"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.