The Massachusetts Paradox

It's not much of a puzzle.  Massachusetts has relatively low utilization.  But our overall costs are among the highest in the nation.   What we have is very high cost per unit of care delivered in Massachusetts. 

The Boston Globe published the third part of its series on Partners Health Care yesterday, and fixes the blame on a "gentleman's agreement" between Partners, the parent company of Massachusetts General Hospital and Brigham and Women's Hospital, and Blue Cross Blue Shield of Massachusetts, which has a large share of the Massachusetts insurance market.   The Globe reports that in 2000 the CEOs (since retired) of each organization agreed to a large pay increase, contingent upon Partners obtaining similar arrangements from BCBSMA's competitors.   

This graphic shows relative rate of various surgical procedures in Massachusetts compared to the rest of the United States.  Massachusetts has lower than average utilization for most of these procedures.  This data is from the Dartmouth Atlas, which is based on Medicare utilization by state.  Utilization and cost in the Medicare program is not necessarily equivalent to total utilization and cost for all state residents.  

The Partners response to the Globe article is here
There is not a response posted on the BCBSMA website as of now.

Maryland Hospitals Sue Poor Patients For Payments Despite Rates That Incorporate Payment for Bad Debt

The Baltimore Sun recently ran a three-part series documenting efforts by hospitals in Maryland to collect “bad debt” bills from patients, even when the state rate-setting process pays them for unpaid bills.

Maryland has a unique arrangement where the state sets rates for all payers, including Medicare. The rates are set to incorporate costs of unpaid care for each hospital. Essentially, hospitals can wrap the cost of this year's unpaid care into their future bills. Under this program, Maryland hospital bills have grown at a slower rate than the rest of the country, and Medicare payments to Maryland are inflated by as much as $500 million per year.

The Sun reporters created a database of all civil lawsuits filed to collect for hospital bills, a total of 132,000 lawsuits with over $100 million of judgments. The investigating team discovered that there are no standards for when medical bills are written off as free care, and there are wide disparities from hospital to hospital. Furthermore, some hospitals “double dip” by writing off bills as bad debt (and building this into their rates), and then later suing patients for the charges which had previously been written off.

Johns Hopkins acknowledged sending 20% of its patients to collection, and the Maryland Hospital Association expressed pride that the industry sends only ½% of patients to collection. Hospitals routinely charged higher interests rates than allowed by law, and at times sued patients for payments not made by Medicaid, a violation of provider participation rules for that federal-state program. Many hospitals had substantial surpluses attributed to high rates to make up for uncompensated care.

Hospitals are in substantial financial distress across the country - and bad debt rates are likely to increase in coming months. Hospital are obligated to try to collect legitimate debts; otherwise, the costs for those who do pay will go way too high.  But suing patients with no resources and charging them credit-card-worthy interest rates is unseemly, and suing even after the bad debt has been factored into future bills seems at least immoral, and probably illegal. 

Maryland has in place an attractive process to discourage hospitals from turning away those who cannot afford to pay. However, its regulators have not watched over hospital behavior well enough to guard the public interest.

Thanks to John Petito of our Harvard School of Public Health class for pointing this series out to me.

Congressional Budget Office Throws Down the Gauntlet

The Congressional Budget Office put out a 200-page tome on evaluating competing health care plans. Some critical conclusions from this report:

*  No simple solutions are available to reduce the level or control the growth of health care costs. Steps to restructure the insurance market and to encourage people to purchase less extensive coverage could reduce the use of treatments that provide minimal benefits, but enrollees would face higher cost sharing or tighter management of their care
* Other approaches—such as the wider adoption of health information technology or greater use of
preventive medical care—could improve people’s health but would probably generate either modest reductions in the overall costs of health care or increases in such spending within a 10-year budgetary time frame
* In many cases, the current health care system does notgive doctors, hospitals, and other providers of health care incentives to control costs. Significantly reducing the level or slowing the growth of health care spending require substantial changes in those incentives

This report helps frame the difficulty of the task ahead for Tom Daschle and the Obama administration.  

Health Care in Massachusetts

It's been a busy week in the world of health care costs, and thinking critically about them.

Jon Kingsdale, the Executive director of the Commonwealth Health Insurance Connector Authority, penned an article in Saturday's Boston Globe pointing out some of the keys to success of the Connector, including gaining broad support, the individual mandate, a small levy on employers who don't offer health insurance, a public education campaign, merging the individual and small group markets and generous subsidies.  He concludes 

"Challenges certainly lie ahead in Massachusetts, particularly around cost containment, and the cost of a national bill will be a major factor in the Washington debate"

The Globe Spotlight team had another article about Partners Health Care, and its reach out into the suburbs.  Many community hospitals, with lower reimbursement rates, feel that they cannot compete effectively against Partners.  On the other, many patients are voting with their feet and going to Partners-affiliated facilities.   The electronic version comes with an interactive graphic which shows the increased market penetration of Partners throughout Massachusetts.   The frenzy of building in the suburbs, both by Partners and by competing institutions, seems likely to lead to increased health care costs for some time to come.   

Primary Care Shortage - Diminishing With Economic Woes

Distressing article in today's Los Angeles Times  about a primary care physician who found that in the current economic times her volume decreased dramatically, and her patients stopped paying even bills for copayments.  She recently moved from Los Angeles to suburban Washington DC to join a group practice (at a very low salary).   

Consider this a part of the ongoing series "Health Care is Not Recession-Proof."

Regional Variations in Medicare Coverage

Today's New York Times has a well-reported article on Medicare coverage Cyber-knife treatment of prostate cancer.  This is covered in 33 states and not in 17 (and you can generally tell by whether or not there is an onslaught of radio ads for this technology).  Cyberknife allows more focused radiation therapy, and has been well-demonstrated to be advantageous for brain and spinal tumors.   However, the manufacturer is pushing this therapy for more common cancers, including lung and especially prostate.   There is a substantial patient advantage -- fewer  trips for radiation therapy.   There is also a substantial provider advantage. The machines to deliver this are very expensive ($3-5 million), so being able to use these machines for more common diseases can create a lot of marginal profit.  While the Times reports that Cyberknife is less expensive than some other radiation therapy, that doesn't necessarily mean that coverage will be cost saving, as the smaller number of required treatments might encourage some men to get treatment who would have otherwise opted for watchful waiting.   

The Times reports that there are five year outcome studies for a total of only 80 patients.  

Health Care is NOT Recession-Proof (an ongoing series)

Last Sunday's Boston Globe had a front-page article about how Boston-area hospitals were freezing capital spending plans.  Many hospitals contended that it was hard to justify new expenses in an environment where volumes were declining and philanthropy was down.  This article preceded the Bernard Madoff Ponzi scheme, which has caused huge losses in the philanthropic community.  Paul Levy of Beth Israel Deaconess Hospital has suggested that in Boston, the Madoff scandal might cause more financial distress among Boston nonprofits than the ongoing economic implosion.  

What does this mean for the cost of medical care?    Loss of capital dollars could lead to less building and fewer high technology purchases; this could lower overall medical costs over time.  Some will worry that this will also diminish technologic and other  innovation.

Massachusetts Quality and Cost Council - MyHealthCareChoices Site Unveiled

Massachusetts’ Health Quality and Cost Council has just unveiled its new public transparency web site, MyHealthCareOptions, which is available at   The state has taken claims data from the major commercial health plans, and ascertained cost of care by hospital for a limited number of procedures. It has also assembled related quality data, generally from different sources (since it’s hard to determine quality through claims alone).  This was a big effort, and the web site allows patients to filter by geography and compare up to 4 hospitals. Where possible, there is notation of level of statistical certainty.   (For instance, a low volume hospital might have an apparently high cost, but this would be more likely to be due to chance rather than a real difference).

It’s a good start – but the data available on cost is limited to 1-4 stars (representing top 15% of cost, above average, below average, and bottom 15% of cost.  Actual dollar numbers and relative prices, as displayed in a Globe article a few weeks ago, would be more meaningful than percentiles.  Some additional information  I’d like as a consumer which is not currently displayed includes: 

  • Patient experience by service, rather than hospital-wide
  • Volume for surgical procedures, where more volume often leads to higher proficiency
  • Rate of caesarian section by hospital.  While there is no “right” rate, some women might prefer to go to a hospital with lower C-section rates.

It’s also impressive how often there is no generally accepted quality data.  It’s hard to describe “value” when we only know the cost and don’t have a good way to ascertain the quality of the health care we purchase.

Who will look at this web site?    My own experience is that it will be reviewed largely by providers rather than consumer – and that’s just fine.  The site might make some hospitals feel pressured to implement some safety processes (like computerized physician order entry) and work harder to improve patient experiences.    The site might help pressure some organizations to accept lower rate increases, although it’s also likely to make many single $ institutions push much harder for large rate increases.  

 ADDENDUM: Young Joo, a student in our HSPH class, has worked on staff of the Health Care Quality and Cost Council.   He did some of the statistical work underlying this web site. He points out  that by clicking on "show details" you can get median, 85%ile, and 15%ile of costs where available for each of the listed procedures.   This tool also allows you to see the state median, 85%ile and 15%ile -- so you can see where the $ ratings come from.  

Closing "Bad" Hospitals

The New York Times reports today on how difficult it is in New York State to close a poorly performing hospital. University Hospital in Syracuse, owned by the State University system in New York, has a high rate of infections and complications, and a low rate of compliance with national guidelines. A state commission recommended it be merged into another hospital.

But the hospital's administration has lobbied hard, and its unions are important ally. A year after the Berger Commission recommended that University Hospital be merged (and shrunk), there has been no progress.

Why is it so hard to close an "underperforming" hospital?
1) Jobs - hospitals are the major employers in many communities
2) Convenience - closing hospitals usually means that someone will have to travel further for care
3) Professionals - Physicians are reluctant to move from one facility to another
4) Patient loyalty - I remember the public outcry in Massachusetts when a number of small community facilities closed.

Does closing underperforming hospitals lower the cost of care?

Not necessarily. While closing a hospital means there is less capital deployed and could decrease supply-induced demand, weaker hospitals slated for closure often have lower rates, and patients move to higher cost facilities. This is not the case with University Hospital in Syracuse, where costs are above the state average. Of course, all costs must be risk adjusted for severity of illness. The data cited in the Times regarding University Hospital IS risk adjusted, although it's always possible to argue the risk adjustment is not adequate.

In Massachusetts, the cardiac surgery program at UMass Memorial was closed in 2005 due to higher than expected risk-adjusted mortality. The program was voluntarily shut just before legally mandated state public reporting of mortality statistics. The leadership at UMass has written honestly about the experience, and ultimately recruited a new team of cardiac surgeons and now has reopened with excellent safety metrics. UMass lost its cardiac surgery training program due to this event. (Harvard link) (Non Harvard link)

Health care demand elasticity in a recession -- many warning signs

Both the New York Times and the Wall Street Journal have had heart-wrenching articles in the last few days about how employees and dependents lose their health insurance and access when they lose their jobs. Both newspapers focused on Ashland, Ohio, where Archway Cookies closed abruptly and filed for bankruptcy. The company was self-insured, and didn't have enough reserves to pay for health care already delivered, so some of its employees are facing bills of tens of thousands of dollars. Some patients tried to get their health care needs met before the closure (like early induction of pregnancy, early gallbladder surgery, and rapid purchase of insulin pump); the company's self-insured status probably means even those patients will be out of luck.

I've also talked to a number of senior hospital executives over the last few weeks, and they are reeling from
(1) Slowdown in philanthropy, with some donors not coming through with pledged funds
(2) Increase in accounts receivable, as payers have slowed down payment
(3) Increase in bad debt, as patients lose their insurance
(4) Decrease in revenue, as patients are not coming in for elective procedures, including orthopedic surgery, CT scans and MRI scans. Making this still worse, these elective procedures provide the highest margin for hospitals.

This is one more blow against the notion that health care is "recession-proof."

(Note the WSJ link will work for ~5 days -- after that, use this URL).

Comparative Effectiveness -- Maybe Not a Panacea?

A few weeks ago, the New England Journal of Medicine had an insightful article about the National Institute of Clinical Effectiveness, an independent government funded agency which determines which medications and procedures should be covered by the UK's National Health Service.  (Harvard full text URL)   The agency develops economic models and approves drugs or procedures when they cost less than $34,000 per Quality Adjusted Life Years (QALYs), and has discretion to approve values of up to about $50,000 per QALYs.   The title of the NEJM article was "Saying No Isn't NICE — The Travails of Britain's National Institute for Health and Clinical Excellence."  It turns out that British industry has been lobbying NICE and suing it when that fails.  It's not easy to say no!

This is especially important, because the Obama health care plan, the Daschle health care plan, and many others include an institute of comparative effectiveness to be sure we spend our health care resources wisely.   NICE is usually the model for this.

The New York Times followed up yesterday.  The article is introduced and concluded by a powerful anecdote about a patient sufferering from metastatic renal cell cancer who was hoping that NICE would approve an expensive Pfizer medication, Sutent, which delays progression of this cancer by 6 months for a cost of $54,000.  That's far outside of the allowable amount for  approval. 

Britain has a budget for overall health care, so it's clear that approving a very expensive medicine means that the NHS must make other tradeoffs.  It'seven  tougher in the US, where there is not a unified budget. 

The NYT article notes that the patient with metastatic cancer was losing his voice and having progressive trouble breathing.    It ends with a quote from his wife:

"It’s hard to know that there is something out there that could help but they’re saying you can’t have it because of cost,” said Ms. Hardy... “What price is life?”

In a theoretical world, we can all agree that above some cost threshold certain treatments just aren't valuable enough to be covered.  We feel differently, though, if we're talking about potentially extending the life of our own loved one.  

"Many Experts Say Health-Care System Inefficient, Wasteful"

A Washington Post article today notes that many experts complain that our current system is riddled with waste and inefficiency.   The CEO of Virginia Mason in Seattle notes that improving the production system in hospitals and ambulatory facilities can save substantial resources, and argues that fee for service reimbursement is a large part of the problem.  Reed Tuckson, an executive at United Health Care, and Don Berwick, CEO of Institute for HealthCare Improvement, both note that investments in prevention make sense.   

The article quotes that authors of the Dartmouth Atlas that 30% of all health care expenditures represent waste.   Peter Orszag, now head of the Congressional Budget Office and soon to be Obama's director of the Office of Management and Budget, imagines how great it would be to redirect just a third of that to more useful care.  

Unfortunately, many of the "wasted" dollars actually represent billings rather than real incremental cost.  For instance, today's Boston Globe includes a survey showing that 14% of Massachusetts residents use emergency departments because their primary doctors are not available.  That doesn't mean, however, that every one of those dollars spent on emergency departments can actually be saved.  Every time we prevent a single emergency department visit, we don't really save $500, since the resource cost of running the emergency department probably doesn't decrease by more than a few dollars for each prevented visit, until enough are prevented to decrease staffing.   We also can't forget the substitute cost of the primary care visit. It's less expensive than an emergency department visit, but it is not without cost altogether. 

Of course, every dollar of waste is also revenue for some element of the health care complex.   It's mighty hard to pry revenue away from hospitals, doctors, ancillary providers, pharmaceutical companies, device manufacturers, or pretty much anyone else!

Costs of Pharmaceuticals

The European Union is investigating efforts of Pharma to suppress generics, according to yesterday's New York Times.   The EU suggests that the cost to European consumers approaches $4 billion over the last seven years. Techniques that are under investigation include filing frivolous patents and paying off generic manufacturers to delay launches of competing drugs.   

The Times today had an extensive article on how an extensive government-funded study that showed that generic drugs should be used in initial treatment of hypertension had far less impact on the actual number of prescriptions written for more expensive, less-preferred antihypertensive medications.   Some of the more-expensive brand name medications went generic shortly after the trial, and pharmaceutical companies went all-out to convince practicing physicians to continue to prescribe their more expensive medications.   They also lobbied hard against any FDA communication suggesting that some of the brand name medications were associated with higher rates of congestive heart failure.

Clearly, changes in pharmacy benefits have encouraged the use of generic medications, which have saved insurers and consumers billions.  However, there are still substantial impediments to saving still more health care dollars by further diminishing prescriptions of expensive brand name medications not shown to be better than generic alternatives. 

New Report on Disease Management Benefits

Ben Geisler, MD, of our class, notes that there is a new review published by Health Management Associates of disease management programs.  The review concludes that these programs can be cost-saving, and are most likely to be so if the population is carefully targeted, the intervention highly individualized, and repeated often.   One problem with meta-analyses is that they rely on studies that are published, and there is a strong publication bias for positive studies.  Also, early disease management literature includes many "pre-post" studies (comparing results in the same population before and after intervention).  These tend to be contaminated with regression to the mean. 

Ben also notes that review work done at the Institute for Technology Assessment at MGH, which he has participated in, has more circumspect conclusions.  Here are Harvard U links for this research (1)  (2),   and for non-Harvard blog readers, here are generic pubmed links (1a) (2a) . This works make the important distinction between cost-effective (will cost more in the health care system, and worth it) and cost-saving (value created for a lower price). 

Moody's reports question health of health-care industry

Moody's changed outlook for health care industry from "stable" to "negative" in a report this week, according to the Chicago Tribune.   Moody's is bearish on hospitals, which face weakening demand and a credit crunch. Moodys is also bearish on  health plans, which the company notes are dependent on Medicare Advantage which is likely to be trimmed, and which tend to have lower earnings in Democratic administrations.   Another party questioning whether health care is really recession-proof.

How much does medical malpractice contribute to health care costs?

There is a long tradition of physicians pointing to lawyers as one of the explanation for the high cost of our health care system.  The Congressional Budget Office weighed in  during 2006, saying that "The estimated effect [on medical utilization] of implementing a package of previously proposed tort limits is near zero." The CBO's regression analyses compared utilization and current malpractice claim limits to reach this conclusion - not a perfect approach since a change in tort limits today might lead to a delayed change in physician behavior.  While the CBO employed risk adjustment, there might have been interstate differences which are not incorporated into the regression model. 

The Massachusetts Medical Society has weighed in with a report suggesting that defensive medicine costs $1.4 billion in Massachusetts alone.  The MMS surveyed physicians in 8 specialties, and extrapolated this from their survey answers.  83% of physicians acknowledged ordering tests at least sometimes to avoid malpractice risk, rather than for clinical necessity.  Survey respondents reported that a total of 13% of hospitalizations and over 1/4 of specialty consultations and high cost imaging tests were not medically necessary - but  done to avoid potential malpractice liability. 

The CBO determined in 2006 that surveys of physicians were not reliable to  ascertain the level of cost of defensive medicine.  Physicians are asked for their subjective estimates off the top of their heads, and they do no chart review to validate their guesstimates.  At least some might sense an advocacy advantage of overestimating the cost of defensive medicine.  I'm especially skeptical of the conclusion that one in eight hospital admissions is motivated by fear of lawyers rather than genuine belief that the patient receives clinical benefit from the hospitalization.  

This is not an endorsement of the current tort system,  which does a poor job of compensating patients who are harmed and causes enormous emotional hardships to many providers.

One addendum.  In today's Boston Globe article, an experienced malpractice attorney is quoted as saying that managed care companies prevented defensive medicine by refusing to pay for any claims that are not medically necessary.  This is an erroneous assumption.  Any managed care company that thought it could second-guess essentially all medical decisions would need far more than 10-12% of premium to administer what would be a cumbersome and universally-reviled administrative system!

Boston Globe Spotlight Article on Costs of Hospitals With Large Contracting Leverage

The Boston Globe has a long article in today's paper on the increased costs of Partners HealthCare (Mass General and Brigham and Women's) and Children's Hospital compared to other hospitals in the Boston market.  The article cites data collected by the state's Quality and Cost Council which showed the amount paid for various procedures at different hospitals in the area.  It also cites quality data -- suggesting that the quality of MGH and BWH are not the explanation for the high prices. (There is far less quality information available about pediatric hospitals, so the issue of the relative quality of Children's is not addressed).  

A few quotes of note:
Charlie Baker (CEO of Harvard Pilgrim, a major insurer):
"There is no other sector of the economy anywhere in this country in which that kind of price variability with no appreciable difference in service or product quality can sustain itself over time."
Paul Levy (CEO of Beth Israel Deaconess Medical Center, a Partners competitor):
"Shouldn't there be some correlation between what you get paid for doing something and the quality of what you do?"
Gregory Sullivan (State Inspector General):
"Apparently, this subject is the equivalent of the third rail" explaining why the Quality and Cost Council has still not published the cost and quality data
Tom Lee (CEO of Partners Community HealthCare, Inc, and network president)
"We have the pieces of a system that are increasingly actually working together."
"There's no question in our market that people want this [access to MGH and BWH]"
FTC Conference:
"Is price a signal of quality in healthcare markets?"  "No."

The story of systems with a large amount of contracting leverage increasing unit price is similar to a WSJ article on Carilion Health, a nonprofit system in Roanoke, VA earlier this fall.  That system has substantially more market leverage than Partners has in Boston.

  It will be interesting to see what fallout there is from this article over the coming weeks.

Shrinking Employer Health Care Benefits

Good explanations in an article in todays NY Times about how employers are moving to high deductible health plans (HDHPs).  This transition is happening more slowly than predicted by many advocates over the past few years - but these plans are growing more rapidly than any other plan design.  Two large employers, Nissan and Delta Airlines, are offering only high deductible plans, while most employers offer a choice.   Employees are likely to find that HDHPs work well for single people in good health, and they theoretically work well for families with overwhelming medical expenses (that exceed annual maximums).   There is some danger that if the healthy low-cost employees leave traditional health plans, these could become prohibitively expensive. 

The idea of HDHPs in general was that employers would fund an associated and portable health savings account - but data suggests that less than 1/4 of people on HDHPs have money to roll over from year to year.   Many employers are also not funding the HSA.

Obama's health care team is not enthusiastic about further consumer cost-sharing, but consultants warn that if employers had known how dire the economy would look months ago when they planned their 2009 benefits, they would likely have chosen to push more costs to their employees. 

Costs of Care in Massachusetts, 2002-2006

The Commonwealth of Massachusetts recently published aggregate data on the cost of caring for HMO commercial patients (employer insurance, mostly under age 65) in 2002-2006.    A few observations follow - all cost increases are per year for the 4-year period unless otherwise noted.

1) Costs up about 55% over 4 years (Compound annual growth rate of 11%)
2) Outpatient hospital  costs increased much more per year (15.9%) compared to inpatient hospital costs (9.2%). Of course, both are far more than the rate of inflation
3) Technical costs per member per month in radiology (18.4%) and laboratory (19.6%) increased much more than professional costs (radiology 12.2%, laboratory/pathology 10.7%)
4) Inpatient stays got a bit longer, even though admission rates were down a bit and severity did not seem to increase
5) High cost imaging (CT, MRI, PET) increased an average of 16% annually - split between increased cost per unit (9.3%) and number of services (6.1%)
6) Office visit mix changed substantially  - over a quarter more high level (level 4) office visits, and far fewer level 2 and 3 visits
7) Generic drugs increased from 50.5% of prescriptions in 2002 to 65.4% in 2006.  Brand costs per unit were up substantially(13.9%) annualy, and generic costs per unit were up 9.5%.  
8) Emergency department visits were only up 2%, while costs per member per month went up 13%

These are tough numbers -- there isn't a single place to look for enormous savings that won't be painful.   This data complements that published regularly by Kaiser Family Foundation/HRET -which focuses on health insurance premiums, which don't always parallel actual health care costs.  

"Too Much Medical Care is Making Us Poorer and Sicker"

Ben Geisler of our class has recommended a talk by Shannon Brownlee, which is webcasted (with transcript) at the Kaiser Family Foundation site.  

Shannon Brownlee wrote "Overtreated," the New York Times 2007 Business Book of the Year, which just came out in paperback.  It's listed on the right side of the blog as one of my recommended books on the topic of managing health care costs.  Brownlee brings the early days of the Dartmouth Atlas to life, and she vividly describes the travesty of cardiac surgery on patients with normal coronaries in Redding California.  

Medical Home - Can Cost Savings be Replicated?

I was at an AMA meeting over this weekend, and listened to an interesting presentation on "Advanced Medical Home."   The general idea is to pay local primary care physicians to do real patient management -- and this could alleviate unnecessary hospital admissions, emergency department visits, and adverse outcomes.   The presenters were Paul Grundy, MD of IBM and Don Klitgaard, MD, the physician leader of the Myrtue Medical Clinic in rural Iowa. This clinic has totally reengineered its processes to provide much-improved accessthe coordinating services of a real medical home.  It also adopted an electronic health record.  Quality, patient satisfaction, and cost-effectiveness all appear to be on the rise.  The doctors are happy too!

An employer coalition is supporting this approach -- see this web site for more information.  Some early studies in North Dakota and at Geisinger Clinic in Pennsylvania have shown substantial cost savings.  

My concern is that North Dakota and Central Pennsylvania (and Harlan, Iowa) are rural. There are large distances, and while there is access to excellent medical care, there is much less built-up "medical industrial complex" in these communities. Therefore, any savings from medical home might only be reproducible in other regions if we remove some of their existing medical infrastructure.  These savings, therefore, would not be realized early.  

I fear that employer support for the medical home might not persist if it were only cost-effective (increased quality for a reasonable price) rather than cost-saving.

Paul Grundy's background slides are posted by the CDC on its website

Doctors Tally the Value They Bring to Communities

The AMA's American Medical World News has an article this week about how many dollars physicians bring into their local communities.   For instance, physicians in Kansas have $2.7 billion in payroll, and in Georgia each private practice physician supports 13 jobs (total of $10 billion in payroll and $20 billion in economic activity).  

This helps make it clear just how tough it is to cut dollars from the health care system. Hospitals are usually the largest employers in their communities, and physicians are also responsible for good jobs at good wages - just what we need more of right now!

Many health care policy experts believe that we can remove 1/3 of the cost of health care without any adverse health effects.  However, the adverse economic effects of this would be huge -- so it's likely that this can only be done over a long period of time. 

Does a Recession Hurt Health Care Business?

The New York Times had dueling articles over the past few days about whether or not the business of health care is adversely impacted by a recession.


On one hand, hospitals are seeing a downtick in admissions in the context of the economic crisis.  According to the article, patients are delaying elective orthopedic procedures, as well as hernia repairs.   This is on top of the decrease in filled prescriptions over the past two quarters.


On the other hand, some business analysts suggest buying stock in health care companies because health care is “recession-proof.”


There has long been an argument about whether health care is a necessity or a luxury good.   Necessities have inelastic demand, while luxuries have substantial elasticity of demand.

I’d say that there are elements of health care that are necessities – and these do not fluctuate with the economy.  There are obvious elements of health care that are necessities, like repairs of hip fractures (which also have low variation in utilization in different geographic areas).    I’d like to say that childhood immunizations would also not decline in an awful economy, but I’m not as confident.  There are other types of health care that are unequivocally luxuries – like Botox for cosmetic purposes,  or  early knee replacements to preserve the ability to play competitive tennis.  Of course, almost all health care falls between these two poles.


The worst of all worlds in terms of decreased health care utilization would be a severe economic downturn, such as that faced by Russia after the fall of the Soviet Union, or Argentina after it defaulted on foreign debt.  In both instances, utilization of health care dropped dramatically.  There was substantial loss of health in Russia as well.

The Health Care "Perfect Storm"

Uwe Reinhardt has a brief essay in today's New York Times. He points out that if health care costs keep rising as they've been, with relatively smaller increases in family income, by 2017 health care will take up over 40% of the "wage base" of a hypothetical family with a wage base of $60,000 now ($80,000 in 2017) .

Wage base is an interesting concept. Here is his description:
  • It includes the employee’s cash take-home pay, all the income taxes and Social Security taxes and other deductions – for example, the employee’s contributions towards health insurance and pensions — withheld from the employee’s paycheck, as well as the employer’s share of Social Security taxes and the employer’s contributions toward the employee’s health insurance, pension, vacation pay, sick days and so on.
Wage base makes explicit  the economists' contention that employer expenditure on employee benefits and wages are  interchangeable.  If employers pay more for health care, they pay less in wages.

Reinhardt concludes we'll either have to tax the rich more to continue to offer the current level of care to all, or we'll have to accept multiple different tiers of medical care. He doesn't mention the option of improving care processes or decreasing provider payment. 

Commonwealth Fund Faults Fee For Service

The Commonwealth Fund published a survey of health care opinion leaders' point of view on health care reform.  Those surveyed don't believe that fee for service is compatible with encouraging quality and cost-effectiveness. 

Interestingly, the surveyed experts also have diminished enthusiasm for increased consumer cost sharing. There is also support for increasing payment for primary care and negotiating pharmaceutical pricing.  

The survey included 222 health care leaders, and was performed by Harris Interactive. 

Obama's speech and health care

Barack Obama's acceptance speech  last night was inspirational on many levels.

One observation.  Total number of mentions of health care in the speech --- zero.  

David Wessell of the Wall Street Journal told NPR this morning that he believes that the Obama administration will want to choose health care as its one big issue (besides for remedying the economic collapse).  

On one hand, many believe that the Clinton plan failed in 1993 in part because Bill and Hillary didn't prioritize it in the first 100 days.  On the other hand, a new administration, even with bolstered support in Congress, can only effectively address so many issues, and health care is awfully complex.  Addressing health care inflation successfully would be a big boost for our economy, but there would also be a lot of losers. 

Prevention and Saving Medical Costs - Prevention Efforts Outside of the Medical Realm (Might) Pay Off

Medical interventions in preventive health rarely save money - the notable exception being childhood immunizations.   The Trust for America's Health put out a report in July estimating that NONmedical interventions to improve health could have a substantial return on investment - i.e. they could make health better while actually saving money (so the cost per QALY would be negative).  

Interestingly, the kind of interventions that are modeled here include better access to nutritious food, more supervised recreational opportunities for kids, better nutritional labeling and higher tobacco taxes.   Note these are all interventions aimed at the entire community, not at individual patients.  None of these interventions lead to filing of medical claims.

Critical assumption made for modeling is that these interventions "could reduce uncomplicated diabetes and high blood pressure rates by 5 percent in one to 2 years; heart, stroke, and kidney disease by 5 percent within 5 years, and cancer, arthritis, and COPD by 2.5 percent within 10 to 20 years."  The authors state that their modeling is conservative, since only medical savings are counted. However,  this depends upon the accuracy of forecasts of program costs and program impact. 

Note that the ROI for states is low in the first two years, and of course states are not feeling flush with cash at the moment.

I'm grateful to Jim Pfeffer for pointing this out.  Jim scours the quality literature for a weekly post available here.

Generic Pharma from China and India: Cause of Lower Health Care Costs (and Some Serious Concerns)

Excellent article in today's New York Times Magazine on concerns about importation of generic drugs from China (and to a lesser extent India.)  The article begins by noting that generics of aspirin and acetaminophen (Tylenol) just aren't made in American or European factories anymore.   The ability of an Indian company to provide anti-HIV medication for $80 per year (as opposed to $1500 for brand names) has meant life for millions in Sub-Saharan Africa.  On the other hand, over half of the anti-malarial drugs sold in southeast Asia have no active ingredients!

Generics are critical to keeping down the cost of health care.   However, we need meaningful regulation to help us achieve these cost savings without endangering health.

Employers and Massachusetts Health Care Reform

The Center for Study of Health System Change published a brief report today suggesting that the lack of progress on lowering health care inflation combined with greater availability of both subsidized and nonsubsidized individual insurance has lessened employer commitment to continuing to offer health insurance, especially to low wage workers. This is in contrast to information published last week in Health Affairs, where a survey by the National Opinion Research Center (NORC) showed that there was little "crowd out" of employer health insurance by the new state program.

If employer-based health insurance declines, it will be hard to tell whether this is due to the state Connector program or due to the severe decline of financial fortunes in many Massachusetts industries, especially the financial services industry.

For readers in HPM 235, we'll be talking about health care reform on Wednesday, November 5 (and slides are posted at the end of class 2)

Cost Saving vs. Cost Effective

In Wednesday's class, we talked about cost effectiveness compared to cost saving.  For instance, it is cost EFFECTIVE to do mammography to prevent premature deaths from breast cancer -- in that it costs less than $40,000 per quality adjusted life year saved. (This depends a bit on context -- how old the woman is, pretest probability, and previous mammogram).   The good news about doing more mammograms is that fewer women will die prematurely of breast cancer.   However, there are no savings available - we're just spending our resources to buy something of real value.

There are very few things we do in the "medical industrial complex" that are cost SAVING.  I mentioned that from my perspective it was hard to name anything beyond childhood immunization and antiretrovirals for patients with full-blown AIDS.   Class member Ben Geisler has pointed me to the Tufts cost effectiveness registry. 

Ben has found a number of other medical approaches that do seem to be cost saving:

- Hip pads to prevent fractures in high risk nursing home residents
-TB testing and treatment for chinese immigrants to US in year 2000
- Gemfibrozole (cholesterol agent) for men with known  cardiac disease
-Antiosteoporosis treatment for older women at VERY high risk
- Alpha interferon for hep C in 45 year old man (I am dubious on this one myself)
- Acyclovir therapy for herpes zoster and chickenpox in limited populations(I'm dubious here too)
-Leg angioplasty for a very specific population to relieve rest pain in legs

Note that in all instances these are VERY limited populations!

Remember you always have to ask "cost saving compared to what?"  For instance, it might be cost effective to use Viagra instead of a penile implant -- but Viagra can never be cost saving within the health care system compared to no therapy at all!  

Women Pay More for Insurance Than Men

Abby Ruettgers of our class points out that the NYTimes published data today showing that women are charged more than men for health insurance in the individual insurance market.  This is especially prominent for young adults.  

This isn't a real surprise.  In fact, I think this represents childbirth as opposed to gender discrimination.

This is one more example of the problems of the individual market.  While many will say that the individual market eliminates "moral hazard" and makes people pay for their own poor health decisions -- it's not clear we want to penalize women of childbearing age for the chance they might decide to have a child!  

New Technology and Medical Costs

There is widespread agreement that new technology is a substantial cause of increased health care costs.  Of course, new technology brings us good things (like Gleevac for patients with certain types of previously-fatal leukemia, and laparoscopic devices to allow for minimally invasive therapy) and things that are not so good (like bone marrow transplantation for metastatic breast cancer - which looked like it would be helpful, but wasn't when a study was belatedly completed.

The 10/27 New York Times has an excellent article by Reed Abelson about FDA approval of medical devices.  The FDA approves devices after only brief trials, and longer term data on outcomes is almost always lacking.  Furthermore, the FDA is not concerned with "cost effectiveness" for either devices or drugs.  This issue is compounded when Medicare sets high prices for new (unproven) innovation, which speeds dissemination of this innovation.

Breaking the Cycle of Waste in Health Care

Jim Roosevelt, CEO of Tufts Health Plan, had an op-ed in yesterday's Boston Globe entitled "Breaking the Cycle of Waste in Health Care" .  This references a report released by the New England Health Institute earlier this year.   This report is especially helpful because it clearly distinguishes between increasing cost-effective care (which increases costs, but it's worth it) and actual cost saving.   

It's become somewhat of a standard refrain that 30% of all health care dollars are wasted.  Obviously, eliminating that waste is much less painful than eliminating necessary care.   Of course, all waste represents someone's income  - which is why we haven't made progress on lowering medical inflation.  

By the way, the Mass Medical Society commissioned Amy Lischko of Tufts School of Public Health to develop a thought paper on the root causes of health care inflation.  The report is available at this link.

Health Care Cost Woes in Massachusetts

The Boston Globe today reports on a poll of Massachusetts residents on the cost of health care.  In Massachusetts, where the percentage of residents insured is among the highest in the nation, almost one in 7 report that they owe money for health services they found unaffordable. The same percentage reported not filling a prescription because of out-of-pocket cost.  One in 11 reported that they avoided medical care because of money they already owed.  No surprise - the problem is worst for those with the lowest income.  

Should We Believe Economists on Health Care?

Nice article in today's NY Times  contrasting the economists behind the Obama and McCain campaigns.  Uwe Reinhardt of Princeton gets the last word.

Economics practiced in the political arena is often just "ideology marketed in the guise of science."     

"I give a lecture on whether you can trust economist, and I tell them no... I tell them if at  the end of the year I tell you the time of day and you trust me, I have failed."

More Patients Foregoing Prescriptions

More evidence that patients are cutting back on their health care spending.  Again, as in the previous post, patients are cutting back on very effective medicine (statins to lower cholesterol) as well as medicine of marginal benefit (Alzheimer disease medications).    Interestingly, a focus of this article is patients choosing to cut back on Lipitor.   Lipitor, for a 3o day supply of 10mg, costs $86 (  Simvastatin, 20mg, which is of equal equivalence, costs $28 per month ( or $4 per month (Walmart, Walgreens, and others).   There is a better way clinically to get more value from our drug spend.  The question is whether patients with "skin in the game" end up getting higher value, or just have preventable heart attacks and strokes. 

What's A Governor to Do?

Budget Woes and the Cost of Health Care

Massachusetts is in a terrible financial pickle, like many other states.  Tax revenues have plummeted, and Governor Deval Patrick has identified more than a billion dollars of budget cuts.  There is genuine worry that this might not be enough.

I’ve done an informal review of state budget cuts, and I identified about $380 million of cuts that are health related.  That’s about a 4% cut in the $10 billion the state spends on health care.  (My spreadsheet is available on request -- I am having trouble posting it at this point.)   I find the openness of the state government heartening, and I’m surprised these details have not been reported in greater detail in the Globe and the Herald. 

These budget cuts will be painful.  State employees and contractors will lose their jobs, and patients and clients will lose services they have depended upon.  In this post, I’d like to review what these cuts might mean for health care costs in Massachusetts? 

1.       Some cuts in state spending trigger similar cuts in federal matching (such as Medicaid). So, for instance, decreasing Medicaid spending by $152 million will lead to a loss of provider income of about twice that amount. If providers can cut their capacity and costs, this could lower overall spending.   Many times, decreases in public reimbursement lead to higher bills rendered to private payers.  In addition, the $2.5 million on Medicaid enrollment (71% budget cut) can lead to far fewer federal dollars coming into Massachusetts, although the Patrick administration intends to get funds for enrollment programs from other "off budget" state agencies (The Connector and the Mass Health and Education Facilities Authority).

2.       Some cuts in state spending shift cost to other payers.  For instance, childhood immunizations are one of the few medical interventions that actually save money – but the state will cut its funding by $6 million, or 12%.  This is especially worrisome at a time where newer vaccines are pricey (especially chickenpox and HPV vaccines).  If the state cuts mean that private insurers pick up the tab, this should mean higher health insurance premiums going forward.  The state also benefits from its bulk purchasing and substantially less billing transactional infrastructure – so it might be more expensive to deliver vaccinations paid for by private insurance.  Massachusetts historically has the highest childhood immunization rate in the country.  If our immunization rates go down, this is likely to raise overall costs.

3.       Other budget cuts are take-backs from state employees, such as the $31.7 million decrease in benefits offered to state employees through the Group Insurance Commission. (4%)  This could lower overall health care costs if state employees, now more price sensitive, decrease  their utilization of health cars. See my last post for evidence this is happening in the DC area. 

4.       With the overall financial meltdown, there is increasing interest in the social benefit of regulation.  The budget necessarily diminishes resources for state employees and consultants who regulate the medical, nursing, and pharmacy professions, and cuts staff from state agencies tasked with improving accountability in health care delivery.   

5.       Some programs can actually lower costs – such as an academic detailing program to counter the pharmaceutical representatives who encourage use of expensive brand name medications. This program was cut by $200,000 (40%).  I don’t know if the state has current data on the cost effectiveness of the  Massachusetts program.

6.       The state is prioritizing programs it just can’t stop – and there are many casualties among newer programs or those with a less active constituency.    For instance, there will be painful cuts in senior home care case management ($28 million, 69%) and secure treatment for opiate abuse ($5 million, 100%).  A demonstration project for elderly and disabled will lose $13.5 million (68%). 

7.       There’s been a laudable effort to cut out specific earmarks that seem more related to a legislator’s influence than a dispassionate review of community needs .

This is a painful time.  The state must balance its budget each year, and decreased state revenue means less opportunity to make investments in the health of our commonwealth.  There are times when state budget cuts could paradoxically lead to higher overall health care costs in the future.

As Budgets Tighten, More People Decide Medical Care Can Wait

There's a good article in the Washington Post today about patients deferring care due to the recession.  The article shows that advocates for high deductible health plans are right - with higher deductibles, patients are far more reticent to incur significant costs.  However, consumers are deciding against both discretionary care (twice a year ultrasound of fibroids) and necessary evidence-based care ( annual mammogram in light of strong family history of breast cancer). And physicians are spending more of their time doing financial, not clinical, triage.

Health care inflation as a cause of future budget deficit: "worse than the bailout"

David Leonhardt, an economics columnist in the NYTimes, notes that the Congressional Budget Office's estimates of the future cost of Medicare and Medicaid given current medical inflation would add $900 billion to the federal budget every year.  Note that the presidential candidates continue to have no serious plan that will lower health care inflation, although both have suggested that prevention can save big dollars in the future.  A guest op-ed, also in the NY Times, points out the fallacy of this argument. 

Bad economic times and health

Interesting article by Tara Parker-Pope in today's NY Times  suggesting that bad economic times might lead to improved health.  As our time is worth less in monetary terms, and we have less discretionary income, we eat fast food and prepared food less, we spend more time at home, and we exercise more.   

Of course, it all depends on how bad the times are, and how well you were living beforehand.  When the Russian economy sank after the dissolution of the Soviet Union, there was a dramatic contraction in the GDP, and a shocking decrease in the health care "spend."  There was also a five year drop in the average life expectancy for Russian men, from 69 to 64.  

We might all want a little more time off.  And the decrease in the rate of health care inflation over the last few years is good news.    None of us want a Great Depression!


What does the current economic meltdown mean for health care reform and efforts to control the cost of health care?

Ezekiel Emanuel (oncologist, ethicist and brother of Rahm Emanuel, the Democratic whip in the House of Representatives) has a blog in the New York Times bemoaning the fact that health care reform has “fallen off the radar screen.”  He points out that health care cost increases have been a primary reason why increased productivity has not led to increased wages for most workers, and states that health care “is a severe disease that will have to be cured to get the economy really going.” 

He posted this a few hours before the stock market free fall, when the Dow Jones Industrial Average lost 777 points (and a larger stock index suggested that $1.2 trillion of shareholder value had been erased in a single trading day.) 

 What does this mean to the efforts to reform health care (and control costs)?

 Reasons why we are less likely to see substantial changes in the near future:

1)      1) Health care won’t be the marquee issue of the 2008 presidential election

2)     2)  We have lower expectations for major efforts in health care transformation

3)      3) We will tolerate higher levels of uninsured and underinsured

4)    4)   Government will be distracted  


Reasons why we are more likely to see substantial changes in the near future:

1)      1) The level of financial pain will be high. This makes it more likely that the current trajectory will look unattractive enough that more stakeholders will tolerate more extensive change (and risk).  This isn't all good news -- decreased spending on health care will probably be in both discretionary and truly necessary services. 

2)    2)  Government at all levels is the largest payer, and governmental units (cities, towns, states) are having a hard time balancing their budgets even before we see the full impact of the economic slowdown.

3)     3)  After the financial services deregulatory mess, regulation is “in” again.   This gives government another potential lever to control prices.  In the US, health care cost is generally due to high prices per unit, rather than more units of service delivered than other “first world” countries.  On the other hand, price controls did not work well in the Nixon administration. 


Americans facing more difficulty paying medical bills

The Center for Study of Health System Change reports that almost 1 in 5 Americans live in families that self-report difficulty paying their medical bills. This is a big increase since 2003, when it was 15%.   My last post was about the Kaiser/HRET study showing that health insurance premium inflation is down to about 5% this year - the lowest it's been since the late 90s.  Nonetheless, employees are paying more for their insurance and facing higher deductibles and coinsurance and copayments - so the level of pain has increased.  Once again, this survey preceded the current economic meltdown, so it's likely that things will get worse before they get better. 

Kaiser HRET Health Costs Survey

This week the Kaiser Family Foundation and the Health Research and Education Trust released the annual employer health benefits survey this past week. As always, this study is a treasure trove of statistics. The average family health insurance plan increased by 5% -- to $12,680, and the average single policy (purchased through employers) cost $4704. Family premiums increased by 27% over 2004, and by 119% over 1999. For the first time in a number of years, the percentage of firms offering health insurance did NOT decline, although this survey predated the current economic maelstrom. Bigger firms and those with fewer low wage workers were more likely to offer employee health insurance. Lower wage workers, on the average, were also more likely to elect not to accept employer-sponsored health insurance, presumably due to the employee cost of premium. Deductibles and copayments are up, and more employees are on high deductible health plans.

Of note, KFF/HRET is famous for one graphic which health care policy wonks refresh each year - and it seems to be missing from this report. This compares the cost of health insurance premiums to the overall inflation rate and the change in average wages. This graphic is at the top of this post.

Note that the BLS says that CPI (Urban) is up 5.6% this year (July-July), and wages are up 3.3%. So - for the first time in many years, CPI looks like it will be higher than the inflation in health insurance premiums! Also, for the first time in years, I'll have to make my own slide showing this relationship.

Consumers Cutting Down on Health Spending

The Wall Street Journal reports that consumers are spending less on health care.  Prescriptions fell 0.5% last quarter and almost 2% this quarter; 1 in 5 say that they are cutting back on physician office visits, and 1 in 9 say they are cutting back on prescriptions.  The story also includes distressing illustrative anecdotes- like  parents canceling their health insurance so they can afford to self-pay for preventive care for their children. 

Sever financial distress does lower health care utilization -but does it indiscriminately.  Patients say "no" to valuable evidence-based care as well as discretionary and even unnecessary care.    Countries which have had prolonged financial crises (think Russia after the collapse of USSR) have also seen a real loss in population health (including decreased life expectancy)  - probably caused by a combination of impoverishment and lack of access to health care. 

The financial maelstrom will likely lower the overall cost of health care - but this is likely a destructive way to accomplish that goal. 

McCain's Health Proposal: Will it Save Money?

There has been recent attention to John McCain’s health care plan – which is really quite radical. There are two key elements to his plan. (1) McCain would eliminate the tax deduction for employer-sponsored health insurance, and replace this with a much smaller tax credit.  (2) McCain would allow insurers to sell their health plans across state lines – essentially letting them choose in which state to be regulated.

Many others have pointed out the advantages of these two approaches, including exposing patients to the real cost of their health care, making insurance more “portable,” and allowing people to avoid costly state mandates.    Others have pointed out some substantial concerns ; these include “cherry picking” that would make insurance difficult to obtain for those with illness, decreased ability for the healthy to subsidize the care of those with illness, and loss of important consumer protections enforced variably by states.

I’d like to address the question of whether McCain’s proposals would actually save money.

There are a few mechanisms by which this type of reform could save real dollars in the health care system.

(1) Elimination of mandates -- states with high levels of mandates do have higher costs. For example, Charlie Baker in a recent post said that mandates cost a total of 12% of the insurance premium in Massachusetts.  Here is a link to the  report.

Elimination of state regulations could also allow for substantial innovation in health care finance and delivery.  See a great article by James Robinson on this in the current Health Affairs

 (2) Exposure of patients to actual health care costs could create pressure to lower fees.   However, this pressure would generally have to be exerted through lower volumes.  In general, Massachusetts is below national averages for most type of utilization - so the question is "would this exposure to real costs reduce unnecessary care, or necessary care?"  The most recent article from Newhouse, et al from the RAND Health Insurance Experiment suggests that increased exposure to costs will reduce both appropriate and unnecessary care.  

However, the  McCain proposal is also likely to raise costs in other ways.

(1) It costs far more to administer a health plan which is sold retail, to individuals, rather than wholesale, to employers.   Therefore, the "medical loss ratio" of these new plans would be far lower than the 85% we often see now.  It might be worth paying more on the administrative side if it would help us deliver better care - but that's not clear. 

(2) Although there are many reasons why we should not tie health insurance to employment, it's most important to have a group to share risk.    Employers are a natural group - and unless we want government-sponsored health insurance based on home address, it's not clear what other grouping would work well.  With individuals purchasing insurance on their own, it's likely that we will see far more insurer competition on recruiting the healthiest patients.  That means that the insurers will have higher profits, but fewer of the dollars spent on health care premium will actually go to health care. 

(3) If this reform does swell the ranks of the uninsured, it could encourage price increases to compensate for this lost revenue.   There is some evidence that when Medicare underpays hospitals, they turn around and increase prices to private payers.  (Go to chart 4.7)  

My conclusion - it is likely that this reform, if passed, would lower costs somewhat - but the social cost in terms of valuable care foregone would be too high.  I believe that this approach would likely swell the ranks of the uninsured enough that it would lead to compensatory increases in costs for those with insurance.  If we are willing to allow patients to go without care, then this could lower costs substantially.   I suspect we are not willing. 

Health Information Exchanges Said to Reduce Costs

The e-Health Inititiative, a multi-stakeholder nonprofit, just released results of its 2008 Health Information Exchange survey -- and says that HIEs save money. There are 42 exchanges in this year's survey, an increase of 10 since 2007.  The biggest challenge is said to be developing sustainable financing.

All of us know how much time and effort practicing clinicians spend tracking down imaging and laboratory results from other institutions -- and deeply believe that an information exchange is likely to save time and trouble and improve the overall quality of care.   But how compelling is the evidence that the system saves money?

This survey has some serious limits.  There is no standardized methodology to quantify cost savings or to allocate HIE costs.  I suspect that in many instances savings in medical costs might be fully offset by initial administrative costs of setting up and running these HIEs.  Further, the HIEs themselves are strongly biased toward reporting success rather than failure.   In many instances, costs are only eliminated when  previous non-electronic methods are eliminated.  For physician offices, for instance, there are no real resource savings until the staff that once tracked this type of material are laid off. 

I have no doubt that effective Health Information Exchanges should save money and improve the quality of care.  Whose money is saved is important - and calculating it right is critical if we're counting on those savings to make health care more affordable.

Do Retail Clinics Save Money?

This month's Health Affairs carries a number of thought-provoking articles -- more on this in coming posts. An article from Minnesota's Health Partners suggests that the insurer's contract with Minute Clinic did improve patient access - but didn't save any money on a risk-adjusted basis. This study was done using "episode treatment groups" for five acute episodes - which made up over 3/4 of Minute Clinic visits. Minute Clinic provided only a bit over 3% of the care in these episodes.

How could that be? Minute Clinics charge so much less per visit -- shouldn't they save money?

There are a few hypotheses. It's possible that many patients receiving care at Minute Clinics would otherwise have waited and thus a lower price is still more costly than NO cost to the health care system. This study would likely have missed this - as episodes are only triggered when patients seek care. In any event, overall Health Partners cost for these types of episodes increased - and most of this was driven by cost per unit rather than the number of episodes. The author also states that other providers could have raised their prices to account for the lost business.

Finally, although the press coverage trumpets "no cost savings," the actual article is more nuanced. In fact, the mean costs for episodes at Minute Clinics were substantially lower - but this was washed away by risk adjustment. Another piece of good news - physicians in Massachusetts have worried that pharmacy-associated nurse practitioners will prescribe antibiotics in every case. Mean pharmacy costs were significantly  lower (not by many dollars) than pharmacy costs in physicians offices and urgent care facilities.

Pay for Performance: Unintended Consequences

A cardiologist in yesterday's NY Times reports on a patient who received days of unnecessary antibiotics -- which he attributes to a Medicare Pay for Performance program encouraging rapid antibiotic treatment for community acquired pneumonia. The patient had a severe antibiotic complication, and spent two weeks in the hospital. Hence, pay for performance and public reporting, in this instance, led to higher costs.

There is good evidence that public reporting and pay for performance do increase performance in areas of measurement. Of course, they can distract attention from other important issues ("crowd out") and in many instances, these programs encourage correcting underuse - this will also increase costs.

Sometimes, these programs can encourage providers to rethink core processes. Let me give you an example. The sooner a patient with an acute heart attack has an angioplasty, the more likely she will have less damage to the heart. Nonetheless, historically "door to balloon" times (from the emergency room door to the catheterization lab) have been very high. For instance, the best hospitals are almost always able to complete an angioplasty within 90 minutes of a patient's presentation -- many other hospitals fail to do this more than half the time! Not many patients are reading the public reporting - but hospital administrators and physicians are - and care is improving as a result.

Back to Dr.Jauhar's example , I believe that hospitals can diagnose community acquired pneumonia in a hospital in less than 6 hours from patient arrival without resorting to indiscriminate use of antibiotics. Public reporting and pay for performance shines a bright light on this important issue. In many hospitals, clinicians are figuring out how to reduce steps, eliminate bottlenecks, delegate authority to non-physicians, and reduce the cycle time before treatment for pneumonia. In the end, that should improve quality AND reduce costs - but there are bumps along the way.

Laparoscopic Bariatric (Weight Loss) Surgery Saves Money (?)

Laparoscopic bariatric surgery returns its initial economic investment in a bit over 2 years, a study in this month's American Journal of Managed Care  asserts.  This is much more than can be said for most medical interventions  - which are cost-effective (usually meaning a cost of less than, let's say, $50,000 per quality adjusted life year), but not cost-saving (meaning that after the investment is made, medical costs actually go down.)  If this study (3651 patients in a 5 million patient database) is replicated -- this will make it more compelling for health plans to pay for this service.  Of course, few effective medical procedures are required to prove that they actually save money - most actually just make patients' lives better - which bariatric surgery has already been well-shown to do.  Also - most procedures which are initially claimed to save resources end up actually costing the system more money!

How could this be true - even if the AJMC study is absolutely correct?   During the study period (1999-2005), laparoscopic bariatric surgery was restricted to the highest risk patients, and done in a relatively small number of facilities by highly skilled high-volume surgeons.  If the procedure is used more widely, it's likely to be employed in patients with less of a "pay off."  It's also likely to be done by more surgeons with less expertise, at centers that don't have the same emphasis on multi-disciplinary programs.  

Further, in an accompanying editorial another healthcare economist points out that the savings in this study actually represent increase of cost of controls - those who had bariatric surgery didn't have lower post-operative costs!  

That's not to say that health plans shouldn't provide coverage for this procedure.  In fact, as the editorialist comments, few covered medical procedures pay for themselves.