Bad News = Good News = Bad News

Today’s Managing Health Care Costs Indicator is 200

That’s how many job cuts three hospital systems in Massachusetts have announced in the last few weeks. A fourth, Cambridge Health Alliance, has shed 450 jobs, almost 15% of its employees,  in the last 18 months.  The headline on page one of  Sunday's Boston Globe was  “ Health care, job engine for state, is pulling back. Sector sees layoffs, cuts”   Big Massachusetts health care employers including Partners (50,000 employees) are saying they will do no new net hiring this year.

Moody’s just announced a “ negative outlook” for the nonprofit hospital sector, predicting ”weaker financial performance ahead due to a sluggish economic recovery, growing levels of uncompensated care, and flat volume trend.”  Moody’s analyst notes that  “hospitals that can execute deeper levels of expense management through fundamental changes in their operations will be positioned better to navigate the next couple of years. 

Moody’s earlier noted that Medicare cuts would cost the nonprofit hospital industry  $440 million in the next year.  

This is certainly contrary to Christine Roemer’s statement 6 months ago that “health care will remain a large source of job growth in the labor market.” At the time, I worried that increased health care employment meant that we would not get a grip on health care inflation.

Bad news:  Many hospital workers are unemployed, at a time when the job outlook is dim. Further, for every job lost, there are multiple jobs that are not created.

Good news: This means we’re finally going to see a lower rate of medical inflation

Bad news:  Health care is an engine of economic growth, representing 12% of all employment in the country (15% in Massachusetts).   Getting health care costs under control will help increase our international competitiveness, and will free company resources to invest in innovation and growth.   However, much of the innovation and growth in the US has been in health care.  

Cutting the rate of health care cost increases is critical to our economic future, and health care costs increasing at a rate 2-4% higher than overall economic growth is not sustainable.  Cutting this cost growth is not going to be painless, though.

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Consolidation of Providers: Better Integration, or Threat to Competition

Today’s Managing Health Care Cost Indicator is 40%

The Washington Post  had an article last week about Carilion Health System, in Norfolk VA.  The hospital system credits a merger that created the system with allowing the creation of a true integrated delivery network. Not everyone agrees. 

The Wall Street Journal had an article in 2008 about this system. The US Justice Department opposed the merger that created Carilion, but lost in court.  The WSJ noted that over two decades southwestern Virginia health insurance rates went from the lowest in the state to the highest.

The Robert Wood Johnson Foundation  reported in 2006 that mergers of nearby hospitals are associated with cost increases of as much as 40%.   Of course, it’s easy to know what happens with hospital charges, and measuring what happens with actual payments is substantially more difficult.  Here’s a link the classic Uwe Reinhardt paper in the chaos of hospital pricing.   Harvard Link

The CEO of Carilion, Edward Murphy says “"We need to fundamentally get off a transaction system where you're paid for what you do to patients to being paid to care for them."  The real question is whether Carilion will accept a change from the fee for service system that has treated them very well.  The WSJ noted that colonoscopies at Carilion are billed at over $4700!

Many communities are facing the question of whether to support the development of accountable care organizations, or whether to promote more robust competition among providers.  It’s a tough choice – we all want better coordination, but on the other hand we worry that more bundling of payments will lead to diminished consumer choice.

Here are some questions I’d ask from a public policy perspective about the move toward greater provider integration:

1)     Is the integrated entity accepting accountability for the cost and the quality of care.   If the integrated entity insists that all payments continue to be fee for service, cost is likely to increase with more integration.

2)     Will the integrated entity commit to robust transparency, sharing process metrics, as well as outcome metrics.   These outcomes should be risk adjusted – but risk adjustment shouldn’t be an excuse to delay disclosure for an inordinate period of time.

3)     What is the integrated entity doing to lower the resource cost of care delivery within its own system?  The more it is doing, the better the chances that further integration will lower costs.  I’m seeing more hospital systems looking to move past fee for service. Integration can help providers have the depth and scale to lower costs.  But getting larger can also give providers the leverage to keep charges artificially high, and thus prevent cost savings. One cautionary note is that disruptive innovation is likely to help drive lower health care costs –but larger, more complex organizations are more likely to resist disruptive innovation.

4)     Will there still be competition after the merger?  In Carilion’s case, the answer seems to have been “no.”  Without competition, it’s hard to drive lower costs and force greater efficiency.  Since care delivery is local, competition has to be defined in a narrow geographic area.

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Self Referral: Another Installment

(Click image to enlarge)

This month’s Archives of Surgery (Harvard Link)   has an impressive article showing that orthopedists who own their own ambulatory surgery centers are substantially more likely to recommend surgery compared to physicians who don’t have an ownership interest in the surgery center.

The author, Jean Mitchell, went through state filings and insurance company records and made phone calls to ascertain physician ownership of surgery centers. She then analyzed claims data from a large private insurer (representing about 40% of the Idaho market) and determined what percentage of patients with specific presenting complaints had a surgical procedure.  She reports on the differences in behavior between owners and nonowners.

Surgery rates were 33-100% higher for shoulder rotator cuff surgery, and 27-78% higher for arthroscopic surgery. The differences among surgeons increased dramatically around 2005, as more surgery centers were opened. (The exception is carpal tunnel surgery, where the orthopedists who owned centers did far more surgery, but the difference predated the surgery centers opening).

The increase in utilization when physicians financially gain from self-referral has been well documented for years.  See this post for a review of the literature as of a few years ago.  

In 1995, Idaho had 37 hospitals and 4 specialty hospitals owned by physicians.  By 2005, there were 42 ambulatory surgery centers, 39 of which are owned entirely by referring physicians.

There is no easy answer.  Regulations have not proven to be especially effective.  Physicians opened up “limited use” or single specialty hospitals because federal legislation prohibited referral physician ownership of general use ambulatory facilities. High margins are one of the problems – if surgery was not over-reimbursed, it’s not likely that capital would be available to set up such centers. We don’t see a self-referral problem for low margin procedures.  The AMA and physician specialty societies could take a stand against this self-dealing, but this self-referral increases the income of many leading specialists. It’s hard to take income away from physicians.

Speaking of conflict-of-interest, this study was funded by the American Hospital Association.  Hospitals have been the big losers as physicians have built competing ambulatory surgery centers, which drain the higher margin procedures from the hospital.  The Archives of Surgery fully discloses this potential conflict.  Not all the physicians who own surgical facilities disclose this potential conflict to their patients.

ADDENDUM: USA Today notes that health care reform will force physician-owners to disclose their ownership interest when they refer patients to their own imaging equipment, and offer nearby options.

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Hospital Bad Debt Grows

Today’s Managing Health Care Cost indicator
is 30%

Health care reform promises to increase the number of Americans who have health insurance - which is great.

Here’s a word of caution though.  The Philadelphia Inquirer reports that hospitals in the Philadelphia area see an increasingly large portion of their bad debt from patients with insurance.  In fact, bad debt attributable to insured patients rose from $490 million to $550 million from 2007 to 2008 (the last year covered by a hospital survey.)

What gives?

Insurance is changing pretty dramatically.  Many patients who previously had first dollar coverage now have insurance with high front-end deductibles, and insurance has been migrating from copayments (fixed amounts that patients owe) to coinsurance (where patients owe a portion of the total bill.)  In effect, we are moving ‘back to the future’ when health plans covered a more limited range of services, and consumers often had to pay up front and then collect 80% of the allowed charge from their insurance plan after they received services. 

There are good elements to this change. Many economists worry that when care appears “free,” there is the moral hazard which encourages people to seek more care than they would value if they had to pay directly for it.  Thus, these high deductible health plans discourage ‘discretionary’ medical care that’s of little value. Patients who have to pay more of the bill are sensitized to the cost of health care, and will theoretically refuse unnecessary care and pressure providers to lower unit costs.   

On the other side of the argument, there is fear that higher deductibles and coinsurance might convince some patients to defer or refuse outright medical care that would be valuable to them.   This survey demonstrates the collection risk for providers inherent in increased patient cost-sharing.   This could mean that health plans are becoming too "skinny," and offering benefits with too many holes.  It could also be an indication that ill patients and their families are in a poor position to argue for greater economy in their care.  

The takeup of higher deductible health plans has increased substantially over the last two years, and at the same time the economic woes have led to high rates of unemployment.  Hospital bad debt rates are a likely early indicator of an increase in medical bankruptcies - so this will be an important indicator to watch.  Increasing bad debt combined with an increase in patients covered by Medicaid (a notoriously stingy payer) will push hospital even harder to lower their cost of care delivery. 

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The Heart of Power

I'm reading David Blumenthal and James Morone's wonderful book (The Heart of Power: Health and Politics in the Oval Office) about the health care policies of presidents from FDR to GW Bush.  Each president approached health care and health care reform differently - framed by their own personal experiences, political and ideologic beliefs and the political and economic environment.  The book helps clarify just how hard it was to pass health care reform, however flawed.

The book is organized by presidential term, and I'm midway through the LBJ section now.  LBJ consistently told his aides to stop bothering him with the details and the price tags - and that's why we have Medicare and Medicaid today.

Here's a quote I want to share:


"....the more sophisticated the analysis, the dimmer the political prospects for health reform. Put bluntly, careful budgetary and policy analyses subvert the political prospects of covering more people."

Does this mean that presidents should be blind to the financial implications of expanding coverage?  Absolutely not. However, our enhanced ability to analyze and project hasn't always made it easier for us to move forward.

The managing health care costs indicator will return with the next post.

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78% - The Fee For Service Problem

Today’s Managing Health Care Cost indicator
is 78%

I'm preparing for the fall semester at the Harvard School of Public Health, and I've been digging through references about the impact of  fee for service and capitation on utilization.   I researched this for a Harvard Business Review article a few months ago, and found data on rates of cataract surgery in a group that was transitioning from fee for service to capitation.  In that instance, the rate of cataract surgery dropped a jaw-dropping 51% in one year.

But there's some potential demagoguery in that number.   It's likely that the ophthalmologists knew that the "index" year was their last chance to get paid "extra" for doing more surgery, and they might have advanced surgery from the next year into that index year, leaving a gap in demand during the intervention year.  This would have also made the apparent baseline seem higher than it should have been.  To my knowledge, a followup has not been reported.

I happened upon an article from Health Economics last spring that uses the Community Tracking Survey data (which matches what consumers report in terms of the medical services that they used with actual data on insurance coverage) and showed that surgeons being paid fee for service was associated with an eye-popping 78% increase in rate of surgery compared to capitation.  The article is especially robust, because there was matching of actual insurance coverage and provider payment methods, and the analysis was restricted to patients who had no choice of insurance plan to avoid adverse selection in the fee for service group.  Here's a full-text link for Harvard users.  Whether primary care capitation lowered surgery rates depended on whether there was prior authorization in place.

My take - this is further evidence that moving away from fee for service provider payment is a necessary element to lowering the rate of health care inflation.

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Health Care Reform Will Save Medicare Costs

Today’s Managing Health Care Cost Indicator is $575 billion        

The Washington Post reports that the health care reform bill will

• -       Save $8 billion in 2011
• -       Add 12 years of solvency to the Medicare trust fund
• -       Save $575 billion over the next 10 years

Where is this money coming from?  For starters, Medicare will continue to increase in cost – just not as fast as it would have without the passage of health care reform.   The biggest losers (Modern Healthcare, registration required) 

• -       Hospitals and other providers  $205 billion
• -       Medicare Advantage plans $145 billion

The estimate suggests that care improvement will result in savings of $13 billion over 10 years.

This won’t solve all the problems in health care finance (and savings in Medicare could result in cost shift to other payers).  But this demonstrates that health care reform does begin to address the cost problem.

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End of Life Care

The Managing Health Care Costs Indicator is 25%

Atul Gawande has an essay in the August 2 New Yorker magazine about end of life care.  Gawande marvels that we physicians encourage patients to get obviously futile care – and that the care we give people at the end of their lives is part of the cause that health care has gotten so expensive. He gives examples from his own practice where he’s had a hard time telling patients there is no hope.  He goes out to a patient visit with a hospice nurse, and reports that she corrected him when he suggested that the purpose of hospice was to “let nature take its course.”  The hospice nurse defined the point as to helping patients “live the fullest life now.”    

People often note that a quarter of Medicare dollars are spent on the last six months of life. That's the source of today's indicator.   It turns out that while end of life care is a big cost driver for Medicare, it is a much smaller cost driver for employer-based health insurance plans. 

Source at this link

I’ve been doing a bunch of thinking about end of life care lately.   We all know anecdotally that we offer futile care – and we all know further that flogging people as they are dying leads to more pain and suffering for the person dying, and for all of their loved ones.   We also understand that there is ridiculous variation in the way care is delivered to those at the end of their lives. Here's data from Dartmouth researchers published in Health Affairs in 2004. 

Of course, the biggest cost of futile care is non-financial, and is borne by dying patients and their families, who bear unnecessary pain and suffering, and are robbed by medical technology of the chance to say goodbye.

On the other hand…

People at the end of their lives sometimes find every “found” minute precious.  Healthy people doubt how much suffering they would be willing to endure to live a few more days or weeks.   Sick people often, not always, would endure hell to breath a bit longer.  So who are we to say otherwise?

There was a haunting article in the New York Times in April about a palliative care specialist who was diagnosed with breast cancer at age 31, and who helped guide hundreds of her patients to a “better” death during her career. 

….As the doctors began to understand the extent of her underlying cancer, “they asked me if I wanted palliative care to come and see me.”

She angrily refused. She had been telling other people to let go. But faced with that thought herself, at the age of 40, she wanted to fight on.

My colleague Jaan Siderov, in the excellent Disease Care Management Blog points out that he saw patients who were at death’s door in the ICU – and who said “Surprised to see me, Doc?” when they came to his office for post-discharge followup.

There is certainly a lot of cost associated with end of life care.   People get Folotyn for their non-Hodgkin’s lymphoma, and the cost is $30,000 per month and there’s been no proof of even life extension.  On the other hand I was talking about this to a colleague whose wife has non-Hodgkin’s lymphoma.   It’s a different discussion entirely.

There is no easy answer here.   From a health policy point of view, I know that when we treat someone with an expensive drug who has no hope of benefit, there are fewer resources available in health care to immunize kids or counsel those at risk for sexually transmitted disease.  Further, I know that societally we’ll have fewer resources to fix the roads and provide good educations to our kids.  From a human point of view, though, I understand why people cling to the tiniest of hopes, even in the shadow of irrefutable evidence that these hopes are false.

What should we do?

Let’s learn from Oregon and Washington state.  They’ve each instituted the POLST (Physician Order for Life Sustaining Treatment) to allow patients to designate that they don’t want resuscitation if they stop breathing or their hearts stop.  Let’s learn from Lacrosse, Wisconsin, where few nursing home residents are transferred to the hospital – and a majority of elderly residents have advance directives.  85% of those who died had a living will.  85%!  In most communities, it is well under fifty percent.

Let’s talk to our loved ones about what kind of care they would want if they were unimaginably sick.   Let’s not wait until they have tubes in every orifice, and we can’t talk to them.  Let’s tell our loved ones what we want for ourselves, too.

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