Arnold Relman: Doctors Can Fix Health Care

Today’s Managing Health Care Cost Indicator is $152 billion

Arnold Relman, a former editor of the New England Journal of Medicine, has a long piece on health care in this week’s New York Review of Books.  I especially liked the title:  “How Doctors Can Rescue Health Care.”   I was hoping that he would emphasize that even in our system riddled with administrative waste and resource-consuming middle men, most health care dollars are spent in the delivery system, and physicians determine how much health care is going to be delivered in many or even most instances.

Relman diagnoses three main problems with current efforts at health care reform

·         The Affordable Care Act increases our reliance on private health plans. He states the overhead and profits of private health plans add $152 billion to our annual health care bill.

·        The Affordable Care Act doesn’t change fee for service, which encourages higher utilization

·        The Affordable Care Act does not decrease the fragmentation of health care, and he is skeptical that the Accountable Care Organizations will take off based on provider pushback.

He also notes that the prospect of the Independent Patient Advisory Board helping to bring more evidence to health care decision-making is dim, concluding that the constraints on the IPAB will lead it to suggest price cuts and benefit reductions rather than ways to actually improve care.

Relman doesn’t spare opponents of the Affordable Care Act, either, stating that “Republicans in Congress have pretty much limited their health policy to an unyielding opposition to “Obamacare,” to calls for reform of malpractice litigation, and to their traditional reliance on “market forces.”  He notes that Paul Ryan’s Medicare plan would substantially increase patient cost sharing.

Relman finds hope in the consolidation of provider systems with physicians increasingly salaried employees.  He notes that surveys from the American Medical Group Association and the American Hospital Association suggest that as many as a quarter of American physicians are now employed in multispecialty groups.  However, he states that the current payment system limits how many costs will be saved even in these systems without intrinsic incentives to overutilize care.

He suggests, with more than a whiff of magical thinking, that as more people see the value of these integrated systems, we’ll start having a real discussion about payment reform, and he states

…    It might become easier to pass legislation that created a system based on a tax-supported single-payer system, with prepaid comprehensive care for all. Obviously, there is no guarantee this would happen. Indeed, the odds would still be against it. But if most physicians were to be employed in multispecialty groups, the growing number of practitioners now supporting major reform would probably become a strong majority. This could well change the climate of opinion enough to influence legislation.

I’m not convinced.   I like multispecialty groups because I think they can deliver tightly integrated care, use teams that include robust roles for nonphysicians, and think about an entire population, rather than just the patients in that day’s schedule.   But tightly-integrated multispecialty groups require large capital investment, and there are few markets (San Francisco, Minneapolis) where such groups are dominant.   Kaiser and the clinics in the upper Midwest and the Pacific Northwest have cultures that have been built over many decades, and current physicians who highly value autonomy are not going to coalesce into Kaiser-like groups across the country in just a few years.    Further, there is good evidence that provider consolidation is actually raising costs.

Relman deeply dislikes health plans, especially for-profit health plans.  However, even Medicare is largely administered by private (for-profit) claims administration companies.  Further, health plans are big businesses. The top five have market capitalization of almost $120 billion and United Health Care alone says it employs over 70,000. They are not going away any time soon!

Source: finance.google.com 

I think Arnold Relman got the headline right, though.  Physician bills represent less than 20% of all medical costs – but physicians play a pretty substantial role in determining how much we’ll spend on everything else. We spend too much on

·        Drugs (we use too many brand name drugs when generics would do just as well)

·        Hospitalizations (we have too many readmissions among the elderly, and use expensive academic medical centers when community hospitals would be just fine)

·        Medical devices (don’t get me started on the overuse of implantable defibrillators)

·        Dialysis (with worse results than the rest of the developed world)

Physicians can rescue health care – and many around the country are working hard to implement Toyota or Lean techniques – others are doing process reengineering to eliminate unnecessary steps, and some are learning from Disney and other great retail and consumer products companies about how to better meet the needs of the customer, aka patient.

But I don’t think physicians being more discrete in their use of medical resources will lead to the collapse of the current health care finance system, as dysfunctional as it is. 

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Bundled Payment Matters: The Beth Israel Example

Today’s Managing Health Care Costs Indicator is 10

Paul Levy , the former CEO of Beth Israel Deaconess here in Boston, wrote a few days ago  that the “religious” belief among architects of health care reform that we need to move away from  Fee For Service payment was distracting us from other reforms that could genuinely make health care better.  

He writes:

How much damage is being done and how much time is being lost by our society by a religious belief in a payment scheme that has not been proven and that has many inherent difficulties? 

I beg to differ, and I offer his own Beth Israel as an example. 

There was a report two days ago on WBUR  about a new program by the physician organization there to educate physicians about the prices of various tests they order and procedures their patients undergo.   The primary care physicians, it turns out, are enraged that every time an otolaryngologist performs uses a scope to view a patient’s larynx the cost of an office visit goes up by a factor of 10. 

Why do physicians rarely know the prices of what they order?  There are a multitude of reasons – which include our chaotic pricing system where each payer allows a different amount for the same procedure and high margin procedures cross-subsidize lower-margin services.   (Great article in September’s Harvard Business Review by Michael Porter (Redefining Health Care) and Robert Kaplan (Balanced Scorecard) on the issue which illustrates the folly of how we currently account for health care costs; I’ll have more to say on this article in the coming days). 

What has made the BIDMC physician organization decide to tackle the issue?  I’d argue that this is a result of the BIDMC’s participation in the alternative quality contract with BCBSMA – a payment system that includes a total global budget  - capitation by another name.  When a group of doctors are responsible for overall costs, they start caring about the resource costs of care delivery!

The AQC hasn’t saved any money in its first year , and it’s easy to throw stones.  But sensitizing physicians to prices and costs, who order many of the procedures that drive health care costs up, is certainly a good first step.

By the way, for a longer description of the problems of fee for service, see a series of past posts

Part One

Part Two

Part Three

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Urologists Recommend IMRT for Prostate Cancer – And Double Their Income

Today’s Managing Health Care Costs Indicator is $40,000

The Wall Street Journal continues to review Medicare payment records and ask probing questions about where the money is going.  I’ve previously recommended the WSJ evaluation of some of the high-billing probably fraudulent metro New York primary care physicians

Last week, the WSJ turned its attention to intensity-modulated radiation therapy  (IMRT), which is used to treat prostate cancer.  Among the treatments for prostate cancer are watchful waiting (small cost), surgery ($16,000 by the WSJ – sounds low to me), radiation seed implant ($19,000), and IMRT ($40,000). IMRT uses a computer to do a 3-D reconstruction to limit the amount of radiation delivered to noncancerous tissue.

The WSJ posts estimates from vendor about how IMRT can boost the income of a urologist by $336,000 if s/he refers just two new cases a month.  IMRT became available in the mid-2000s, when the urologists were suffering from serious loss of income after Medicare clamped down on profiting from prostate cancer drug markups.

Self referral continues to drive health care costs higher.  I’ve blogged on this before – there are higher rates of rotator cuff surgery in the practices of surgeons  who own ambulatory surgery facilities, and orthopedists who own MRIs and CTs refer to their machines with apparently excessive frequency.   Here’s a link to an older review of the literature on self referral.      

I don’t think many urologists who give IMRT believe that they are overutilizing this procedure.   However, the potential to double income is highly likely to have a subconscious effect.   We need to get away from paying for each unit of service, and dangling almost irresistible incentives in front of those who we expect to make decisions in the best interests of their patients.

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The Low Unit Price Fallacy

Today’s Managing Health Care Cost Number is $121

Propublica, a nonprofit investigative reporting organization, published a carefully-researched article on kidney dialysis  in the United States last week. The article will be in next month’s Atlantic magazine, and I learned about it from an interview on NPR’s Fresh Air.

We initiate dialysis a lot of people in the United States – more proportionately than any other developed country.  We’re obese and getting more so, and diabetes is a major cause of renal failure. Renal failure disproportionately afflicts African-Americans and the poor; part of this is because those with poor access to health care are more likely to have uncontrolled high blood pressure.  However, our patients on dialysis die more quickly than those in other countries --

The article focuses on the poor care offered in the US compared to other developed countries.  Reporter Robin Fields documents renal failure patients who exanguinated when their dialysis catheters were hooked up incorrectly, and centers that were repeatedly cited for safety violations.  She points out that in other countries kidney failure patients get longer dialysis, and have more physician supervision.

No surprise – we spend a lot of money on dialysis too.  On average, we spend $77,000 on dialysis per patient per year – more than any other country

Here’s the surprise.  We spend less per dialysis session than all other developed countries except Australia - $121 per session in 2003 -  even though the resource cost to deliver dialysis is substantially higher.

How could it be that in a country where unit price is almost always the problem, we are paying such a low unit price for dialysis?

Well – this price is set by the US Congress – which has been aghast at the total cost of dialysis, about  $20 billion per year. Congress lowered the price per session in the 1980s after noting very high margins for dialysis providers. The two companies that dominate the dialysis industry remain very profitable. 

AND while the unit price is low, the aggregate cost of dialysis per patient per year is much higher than elsewhere.   How can this be?

In the US, we pay a single price for the dialysis, and we pay separately for medications that are administered intravenously during the dialysis.  This has meant that dialysis units facing a large cut in their reimbursement for their core service were able to be profitable by administering large doses of erythropoietin (epo), a medicine to combat the anemia associated with renal failure.

As a result, the US has used far more epo than other countries – good news for Amgen, the manufacturer.  This has been bad news for patients, though, as we’ve learned that higher doses of this medicine don’t simply mean less anemia, they also cause higher risk of heart attacks and strokes. 

CMS has announced a new plan to bundle payments for dialysis. The total stated cost will be higher –but the dialysis center will no longer be able to gain margin from administration of medications.   That’s good news.

As the Congress debates legislation that would once again reverse the physician SGR (sustainable growth revenue) 23% Medicare physician fee cut, it’s important to remember that too low a price in a fee for service world can lead to overutilization of other services.   Simply cutting prices can lead to results that can be expensive, and can hurt patients.   

These graphics and data for top graphic are from this article in the International Journal of Health Care Finance 2007. Click images to enlarge 

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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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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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Japanese Have A Better Idea for SGR (Sustainable Growth Rate) Fee Cuts

The House of Representatives voted last week to give another reprieve to physicians, who faced a 21% Medicare fee cut because of a provision called SGR – or Sustainable Growth Rate.   The SGR mandates cuts in fees for all Medicare services if the total number of services increases. Essentially, if too much service is delivered, each unit of service is reimbursed at a lower rate. This helps keep the Medicare budget “in balance.”

National Public Radio and others  characterize the SGR provision as a “glitch.”  Indeed it really feels like a mistake, since each year Congress overturns the SGR and reinstates small fee schedule increases or flat fee schedules. Each year, Congress has only kicked the can forward to the next year. When SGR would have required a 5% fee cut one year, it requires a cut of over 10% the next year, and you can see where this is going.

It was never intellectually honest to overturn the SGR on a year by year basis –because if a 5% pay cut is untenable, a 21% pay cut is unimaginable.   Still, the cost to the federal budget deficit of eliminating SGR altogether would be over $200 billion (over 10 years). The Congressional Budget Office recently reminded us that eliminating this fee cut will also cost Medicare beneficiaries almost $50 billion in increased out of pocket expense over the next ten years.

The SGR was not a “glitch,” but it was a poorly designed way of trying to prevent overutilization.  The problem is that the benefit of increased revenue to individual providers overwhelms the risk of a pay cut due to overall higher than expected utilization.  This is a classic “tragedy of the commons”  problem – where it pays for each individual provider to do more procedures, knowing that her contribution to the “overgrazing” will be overwhelmed by the practices of the general population.

SGR is poorly designed because the group of procedures it applies to (the equivalent of the “pasture” in the tragedy of the commons) is too big – and no physician would rationally think about cutting back on utilization to prevent future fee cuts.  There is a better way.  Japan has an SGR-equivalent which is by individual service –not generic across all services. 

Prices are revised individually, adjusted for each procedure and drug, and not by an across-the-board conversion rate. In particular, the prices of procedures that show large increases in volume tend to be decreased. (Ikegami  and Campbell, Health Affairs, 2004)       Harvard Link 

As a practical matter, procedures with large increases in utilization are sometimes those where there is new evidence of efficacy, but they are likely to be procedures with an exceptionally high margin.  This method of adjusting helps diminish the excess margin associated with particular services, so there is less likelihood they will continue to be overused.

So – we should get rid of the SGR – it’s not effective at changing physician utilization, and would cause politically infeasible across-the-board cuts.  As long as we are using primarily fee for service payments, Medicare should adopt the Japanese approach to targeted fee cuts for certain procedures if the volume increases. 

(Thanks to Tori Fancher, Sophie Miller, Amy Rothkopf, and Alicia Widge of HSPH HPM235 for drawing my attention to this approach)

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Massachusetts Faces the Bill for Covering the Uninsured

Yesterday, the New York Times featured front page coverage of Massachusetts’ health care reform.  The effort was lauded as “boldest state health care experiment in American history” for reducing our uninsured rate to 1/6 of the national average.  The article also noted that there is currently a commission reviewing options for payment reform, and that the state can only afford near-universal coverage if health care spending increases are moderated.    

 

Yesterday’s Boston Globe had an op-ed piece by Jim Mongan, the CEO of Partners, who said four efforts would help us control health care spending.

1)    Transition payment away from “fee for service.”   Of course, this won’t be easy to do – since much of our delivery system is fragmented and providers will have a difficult time accepting (and dividing up) bundled payments.  The Massachusetts payment reform commission is taking this seriously, and the local Blue Cross Blue Shield plan has an alternative contract that has a “standard global budget,” otherwise known as capitation.  I’m enthusiastic that this is a real key to reining in health care inflation, but there are a lot of devilish details to work out. I’ll talk in a future blog about some critical issues in the conversion from “fee for service” to some type of bundled payment.

2)    Better use of healthcare information technology.  There is a real debate about the impact of HIT on costs, and an op-ed in the Washington Post  points out the lack of empiric evidence that electronic medical record really lower cost or improve quality.  I can’t imagine practicing in an environment without an EMR, but I wouldn’t want to count on the associated cost savings.

3)    Disease management for high risk patients.  Medicare’s randomized control trials yielded encouraging results in terms of quality, but disappointing results in terms of net savings.  We need to get better at identifying patients for disease management programs, and make these programs much less expensive.

4)    Comparative effectiveness research.  I’ve covered this issue in an earlier blog. We should clearly invest in research in comparative effectiveness, but the cost-savings will depend upon how we use the results.

I’d like to add a fifth suggestion to help control medical costs, which is outside of the medical care realm.  We should invest in improving the overall health of our population.    Let’s be honest, we smoke too much (17% of adults in Massachusetts – fewer than the national average but still far too many), we don’t exercise enough, and we weigh too much.  We need to rethink tax and farm subsidy policies to discourage tobacco use and extra calories on a national level.  On a state level, we need infrastructure investments in “built environment” and zoning changes to make it easier to exercise.  As spring is arriving, I’d like to see some shovel-ready bike paths. And of course hospital executives would like to see lower spending on double-wide beds.

 

Payment reform really will be key, though – and there are two good times to do payment reform. The first is when there is a surfeit of “new money,” so no one has to lose. The second is when most providers believe that the current system is unsustainable, and are fearful that if they don’t come to the table they might lose even more.   That’s where we are now – so it’s a good time for some real payment reform.  

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