Managing Healthcare Costs: prices

Today’s Managing Health Care Costs Indicator is One

Click on image to enlarge. Source

The eyes of the nation have been focused on Massachusetts, as the Affordable Care Act is modeled on health care reform in Massachusetts. When it comes to cost, We’re Number One!

The Blue Cross Blue Shield of Massachusetts Foundation just published a great 50-slide deck of graphics comparing health care cost and utilization in Massachusetts with the rest of the country. Massachusetts has the highest cost of health care in the country, and the largest number of physicians per capita. Our physicians are more likely to be specialists than in the rest of the country. Our hospitals are more than twice as likely to be academic medical centers. Our health insurance designs are among the richest around, with low average deductibles.

Most of the increased cost of care since Massachusetts’s health care reform has been cost per unit, not increased utilization. The rate of cost increase in Massachusetts has been lower than the rest of the country since we passed our health care reform, although of course we started at a much higher base.

Implications of Massachusetts experience for the post-ACA American health care system:

· Increasing access doesn’t lead to an instant onslaught of new utilization

· Health care is regional –and structural issues (not health care reform) make health care in Massachusetts spectacularly expensive

· We need to keep our eyes on price – not just utilization – if we want to control the rate of health care inflation

* Health care inflation crowds out other important societal priorities (see graphic at the bottom of this post. That's why health care reform, and control of health care costs are so important.

The Blue Cross Blue Shield Foundation conclusions:

Massachusetts spends more on health care than any other state.
Higher costs were not caused or markedly accelerated by health reform, as Massachusetts has been a high spending state for years.
The underlying difference in spending between Massachusetts and the U.S. overall is rooted in the state’s demographics, insurance coverage, and health care market structure, which includes disproportionately many specialists and teaching hospitals and some very large and powerful hospital systems.
Though the amount of most services used increases every year, the majority of the growth in health spending comes from increased prices.
There is enormous variation in total health care spending across the state, stemming from variations in both price and utilization.
However, neither higher prices nor higher utilization of services is associated with higher quality or better health outcomes, suggesting that there is a significant amount of waste in the Massachusetts health care system. It also suggests that costs can be lowered without decreasing overall quality or health outcomes.

Source: Blue Cross Blue Shield of Massachusetts Foundation

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Today’s Managing Health Care Costs Indicator is $442,450

In 1993, Anderson and Reinhardt wrote a seminal article in Health Affairs, titled “It’s the Prices Stupid.” They described differences between the US health care system and those of other developed countries. Contrary to the beliefs of many, our problem is not one of utilization, but rather of high cost per unit of services delivered. We use fewer office visits, fewer hospitalizations, shorter lengths of stay, and fewer prescriptions than other similar countries.

In 2009, George Halverson touted data from the International Federation of Health Plans

showing use price disparities across countries. US costs – just about off the charts.

This month’s Health Affairs is entitled “The New Urgency to Lower Costs,” and Columbia professors Miriam Laugesen and Sherry Glied (now an assistant secretary of HHS) revisit the topic of unit prices– and find similar results . They show that orthopedists make $442,450 on average in the US – a third higher than the next highest country. Primary care physicians on average make $186,582 in the US, 15% higher than in the UK, and double the income of primary care physicians in Australia. All of these costs are net of expenses.

The authors have also tried to account for the high cost of medical education in the US, which is often cited as a cause of high physician income in the US. They calculate that amortized over 30 years of practice this would be $21,300 (primary care) or $24,400 (orthopedics) – and higher salaries far exceed this differential. (I think the emotional impact of tuition loans is higher than the emotional impact of foregone earnings during training, so I think the authors are undercounting this differential).

The authors also compare costs for total hip replacement, an elective procedure that doesn’t differ from market to market. In all countries there is much higher cost for private payers than for public payers – but again, the cost in the

is far higher than the costs elsewhere.

As I’ve mentioned before, there is not a single ‘silver bullet’ to address the high cost of health care in the US. We often focus on unhealthy lifestyle behaviors and overutilization. Both are very comfortable for providers, since they are not responsible for lifestyle and it’s generally other providers who are overutilizers. We won’t get closer to the costs of European and other developed countries, though, until we address unit cost issues. AND – we won’t fully address unit cost issues without having a negative impact on physician income.