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

This is a two part post.  Click here for part one of this post.

Observation Nine: We often promote competition that does not generate new value for patients, and reject competition that could create such new value.

Michael Porter (Redefining Health Care) has argued convincingly that we are encouraging competition and choice where it’s not meaningful, such as comparing quality scores for health plans, while we are not encouraging competition where it is more meaningful – such as quality scores for provider organizations.  Clay Christensen (The Innovator’s Prescription) points out that we need disruptive innovation to get to a $98 MRI like they have in Japan – but we have a series of rule that discourage innovations that are inferior but have a huge cost advantage.

Observation Ten: We medicalize conditions, driving up costs

From chronic insomnia to erectile dysfunction to attention deficit disorder, we have expanded the reach of medical diagnoses. In so doing, we have created huge additional health care costs.

Observation Eleven: While many see a primary care shortage, there is also a specialist glut

If we simply increase the supply of primary care physicians, but the supply of specialists remains high, it’s likely that our costs will increase.  That’s what happened in Seattle when Group Health created a “medical home” at one of its clinics. 

Observation Twelve: We are reluctant to regulate prices (and when we do, we design such regulation poorly)

Most countries regulate health care prices.  In the US, one state has continued to regulate hospital prices – and reports less cost inflation than other states.    Many states gave up on price regulation when they found themselves unable to keep up with medical progress.  Price regulation is messy, and there are some bad consequences. For instance, while I have already mentioned the $98 Japanese MRI, countries like Japan which regulate prices often standardize prices too low – so office visits there are reimbursed at under $25 – and physicians often see 100 patients a day.  Uwe Reinhardt describes hospital prices as "chaos under a veil of secrecy."  It's not clear we could make prices sensible by regulating them - and it's pretty clear that prices are not sensible now. 

Observation Thirteen: Providers must consolidate to allow for more integrated payment; however, provider consolidation increases the cost per unit

Tom Lee and Jim Mongan of Partners and others have made a convincing case that we need more integration of the health care delivery system.  Unfortunately, higher levels of integration often lead to higher unit costs – exacerbating our cost per unit problem.  The Boston Globe had a series demonstrating the high prices paid to Partners in Boston, and the Wall Street Journal did a great article on the increase in cost of health care in Roanoke Virginia after the two major nonprofits there merged.

Observation Fourteen: We often mistakenly think that we can measure the

cost of health care by medical claims alone

The health care system was not designed to “save money.” It was designed to make lives better (and longer.)  So – when an intervention costs real dollars, but gives a patient the gift of better health – that’s not bad.  We should measure the value of health care by what we’re getting out of it, not by the resources we're putting in.  If we can increase our productive lives, that’s of enormous value to us as patients, our families, our employers, and society as a whole.   It would be a terrible bargain if we spent 30% less on health care but didn’t benefit from minimally invasive surgery, or drugs that make AIDS a chronic disease, or drugs that actually decrease coronary artery disease.  

Observation Fifteen: Every health care dollar is someone’s income

Hospitals are the major employer in almost every community that has a hospital, and pharmaceutical companies, medical device companies, insurers and physician practices all are engines of employment and are dependent on revenue from heath care services. If we decreased the cost of health care by 30% tomorrow, we would see layoffs of hundreds of thousands – creating Detroits in virtually every community in the country.  We shouldn’t waste money in health care – but we shouldn’t expect to wean ourselves off of excess expenditures quickly (especially not in the current economic environment.)

Observation Sixteen: There are no magic bullets

Beware of the pundit who has an answer.   We’ll need to try multiple approaches to get more value out of health care.  This will require changes in health care delivery, changes in health care finance, and changes in public health efforts and investments.  Managing health care costs is not easy – note that virtually every industrialized country has seen health care inflation exceed general inflation over the past decade.  Managing health care costs won’t happen quickly.  There is likely to be reason to write this blog for a long time to come.  

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Rush Limbaugh Endorses Health Reform

Not really.

But he did note, upon his discharge from a hospital in Hawaii where he was evaluated for chest pain, that he got the best health treatment in the world “right here in the United States of America.” 

Actually, Rush Limbaugh got his care in a very unusual state indeed. Hawaii is second in the Commonwealth Fund’s ranking of the 50 states (and the District of Columbia.)

Hawaii is different than the rest of the United States.  It has great weather, is geographically isolated, and has never had much heavy industry.  It also has an unusual health care system - one that has many elements that are similar to those being proposed as part of national health care reform.

 Here are some of the unusual elements of health care in Hawaii.

1) Hawaii was the first state to enact an employer mandate in 1974 - and has one of the lowest rates of uninsured in the country. 

2) Hawaii has expanded Medicaid eligibility substantially. Again, this lowers the rate of the uninsured

3) There are two dominant nonprofit insurers in Hawaii, The Hawaii Medical Service Association (HMSA--a Blue Cross plan) and Kaiser Permanente. The employer mandate explicitly requires coverage at least as generous as those plans offered by HMSA and Kaiser – just as proposed national health care reform would mandate minimum credible coverage.

4) Kaiser Permanente cares for 20 % of the nonelderly population of Hawaii.  This salaried, integrated staff-model health plan has a world class electronic medical record system, which facilitates collaboration among its primary care physicians and specialists.  Regions with large penetration of Kaiser tend to have low costs (compare the costs in San Francisco with those in Los Angeles, for example)

5) Hawaii regulates its health plans strictly, prohibiting excessive or discriminatory rates, and allowing the insurance commissioner to wide latitude to impose financial penalties on health plans that violate its regulations.

6) Hawaii has among the lowest Medicare costs in the country (but very high overall quality).  I'm attaching a graphic from Health Affairs (researchers from Dartmouth and now HSPH) showing this.

So, with an endorsement of the health care system of Hawaii – Rush is in favor of many of the elements of the Senate health care reform bill that he has railed against.

(I couldn't resist posting on Limbaugh's comments.  I'll be posting part 2 of my New Year's observations tomorrow)

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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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