this is not going to be a difficult rollout if you empower pharmacists to be involved.

DUBNER: Well, Professor Chen, that sounds perfectly sensible, but my Department of Health would not have forbidden pharmacists from administering Covid tests were there not a really good reason. What are the reasons why my Department of Health is justified in not having you do these tests?

CHEN: Well, I would say that your Department of Health is reading the law as it’s written, and that’s the problem. You’ve said yourself that we need to make adjustments, be flexible, and allow every healthcare professional to practice at top of licensure in order to beat this infection. And that’s not happening. Pharmacists need to be involved in containing the Covid-19 infection in communities by offering screening, advice, self-management, self-care guidance, quarantine directions, and if needed, referral into the healthcare system, keeping patients from overwhelming emergency rooms and hospitals. And if pharmacists are not deployed in this widespread testing that’s required to lift all these mitigation measures we have out there, I don’t think it’s going to get done.

Okay, so let’s say that pharmacies across the country are enlisted to administer millions upon millions of Covid tests in the coming months, like Steve Chen would like to see. Let’s also say that the federal government comes up with $250 billion to create millions upon millions of Covid tests, like Zack Cooper would like to see. Does that solve the testing problem? Does that clear the way for a smooth and safe exit from quarantine? Not necessarily.

LEVITT: One of the pieces of exiting from the quarantine is that everybody agrees we need to do enormous amounts of tests.

That, again, is Steve Levitt.

LEVITT: What I’m struck by is that no one is talking about the fact that even if we had those tests available, the incentive problem of actually getting people to take those tests is a very difficult one. Somehow people are going to have to be compelled to do those tests. And I think in many cases, you’ll be tested every couple of weeks, even though you have no symptoms. The chances that we’re going be able to get people voluntarily to go down to their pharmacy or whatnot— so I think we have a real incentive problem.

What kind of incentive problem?

LEVITT: This is a classic case of what economists call a negative externality. The costs of me going out on the street when I’m asymptomatic are all borne by other people, right? I infect other people; they get sick. But if I don’t have symptoms— and sometimes the last thing I want to do is go get tested all the time, which is a hassle. Maybe I have to go stand by people who are sick to get tested. And then if I test positive, then I’m quarantined and maybe I lose my job if I’m quarantined. Maybe I can’t afford— you know, I have to pay the rent.

Okay, that does sound like a real incentive problem.

LEVITT: But luckily that’s the kind of problem that economists are really good at. So I think there’s an easy answer to the incentive problem that we can solve, no difficulty at all.

DUBNER: Okay, if the answer is so easy, why don’t you tell us?

LEVITT: Well, I think the answer is: you’ve got to make it worth people’s while to take this test. It’s what economists call “internalizing the externality.” So we’re going to need a lot of apparently healthy people, people without symptoms, to take this test. So I think we should pay them, and a sensible way to do that might be in the form of a really big lottery. So you might even call it, like, Pandemillions, or something like that. So you could imagine we could put something like $500 million, $1 billion a week into this lottery. And in order to get a lottery ticket, you’d have to go and get tested for Covid. And the social benefit would so swamp the costs of doing this. A billion dollars a week or something, it’s peanuts compared to even the existing CARES Act and almost vanishingly small compared to the costs overall of this disease.

DUBNER: What’s the difference if you test positive or negative, though? Do you get more chances at the lottery if you test positive because we want to incentivize people then to stay home for an additional two weeks or whatnot?

LEVITT: So I think if you test positive, it maybe gets simpler because you’re talking about a smaller group of people. I would simply just pay people to stay at home. I would pay a big enough number that even if you don’t feel sick, you’d want to stay home. So if something like, I don’t know, $2,000 per week, and you get paid that as long as you’re testing positive. I would pay handsomely for people to stay at home. I really think if the incentive plans that I’m pushing get put into place, our problem will not be getting people to stay home or to take the test. Our problem will be that people are going to cheat like crazy to try to get certain results and get into the lottery and whatnot. I’d much rather have the problem of people too eager to get tested and faking Covid than the problem we have, which is a pandemic in which people are out and about doing things and we don’t know how to stop it.

Tags: COVID-19, Economy, Reopening America

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