It's STILL the Prices

The New York Times has an editorial today again reminding us that the prices of care in the US are the major reason why costs are so much higher here than in other developed countries.

Here's the accompanying graphic:

Click image to enlarge.   Source 

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Ezekiel Emanuel and Health Care Costs

Today’s Managing Health Care Cost Indicator is $26 billion

Ezekial Emanuel, noted oncologist, ethicist, recent presidential advisor and brother of Rahm, finished a four-part article in the Times Sunday Review about health care cost control.  It’s well worth reading.

Post One: Spending more doesn’t make us healthier reviews the fact that we aren’t getting better health or health care for the extra dollars we spend in the US -  and these health care dollars crowd out other meaningful uses for those dollars

Post Two: Less than $26 billion – don’t bother makes the point health care costs go up over $100 billion a year. He reasons that if a potential intervention wouldn’t save at least 1% of costs – we should put our efforts into other initiatives.  This threshold is important in terms of setting priorities.

Post Three: Billions wasted on billing points out that the administrative costs of our complex and fragmented system are enormous, and he uses his own experience with minor surgery as an illustrative example.   He doesn’t suggest fixing the fragmented and complex system – merely standardizing transactions.

Post Four: Saving by the Bundle suggests that there are huge potential savings associated with better coordination of care of the sick – and they’re the ones whose medical expenses are driving cost increases. 

I recommend the series – it’s thoughtful and provocative

It’s also missing an important element of our health care cost crisis.

There is no acknowledgement that the underlying reason why our system costs dramatically more than Canada or the European countries is not even administrative costs or poor coordination.  It’s that we have very high prices compared to these other countries.    Here are some charts from Massachusetts about this topic, here’s a reference to a September Health Affairs article on the issue of unit cost, and here is a post that gives links to International Federation of Health Plan data and the original 1993 Anderson/Reinhardt article “It’s the Prices, Stupid?

There are plenty of reasons why stakeholders don’t want to talk about the unit price issue.

• Providers are being paid these high unit prices. It’s easier to talk about someone else’s utilization than one’s own price!
• Pharmaceutical companies like high unit prices just fine
• Health plans are a bit embarrassed that they’ve been unsuccessful at controlling unit costs
• Health plans and other parties have a profitable business in lowering utilization
• Government wants continued growth in health care sector jobs 

Movements toward narrow networks and reference pricing will be future counterbalances to high prices (and high variation in prices from facility to facility).  If we can better control unit prices, we can lessen medical inflation substantially.

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Three Graphs Tell the Story: It's the Prices!

These three graphs are from the Recommendations of the Massachusetts Special Commission on Provider Price Reform. released last week.  For anyone who wonders if unit cost is a substantial portion of the cause of health care cost increase in Massachusetts, these data paint a clear picture.

The entire report can be accessed at this link.

Click on any image to enlarge it.

Jon Kingsdale, the founding Executive Director of the Connector Authority in Massachusetts, will be talking about the role of government in health care costs in our HSPH course on Wednesday.  Here's a link to a Health Affairs blog post of his from July on the problem of "costitis."

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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. 

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Observations on Managing Health Care Costs (Part 1 of 2)

Happy New Year.

I’ve just finished my first full year of blogging about managing health care costs, and just completed my sixth year of teaching a course “Managing Health Care Costs” at the Harvard School of Public Health.  I wanted to share some observations from our final class of 2009.  Class slides are at this URL.  

This posting will be in two parts – I’ll post the second part tomorrow.

Observation One: Sick people are expensive to care for.

 The top 1% of nonelderly patients represent 30% of all medical costs.  We need programs to better manage those with serious illness, and a regulatory framework to discourage risk shifting and patient dumping.

Observation Two: The problem in the US is much more unit cost than utilization

In the US, we have fewer doctor’s visits, fewer prescriptions, fewer (and shorter) hospitalizations compared to all other developed countries.  But our average hospitalization costs over $12,000, compared to under $10,000 (France, Canada) and under $4000 (UK and Netherlands).

In Japan, MRIs cost under $100, compared to $1500 in the US. 

Observation Three: Our lifestyles cause large medical costs

The good news is that we smoke less than we did. The bad news is that we’re getting more and more overweight. 

Observation Four: We don’t like to make tradeoffs

Everyone agrees we should perform more care that increases quality while lowering cost.  This means we should give more vaccinations –but there aren’t many money-saving medical interventions. We also agree that we should do fewer things that raise cost while lowering quality.  So let’s not give middle aged men Vioxx, which works as well as ibuprofen but increases the risk of heart attack.  The challenge is that we are not willing to give up tiny quality increases at enormous costs. See, for instance, a new cancer drug that for $36,000 a month decreases tumor size in under 1/3 of patients.   We’re also reluctant to design systems that  are 'decrementally cost effective.'   

Observation Five: There is huge variation

Atul Gawande’s “The Cost Conundrum” in the June 1 New Yorker   brought well-deserved attention to the work of Jack Wennberg, Elliot Fisher, and others at Dartmouth who have been showing us the vast variations in utilization of health care.  In expensive areas, we have too many hospital beds and too many doctors – and we use them.  Good example of how decreasing hospital beds does not decrease quality in David Leonhardt’s column in the New York Times this past week. 

Observation Six: Fee for service is toxic

Imagine if we paid auto manufacturers by the bolt rather than for a completed car. We would have cars chock full of bolts –each one an extra cost, extra weight, and an extra ‘point of failure.’  That’s what we’ve got in a fee for service health care system 

Observation Seven: There is a cultural clash between those seeking to preserve the “art” of medicine, and those looking to create more reliability and cost effectiveness through industrial redesign

Jerome Groopman worries that electronic medical records and standardization will take the personal relationship out of medicine.  I worry that lack of accountability and standardization is responsible for many medical errors –and we just can’t rely on the extraordinary effort of individual physicians to insure quality and cost-effectiveness.

Observation Eight: We pay a heavy economic and noneconomic price in our effort to banish uncertainty

It’s our intuition that every additional piece of data increases our knowledge.  This is simply not true. We often gather data in our quest to banish uncertainty, and that data doesn’t much change the chance of real, serious, treatable disease, but does increase cost and increase the risk that we’ll do further, more dangerous tests or interventions. I’ll be blogging more on the vain quest for certainty in the coming days. 

I'll post Part II of these thoughts tomorrow.
[Addendum: thanks to Wellescent Health Blog for note, and I have finished the sentence in observation four]

Part Two of this post is here.

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