Illusory Promises of Future Health Care Cost Savings (and Increased Profits for Osteoporosis Screening Now!)

Click on image to enlarge it. Source 

The Boston Globe today has an excellent exploration of how lobbyists inserted language in the health care reform bill to effectively double payment for bone densitometry.   Medicare recognized that it was overpaying for osteoporosis screening tests, and cut prices.  Lobbyists for the scan manufacturers, physicians who perform scanning, and drug companies which sell osteoporosis medication cried "foul." As a result of a $3 million lobbying effort,  the price for a scan will go up from $50 to $97.

Here are two comments from (Democratic) legislators who got campaign contributions from the scanning industry and inserted this language into the health reform bill:

Representative Shelley Berkley (D-Nevada)

“You have to view these things through common sense. And it doesn’t take a genius to figure out that providing bone density tests for elderly Americans will save this country billions of dollars,’’ said  Berkley. “In addition to saving taxpayers money, it will prevent suffering that people with osteoporosis have.’’

Senator Blanche Lincoln (D- Arkansas)
“Part of her effort to strengthen and improve Medicare includes recognizing when a particular test with enormous potential to prevent health problems and significant promise of cost-savings is being taken out of doctors’ offices because providers can’t afford it,’’ said Lincoln spokeswoman Marni Goldberg. “That’s a flaw in the system that needs to be addressed.’’

The article notes that the cost of osteoporosis-related fractures is $19 billion per year. 

Both of these representatives are just plain wrong.   We should screen women at risk for osteoporosis - so that we can prevent fractures, prevent premature death, and give these women (and some men too) more Quality Adjusted Life Years (QALYs).   

However, when we make screening more available it costs more money.  It does not save money. In fact, depending on the analysis, each QALY saved by screening costs between $55,000 and $450,000.   Nothing wrong with doing screening.  But we should not offer false hope that this screening will save billions of dollars. 

Government Capital Assistance to Physicians: Will it Increase Health Care Costs?

Here’s an interesting problem.  Kaiser Health News  this morning suggests that government loans to physicians will ultimately increase the costs of health care.   Physicians and other clinicians borrowed a total of $2.5 billion as part of the economic stimulus.  This is on top of $19 billion in government funds to help clinicians implement electronic medical records.

Physicians invested these borrowed funds in expansion, and probably did this in areas that have high margin (as would any other business!)

Examples cited:
è $1.5 million for MRI expansion in Florida
è $3.4 million for expansion of physician-owned orthopedic space in Kansas
è $3.9 million for cosmetic dermatology services in Texas

Will this increase the cost of health care?  Absolutely.
Did these loans to clinicians help get the economy moving?  Absolutely.

Here’s the paradox – health care is a major driver of the American economy.  It’s critical to lower the growth in health care, so that we can make investments in other portions of the economy (like education, energy conservation, and road repair).  But it’s awfully painful to make cuts in health care.  In our lackluster economy, health care has been the one portion of the economy that has been reliably growing!

Different attribution rules lead to different assessments of physician efficiency

Warning – a wonky post.

Ateev Mehrotra and colleagues from RAND have analyzed how different rules about what physician is responsible for a patients’ care can lead to impressively different efficiency scores for physicians.   

They evaluated 2 years of medical and pharmacy claims data from 1.1 million commercially insured members in Massachusetts, representing about 80% of those with employer-sponsored insurance.   Claims were assigned to episodes of care using Episode Treatment Groups, ETGs, an industry standard.    Then, twelve ‘attribution rules’ were used to assign the costs of each ETG to one or more physicians.  These rules ranged in how much professional or evaluation and management cost a physician must be responsible for to be credited with the cost of the episode.  Some of the rules allowed crediting a single case to multiple physicians, and others did not.    Each physician was allocated to a high, average or low cost group (and some physicians were in a fourth group, without 30 evaluable episodes). 

The choice of ‘attribution rule’ mattered a lot.  Compared to the ‘standard’ rule,  different attribution assigned a physician to a different efficiency group between 17 and 61% of the time. 

This is an especially elegant study.  Mehtrotra standardized prices so that this evaluation is really all about utilization, not cost per unit.  In the ‘real world,’ though, cost per unit helps drive overall cost – so it’s possible that this study should be repeated without standardizing cost.   The researchers provide data in an appendix showing that most of the difference among the different attribution rules is movement of efficiency categories – not movement between efficiency category and insufficient sample size.  

This matters.   We recognize there is a large utilization difference between “efficient” and “inefficient” physicians.  If the measurements of physician efficiency are this unreliable, it is far harder to develop tiered networks to encourage patients to use more efficient physicians.    This also helps explain physician unhappiness at being assigned to different tiers in different health plan rating systems.

This might be another reason we should profile groups of physicians, rather than individual physicians.  

Pressure on hospitals to lower prices

Today’s Boston Globe reports that insurers are increasing pressure on hospitals to decrease their rates (or to stop increasing their rates as fast as they have been in the recent past.)   The three major nonprofit health plans have each sent letters to hospitals, in many instances demanding reopening of existing contracts to decrease agreed-upon rates.   The Blue Cross letter says “In the coming weeks, we will work directly with individual hospitals and physician groups on ways to reduce the payments we make to physicians and hospitals in the near term.”

The health plans make the point that freezing premiums isn’t sustainable if the underlying medical costs continue to increase.  The ‘safety net’ health plans which serve predominately Medicaid patients feel this in the extreme, going three years without an increase as their provider costs have continued to climb.

Will the health plans be successful at lowering unit costs through recontracting?

The Attorney General’s report  puts substantial pressure on the highest paid hospitals, which will be reluctant to use their leverage to maintain such a large payment differential.  The AG’s report also could embolden some of the facilities which are (relatively) underpaid to demand higher rate increases. 

I suspect that it will be very difficult to bring prices down substantially through the negotiation process as long as we demand that all health plans include essentially all providers.  Health care reform in Massachusetts has asked health plans to develop narrow networks – that could help in the efforts to lower unit cost here. 

Cancer Hospitals Partner with Community Hospitals: Competition or Metastasis?

What does it mean that a small southeastern Massachusetts hospital chain just announced its affiliation with MD Anderson Cancer Center (of Texas?)  What are the likely implications for the cost of health care?

The “name brand” cancer centers (Dana FarberMemorial Sloan Kettering,  MD Anderson,   Fred Hutchinson Center ) have been advertising like crazy – and many of their ads emphasize how important it is to get care in the right place first.   These cancer centers are generally far more expensive than care in the general community, and patients going to the major cancer centers are likely to be sicker, and more likely to participate in clinical trials. 

In Massachusetts and elsewhere, the recognized cancer centers are increasingly reaching out into the community, and those oncologists at facilities without a relationship with one of the centers worry that they will lose patients.  That’s exactly what’s happened in southeastern Massachusetts, where Dana Farber has established a relationship with St Anne’s Hospital, the major competitor to Southcoast. It's reasonable to worry that when the major cancer centers reach their tendrils into  community hospitals the cost could go up substantially. 

Southcoast will pay a fee to MD Anderson – which will increase the resource cost it takes to deliver care.   It’s unlikely many Massachusetts cancer patients will be transferred to Houston – so MD Anderson can’t recoup any investment it makes through profit margin from patient referrals.  The cost of the affiliation will not immediately be passed through to insurance companies, which have already negotiated contracts with Southcoast. 

This affiliation could increase the value of oncology care in Massachusetts if MD Anderson helps Southcoast physicians develop and implement processes that standardize the care of oncology patients and increase use of evidence-based, cost –effective care.    MD Anderson has to protect its “brand,” so it is likely to perform some meaningful oversight.  MD Anderson could improve care by offering algorithms, workflows, IT software, training, and distance consultation even patients don’t travel to Texas and MD Anderson physicians don’t make the trek to Fall River, Massachusetts.  

Here’s the other way this deal could help control costs. If there is a single ‘name brand’ cancer center, there is no competition which generally yields higher costs.  If Southcoast is able to make a better case to keep its patients in the community hospital setting instead of traveling to Boston, this increases choice and competition, which can lead to lower prices.

Bundled Payment Pilot Lowers Costs

 Today’s Wall Street Journal reviews the experience of a Medicare pilot program paying providers (physicians and hospitals) a lump sum for orthopedic surgery – and letting the providers negotiate prices with the manufacturers of artificial knees and hips.  If the providers can lower overall costs of care, they share in the savings.

The pilot  shows that providers with an incentive to keep prosthetic costs down negotiate hard to get better prices.  They pressure the manufacturers by dropping those who are most expensive.  And it works --  one hospital system in Texas claims to have saved $2 million in less than a year.  Keep in mind, though, that results claimed in the first year of a three year trial sometimes don’t pan out in the final analysis. 

This is good news, and not a surprise.  Providers who can benefit from savings they can wring from the system are effective at finding those savings!   While you might think that an insurer with its volume could get the lowest prosthetic prices – it turns out that few insurers can drive all their business to a few manufacturers. Therefore, insurers can’t achieve prices as low as a determined (and far smaller) provider organization that is willing to lock out some manufacturers.

The WSJ article noted that this pilot program “rais[es] a long-term risk for manufacturers already facing some pressure on product prices.” That’s absolutely true, and emblematic of the challenge that every successful effort to lower health care costs lowers someone’s income.

Don Berwick

The Boston Globe reported today that Republicans will oppose Don Berwick’s nomination as the head of the Centers for Medicare and Medicaid Services (CMS) by accusing him of being “an advocate for rationing care.”

Nothing could be further from the truth.  

In most industries, it is well accepted that the highest quality requires minimizing waste.   However, in health care there has been a real divide between those who devote their careers to improving quality, and those who devote their careers to minimizing waste.    That’s starting to change, and the Institute of Medicine defined quality as Safe, Timely, Effective, Efficient, Equitable and Patient Centered.  That’s a good sign indeed.   

Don Berwick is a pioneering prophet of quality who recognized early that controlling waste, and keeping health care affordable, is critical to quality.  He has written (eloquently) about the “triple aim” of improving the experience of care, improving the health of populations, and reducing per capita costs of health care.”   His organization, the Institute for Healthcare Improvement, has helped spread knowledge, best practices, and the gospel of reducing errors and complications to save lives (and money).

We clearly need a CMS Administrator who cares deeply about quality, and who also understands the centrality of reining in our out-of-control costs.  It won’t be an easy job, because unnecessary costs in one person’s eyes are income to someone else.   Don Berwick can do this job.  We’re lucky he’s willing to try.

We must all agree that to guard our country's future financial health (and decrease the future deficit) we must control health care costs. Demagoguery accusing anyone who cares about costs of rationing, or death panels won't help. 

Berwick was prescient in Health Affairs in 2008 when he wrote:

WHETHER OR NOT THE TRIPLE AIM is within reach for the United States has become less and less a question of technical barriers. From experiments in the United States and from examples of other countries, it is now possible to describe feasible, evidence-based care system designs that achieve gains on all three aims at once: care, health, and cost. The remaining barriers are not technical; they are political. 

6-9-10: Addendum. Doctors For America (offshoot of Obama's election committee) has a petition in favor of Senate confirmation at 

It's also worth reading his essay "My Right Knee," available free at the Annals of Internal Medicine web site. 

Physician Office Insurance Hassles Quantified

The new May Health Affairs is out on the web, although the hard copy hasn't yet reached my house. This issue is all about primary care reform -and it looks great. There are articles on the lower costs and higher quality of large multispecialty groups, success of one medical home, the roles of NPs and PAs,  and much more.  I'm just hopeful to have it in my hands before my next plane ride!

In the meantime, a colleague sent me an article from a year ago this week reviewing the cost of interacting with insurance companies for physician offices.  In this survey-based study, Casalino et al showed that physicians in smaller practices spent more time dealing with insurers, and in large practices staff spent more time.

Physicians reported that they spent 43 minutes per day (3 weeks of time per year) spent interacting with health plans- for a potential extrapolated cost of $31 billion.   As the authors point out, not all of these minutes were wasted; there are time the health plans added real value.  The mean was much higher than the median -- so there were some physicians with very high reported health plan interaction time that pulled up the average.

This is not a time and motion study, and physicians angry at the dysfunctional and fragmented system in which  they practice might have been blowing off some steam.

My colleague at Mass General Hospital published a study last month of their experience - creating a hypothetical model eliminating the fragmented multipayer system and assuming that there were a single set of transparent and reasonable rules across all health plans. The results were a bit lower estimate of the total cost of health plan interactions, but a higher number of lost physician hours. One way or another, there is a lot of time and effort spent in shuffling of papers and bytes of data back and forth. 

We should limit physician-health plan interactions to those that really increase value, either by lowering total cost (including provider and patient resource costs) or improving quality (such as detecting and remedying 'gaps in care.')

Unfunded Cost of Retiree Health Plans

I was at a meeting the other weekend with my state representative, and one of his (other) constituents referred to a report from the Pew Center on the States this winter about the unfunded pension and retiree health care obligations of the states.   I hadn’t seen this report – so I read through the executive summary today.

It’s a scary picture indeed.  Some states have funded their pensions as they go.  Florida, Idaho, New York, North Carolina and Wisconsin all had fully funded pension plans as of mid 2008.  On the other hand, most states are a mess, and a few probably make Greece look fiscally prudent.  Illinois, for instance, has funded just a bit over half of its future post-retiree liability.

What does it mean for a state to have an unfunded retiree obligation?  It means the state has spent too much and/or not collected enough taxes in the past. Sooner or later, the state will have to either agree to collect more tax revenue (which can chase away business and lose elections for incumbents) or will have to spend less (which means laying off workers, who then pay less in taxes and require more services – which creates a terrible vicious cycle – just what we’re likely to see in Greece)

The graphic above demonstrates a problem that hasn’t reached the public consciousness.  There is widespread dismay that public employees have generous conventional defined benefit pensions, where those in the private sector are lucky if they have defined contribution pensions – which means great uncertainty about lifestyle in retirement.  But it turns out that while 17% of total pension obligations are unfunded, a whopping 95% of all post-retiree health care costs are unfunded.  Of course, a shortfall is a shortfall – and money can be moved from account to account  - but still – states have put away only 5% of the dollars they need to pay for the health care costs of their current and future retirees.
Click on image to enlarge

Why does it appear so many states are being so fiscally imprudent?

States have to balance their budgets, but “OPEB” (other post employment benefits) costs are notoriously hard to project, and many governments simply project unrealistically low future costs. Frankly, politicians don’t want to raise taxes OR to spend less – so it’s not surprising to find this underfunding.

Could it get worse?

Sure.  The Pew Center analysis is based on data collected before stock market losses led to further shrinkage of pension funds. Further, this only counts the states.   Municipalities, quasigovernmental agencies and other government entities also have unfunded retiree obligations! The Government Accounting Standards Board  (pronounced “Gas-bee”) has announced new rules that will force all government agencies to be more transparent about their future obligations, so we’ll be reading a lot more about this in the future.

Could it get better?

Yes.  This huge unfunded liability assumes that health care costs will continue to increase rapidly over the coming years. If health care costs do not increase at such a rapid rate, we’ll likely escape the worst of this reckoning.  That means fewer teachers, policemen and firefighters laid off – and a future of fewer unpaved potholes.

The unfunded governmental post-retirement health care liability  is another powerful reason why we have to rein in health care cost inflation. 

Ethics, self referral, and cost of care

The New York Times’ ethicist Randy Cohen opined on Sunday  that a physician should not refer a patient to a radiology center in which he has an ownership interest (and should certainly always be up front in informing patients of the conflict).   Cohen concerns himself with the ethics, and doesn’t mention the ultimate cost to our health care system of physician self referral.

I did a review of this topic a few years ago.  Some relevant facts:

- Imaging self referral associated with increased imaging utilization by factor of 1.7 to 7.7  (Hillman BJ, Olson GT, Griffith PE, et al. Physicians’ utilization and charges for outpatient diagnostic imaging in a Medicare population. JAMA 1992;268:2050-4;Hillman BJ, Joseph CA, Mabry MR, Sunshine JH, Kennedy SD, Noether M. Frequency and costs of diagnostic imaging in office practice—a comparison of self-referring and radiologist-referring physicians. N Engl J Med 1990;323:1604-8.)

-The GAO estimated that self referral is  associated with increased imaging utilization by factor of 1.95 and 5.13 (Referrals to physician-owned imaging facilities warrant HCFA’s scrutiny: report to the Chairman, Subcommittee on Health, Committee on Ways and Means, House of Representatives. GAO/HEHS-95-2. Washington, DC: U.S. General Accounting Office; 1994.)

-          Financial incentives led to physicians in a primary care practice increasing their imaging ordering by 16% (Hemenway D, Killen A, Cashman SB, Parks CL, Bicknell WJ. Physicians’ response to financial incentives. Evidence from a for-profit ambulatory care center. N Engl J Med 1990;322:1059-63.)

-          In the late 1990s, most of the increase in noninvasive imaging was for tests read by nonradiologists (Maitino AJ, Levin DC, Parker L, Rao VM, Sunshine JH. Practice patterns by radiologists and nonradiologists in noninvasive diagnostic imaging utilization among the Medicare population between 1993 and 1999. Radiology. 2003;228:795-801)

Cohen quotes Katie Watson, a Northwestern professor, who says “I trust my physicians…t.o be human beings, which means they’re vulnerable to subconscious influences and incentives just like the rest of us.”

Clearly, having physicians earn higher income when they recommend tests performed at facilities that they own is troubling.  It’s also expensive.