Physician Self Referral (and my weekend plans)

Physician self-referral is in the news today (and yesterday). This is a good sign - we are talking about real concerns!

Today, the Washington Post points out that orthopedists who bring MRI and CT scans into their offices do far more tests. Yesterday, the New York Times noted that the McAllen Texas physician-owned hospital has given gobs of money to Democrats across the country. (Prohibitions on physician ownership of hospitals and ambulatory facilities are being watered down in the heath care reform legislation – and it’s easy to see a connection). This is the hospital in the Texas town that Atul Gawande has made famous in a New Yorker article examining the cause of high cost care there. His conclusion was self-referral.

There is excellent evidence that physician ownership of ancillary facilities increases utilization of these facilities by a factor of between 2 and 9. (Proximity of ancillary facilities alone also increases utilization, even absent physician ownership).

Potential solutions:

1. Decrease the fee for service payment for services that involve self-referral, so that these are no longer high-margin . This is tough to maintain – since technology generally lowers the cost of ancillary services, and it’s hard to keep on lowering prices in real time

2. Heavy duty regulation – like the Stark Laws that prohibit physician referral to services in which they have ownership interest. As a practical matter, these regulations have ended up having meaningful loopholes which have decreased their effectiveness. Removing all loopholes might restrict access in rural areas or decrease innovation.

3. Bundle payments – to make providers feel accountable for the resources used in caring for the whole patients. This also encourages consolidation of physicians – perhaps into accountable care organizations – which could be very promising.

Personal note:

I’m going to stop thinking about managing health care costs over this weekend, and I’m doing a two-day charity bike ride to raise money for cancer research. If you’re interested in learning more about this, go to I’m also going to tweet on Twitter during the rest stops over this ride – if you’d like to tune in, go to

Block That Metaphor – and Marbled Fat

Yesterday on Fresh Air Maggie Mahar told Terri Gross of NPR that there was 30% waste in the health care system. She went on to say that the waste was not just “fat hanging out of the sides of the meat…. It is marbled in, so we’ll need a scalpel” to remove the waste.

I don’t know any carnivorous surgeons who can use a scalpel to carve out marbled fat. While at first I thought the metaphor was awful – perhaps it’s very apt. Cutting out some waste might appear easy – but since waste is always someone’s income, removing it might be akin to removing the marbled fat in a steak.

Speaking of marbled fat- Health Affairs had a timely web release yesterday pointing out the cost of obesity n the American health care budget. This article assigned $147 billion to excess costs from obesity in 2006 – and pointed out that obese people cost 13% more than matched nonobese people in the working population under 65 (with private insurance).

This number will be quoted a lot – and it should be. We pay a huge societal price for being sedentary and eating too many calories. Individuals with high BMIs(body mass index) pay a high personal price, too.

Let’s remember, though, that identifying obesity as a cause of excess costs is not equivalent to solving the health care cost crisis. In the medical world, there aren’t many wildly successful approaches to weight loss aside from bariatric surgery – which is serious enough that it is restricted to those with morbid (severe) obesity. There are things we can do outside of the medical world – like building bike lanes and walkable cities, opening up the stairway doors and discouraging elevator use, and putting calorie counts on menus. None of these has been definitely proven to cause weight loss – but at least all of these public-health oriented measures are inexpensive. They are also a great example of “choice architecture, making it easy for people to make more personally and socially beneficial choices.

Reframing the Debate, and A Personal Example

"If somebody told you that there is a plan out there that is guaranteed to double your health-care costs over the next 10 years, that's guaranteed to result in more Americans losing their health care, and that is by far the biggest contributor to our federal deficit, I think most people would be opposed to that...That's what we have right now, so if we don't change, we can't expect a different result."

Barack Obama tried to reframe the debate last night. We’ve been stuck in a “Nash Equilibrium,” where (virtually) no one is overwhelmingly happy with the current system, but few are confident that a huge change will be personally beneficial. Therefore, it’s hard to make any progress toward change. Obama’s statement is supposed to help underline how unacceptable the current situation will become in subsequent years. This makes us compare health care reform with a dire future, rather than the present, which is pretty acceptable to most insured Americans and very acceptable to constituents within the health care system.

On another note, I’ve been impressed that the New York Times has fielded thoughtful and insightful reporters on health care in recent years. One of my favorite reporters is Gina Kolata, who wrote an excellent book on the 1918 influenza epidemic in 2000. Kolata has a memoir piece in today’s paper explaining why she chose to receive utterly unproven therapy for her running injury. Making even savvy patients into prudent consumers isn’t easy.

Once Again, It's The Prices

I've blogged periodically about the role that prices play in health care costs. The seminal 2003 Health Affairs article by Uve Reinhardt and colleagues was titled "It's the Prices, Stupid." The Wall Street Journal has made a stunning graphic from CMS data that illustrates the issue:

This shows that during each time period the impact of changes in cost per unit are larger than the impact of demographics or the impact of increased volume of services. In fairness, some increase in prices represents technologic advance (CT scans over plain x-rays).

But it's so much easier to get attention to concerns of overuse of services -- and it's so hard to get stakeholders (especially providers) to acknowledge the cost per unit problem we face. Why is that?

I think that most physicians believe that overuse and misuse happens elsewhere, so there is a sense that this problem can be addressed without any impact on me. We all know that lowering prices will have universal impact -- so it's much more comfortable not to go there.

That's why the Obama administration's push to use an independent commission to determine Medicare payments (upon which most other payments are based) is especially promising. But this problem will be solved in the health care delivery system - not merely by jiggering the prices or even the payment system. We need delivery system reform that can deliver better quality at a lower price. Our current system does deliver much-valued advances, but does this with an ever-increasing price tag.

CBO Says Reform Bill Too Expensive (and 2 places to find funding)

The Congressional Budget Office has posted its analysis of the House democratic health care reform bill. The CBO says the reform bill will increase the federal budget deficit by over $1 trillion over the next 10 years. Interestingly, new revenues will decrease the deficit over the first five years, but the incremental costs of insuring more Americans and incremental payment to providers causes the deficit to balloon from 2014-2019.

The tally:

Deficit Reduction:

$196 billion – decreases in provider (not physician ) payments

$156 billion – decrease in payment to Medicare Advantage health plans

$30 billion – more rebates from pharmaceutical companies

Deficit Increase:

$245 billion – increased physician fees

The CBO document, which is brief, does not specify the other elements that will increase the budget deficit. There are substantial subsidies to allow low and moderate income Americans to purchase health insurance – and I expect that’s a large cause of the increased costs in the “out” years. Massachusetts’ legislature recently voted to deny subsidies to legal immigrants. The move is on hold due to a gubernatorial veto – but a strong indication that the cost of providing increased coverage is steep.

On another note, the New York Times had an insightful article on the front page today reminding us that not all screening tests are a good idea, and the 40 year “war on cancer” has let us down the path of increasing screening which in many instances (including prostate cancer) increases cost without a huge benefit to patients. There really are opportunities to decrease cost without sacrificing benefit.

John Iglehart had an article in the New England Journal this week about fraud and abuse. He points out that this represents at least $60 billion annually (3% of spending) – and notes that in the past Congress has been unwilling to fund efforts to root out fraud from the health care system.

(click on image to enlarge)

Managing Health Care Costs: Good News on Two Fronts

The Washington Post reports today that the Obama administration is pushing hard for Congress to get out of the business of setting Medicare rates. The report notes that just before leaving the Senate, Ted Stevens engineered a permanent 35% increase in Medicare rates for Alaska providers – just the kind of pork we should oppose, and an enormous market distortion. We have a serious cost per unit issue in the US – and getting the legislature’s fingers out of Medicare fee setting would be an important step.

The Massachusetts Special Commission on Health Care Payment System issued its final report today. It’s a big document (over 70 pages), and I haven’t finished digesting it yet. The report comes down firmly in favor of global payments – and pushing the development of accountable care organizations to accept capitation or other forms of bundling of payment. The Commission recommended the establishment of an independent oversight Board to oversee the transition of payment in the state – and specified that the Board should not be comprised of stakeholders.

Today saw recommendations to take Congress out of Medicare payment rates, and have an expert independent oversight Board in Massachusetts to oversee a transition away from fee for service. Perhaps this represents a blinking light at the end of the health care reform tunnel?

Tomorrow’s Washington Post reports on the Congressional Budget Office critique of the democratic health care proposals. It’s no surprise that the CBO is taking a tough line on purported savings, and this will give fiscal conservatives pause about supporting the health care reform plan in time for a bill to pass this summer. It also gives Congress a real push to identify more savings before completing the legislation. I think that these kind of savings will require the kind of payment reform that was recommended today in Massachusetts.

Good News…. And Bad News

The Council of Economic Advisors released its report on jobs of the future yesterday. The good news is that the council expects robust growth of jobs in health care.

"Health care is forecasted to remain a large source of job growth in the labor market. The long-term trend toward more employment in health care is expected to continue, with many health care occupations, including medical records and health information technicians, registered nurses, clinical laboratory technicians, and physical therapists, expected to grow." Source

Sounds good. Ironically, the highest growth is expected in ambulatory services including home health care, where MedPAC has recommended large Medicare fee cuts.

The dark side of this forecast is that if there is robust growth in health care jobs – it means that we’ll keep on spending more on health care. This is consistent with the hospital and pharmaceutical agreements to save dollars over the next decade by lowering prices while expecting higher volume of compensated services. It’s not consistent with effective health care reform and universal access with lower overall costs.

The Hospital and Pharma Agreements to "Cut Costs"

There has been a lot of talk about the recent agreement between the Obama administration and the American Hospital Association promising a $155 billion decrease in hospital costs over the next ten years to help provide funds necessary for health care reform and increased access. This promise represents a lot of money – is it real?

The New York Times suggests, in both a news article and an editorial, that the real “savings” promised by the pharmaceutical industry and the hospital industry are less than they might first appear. I agree.

Much of the savings offered by the hospital association and the pharmaceutical industry are predicated on increasing coverage. The hospitals have agreed to a decrease in payments for uncompensated care – since there will BE less uncompensated care. For the pharmaceutical companies, more coverage means a larger market for their medicines and higher aggregate cost (not lower cost). The medicines that will now have higher adherence rates are generally cost-effective but not cost-saving. Therefore, using more of these medicines can help us achieve better outcomes at a higher (not lower) cost.

What we really need is not cost shifting (pay comes from insurance policies subsidized by the government, rather than directly from the government) but true cost savings. This will take real changes in clinical practice at hospitals. For instance we need efforts to

* Lower hospital-acquired infections and other errors
* Standardize practice, and increase adherence to evidence based guidelines
* Standardize purchasing – so that each surgeon can no longer demand her own brand and type of suture material or prosthetic
* “Downshift” work so that each employee is performing at the highest level for which she has training

Here’s a quote that really worries me, from the head of obstetrics at a hospital south of Boston that was recently noted to have a Caesarian Section rate of 45% (compared to a World Health Organization goal of 15%, and a national average of 28%)

“As long as women are receiving the proper education and the proper information so that they’re making the best decisions for them, then I’m OK with [the high c-section rate],” said Dr. Keith Merlin.

We won’t be able to lower costs at hospitals with attitudes like this. There is pretty good evidence that women don’t choose c-sections – and usually leave that choice to the professionals.

On the pharma side, we’ll also need more medicines that make life better and do so while saving dollars, rather than just costing a reasonable amount. This means quicker follow-on biologics, more generics, and lower initial prices on new entities. This will require wrenching changes in the business model – and could lead to enormous societal benefit.

So – these agreements are a good idea – and having the delivery system “on board” with health care reform is valuable. Obama and Congress will have to push for serious delivery reform, though, if we want truly affordable, reliable, high quality care.

Protecting Consumers Purchasing Medical Insurance

I’ve been gnashing my teeth over the July 1 New York Times front page story about yet another medical bankruptcy. Lawrence Yurdin, a 64 year old who worked for a temp agency, purchased an Aetna policy through his employer. The policy offered $150,000 in hospital benefits. The catch? It covered only room and board. That wasn’t much help when he was hospitalized for heart surgery.

Now – Senator Charles Grassley is investigating Aetna -- which is a good thing. When he investigated United Health Care for similar policies, the company announced it would no longer sell such “limited” policies.

But a company-by-company review isn’t really the answer here. Even those who believe strongly in the marketplace recognize an important role for government regulation – and this is an area of medical insurance just calling out for such intervention.

What’s wrong with a policy that covers only hospital room and board?

1. Transparency: You’d almost have to be a lawyer to figure out the restrictions of coverage. Even the Aetna preregistration department, it appears, didn’t realize how restrictive the policy really was!

2. Value: This type of coverage would lead to a low “medical loss ratio,” meaning that too much of the premium paid would go to health plan profits or administration rather than to financing health care.

3. Public Policy. I can’t think of anyone who would be well-served by purchasing this type of policy. Government generally only allows sale of insurance contracts that are not contrary to public policy, so this type of restrictive benefit is just aching to be banned.

Many states regulate health insurance effectively. I remember watching the movie Sicko and commenting that most of the egregious health plan activities, like aggressive underwriting that would withdraw coverage for cancer therapy because a claimant hadn’t ‘fessed up about a past vaginal yeast infection, are simply illegal here in Massachusetts. But fixing this problem state by state will take too long, and there will be too many unprotected victims along the way.

There is excellent precedent for the federal government regulating the private health insurance market. A good model is federal regulations which transformed the “Medigap” market a few years ago.

Medicare offers incomplete coverage – and participants have to pay $1,068 inpatient deductible each year, 20% coinsurance for doctors’ services, and between $267 to $534 for each hospital day. Many seniors purchase a Medigap policy to cover these ‘gaps’ in Medicare coverage.

Prior to regulation, the Medigap market was a giant mess. Many senior citizens purchased multiple overlapping plans – most famously some paid premiums for more than one Medigap plan while they could not afford food. Medigap regulation

-Mandated that all Medigap plans offer certain minimal coverage

-Standardized product design

-Prohibited companies from knowingly selling more than a single plan to an individual.

-Banned agent bonus commissions on this product.

It was possible to pass this legislation, in part, because legislators recognized that senior citizens were vulnerable – and were deserving of special protection. The insurance industry suggested that this type of regulation might chase many insurers from the market – but it turned out that there is still plenty of choice in this market.

Lawrence Yurden and his wife will lose just about everything because he trusted his health care financing to an ill-designed insurance policy that victimized him. We’re all vulnerable here – and appropriate regulation would be an important adjunct to a fully-functional private insurance market.

The Myth of A Painless Way to Cut Health Care Costs

Elliot Fisher, a professor at Dartmouth who has tirelessly researched variation in medical care across the country, has been in the news a lot lately. The Dartmouth Atlas research team has documented enormous variations in utilization around the country. This variation was recently the topic of a widely-quoted New Yorker article by Atul Gawande which helped demonstrate the seamy underbelly of American medicine: our physicians do more procedures because that’s how they earn their money.

National Public Radio had a story yesterday morning entitled “A Painless Way To Cut Health Care Costs?” Fisher was quoted extensively – pointing out that we should move away from fee for service payment methodologies we could eliminate a lot of medical costs. (I agree). Reporter Julie Rovner wondered if this means that slowing the growth of health care costs “doesn’t have to hurt.”

It all depends who you are.

If you are a patient, decreasing variation is good. Decreasing variation means that we offer more reliable health care, and decreasing overutilization will prevent medical errors and lower patient copayment and coinsurance charges. No problem there.

If you are an employer or the government purchasing health insurance – ditto. Decreasing variation (and increasing the prevalence of evidence based care) should lead to higher value in the health care purchase. Sign me up.

But is this likely to be painless for hospitals and doctors? Not by a long shot!

Health care, at 1/6 of the economy, employs a lot of people and creates an enormous amount of wealth. In most communities with a hospital, that hospital is the major employer in town. The top ten nongovernmental employers in Massachusetts includes three hospital systems and one university that includes hospital employees in its headcount.

In a sense, if we cut out 30-35% of all hospital revenues, we would end up with Detroits all across the country (especially in Massachusetts).

Let’s also not forget that the US has much lower utilization than all of the OECD countries that we look to as examples. So – while Fisher et al have demonstrated convincingly that medical communities in northern New England and the northern Plains states deliver better care while spending fewer resources, the excess cost in the US compared to Europe is largely due to cost per unit, not utilization.

I agree with Fisher and others that we should work hard to decrease variation and by so doing decrease utilization. In many instances (like preventive care), decreasing variation and increasing evidence based care will actually increase utilization and costs; I favor this too.

But I would not call solving this problem “painless, “ and I would not underestimate how difficult it will be to overcome opposition to efforts that would undermine the current business model.