Entries in Cost & Utilization (58)


Round Up the Usual Suspects 

By Kim Bellard, September 11, 2012

Two recent reports have added more empirical support to the widely held belief that our health care system wastes significant amounts of money.  I’m shocked, shocked!  As Captain Renauld said in Casablanca, round up the usual suspects. 

The first report, published in Health Affairs, was from UnitedHealth Group.  The authors examined data from 250,000 physicians around the country, focusing on the privately insured population.  Consistent with the years of data from the Dartmouth Atlas on the Medicare population, it showed widespread variation.  The authors report episode costs for procedures vary 2.5 times, while episode costs for chronic conditions vary 15-fold.  Overall, the report concludes that costs could be 14% lower if delivered by physicians meeting certain quality and cost-efficiency designations. 

An even more assertive claim was made by the prestigious Institute of Medicine (IOM).  Their report, Best Care at Lower Cost, believes that as much as a third of spending is wasted – some $750 billion based on 2009 health spending.  The IOM is no stranger to big claims, including the oft-quoted 98,000 deaths annually due to medical error in their landmark report To Err is Human.  In their new report, they conclude that 75,000 deaths could be avoided if every state delivered care as well as the best performing state.  The IOM was more granular than simply claiming the waste is all unnecessary care: $210 billion in unnecessary services, $190 billion in excessive administrative costs, $130 billion from inefficiently delivered services, $105 billion due to prices that are too high, $75 billion in fraud, and $55 billion in missed prevention opportunities.  That’s a lot of targets of opportunity.

The IOM notes some lessons from other industries, and believe significant improvement is possible, on a variety of fronts: using information technology more effectively, creating systems to manage complexity, more focus on making health care safer, improving transparency of costs, quality and outcomes, promoting teamwork and communication between providers, partnering with patients, and decreasing waste/improving efficiency. They believe that the technology is here to support all these, and the problem is better application of it to health care systems and processes.  No mention was made of “death panels” (!), although I’m waiting for someone to bring up that specter.

There are too many examples that illustrate the flaws in the current system.  For example, Johns Hopkins recently reported that as many as a quarter of adult patients in ICUs may die as a result of missed or incorrect diagnoses, resulting in some 40,500 deaths annually.  The authors note that is more people who die each year from breast cancer.  One would think that ICU patients are getting pretty close attention, more than other patients, which make these results all the more troubling (to be fair, of course, they likely have complicated sets of conditions, making diagnosis harder).

More troubling are recent allegations and lawsuits about unnecessary heart surgeries aimed at increasing hospital revenue/physician income, including HCA and St. Joseph-London in Kentucky.  If these allegations are shown to be valid, these practices may just be the tip of the iceberg.  Throw in recent warnings about the overuse of well-intended but over-used diagnostic tests like screenings for ovarian cancer or prostate cancer, or the cost-benefits from increased exposure to radiation via increased imaging, and it makes one wonder if treatment recommendations should come with a warning label. 

The IOM cited technology as a tool to help support improvement in how the health system performs, and there is data which suggest this hope is not in vain.  The CDC reports that 55% of physicians had an electronic health record in 2011, and half of the remaining physicians expected to be using one in the next year.  Clearly, HITECH has helped spur this adoption, as has the trend of health systems purchasing physician practices.  Solo practitioners significantly lag in adoption (29%), and CDC reports a statistically significant difference in adoption from physicians over 50: 49% versus 64%.  More importantly, about three-quarters of adopters believe that the EHR both enhances patient care and meets Meaningful Use criteria. 

Also encouraging is a report from Medpage Today on physician technology use.  They report 9 out of 10 physicians experienced an increase in the use of the Internet in their practice: 71% spend 3 or more hours a day on a computer, 24% use a mobile device 3+ hours a day, and 18% use a tablet 3+ hours per days, all in support of their practice.  Unlike the CDC results, though, they see very little impact of age on technology adoption, except in use of a smartphone.  The Medpage respondents are a stressed bunch, seeing more patients each day and, as a result, seeing fewer drug reps, spending less time with each patient, and reading fewer medical journals/attending fewer conferences.  The last point is particularly concerning to build the nimble “learning” culture that the IOM advocates, which helps account for the finding that almost all respondents are using their devices to keep up-to-date on clinical news and medical education. 

I’ve often been critical of physicians’ reluctance to adopt technology solutions, but I’m increasingly coming to the point of view that it is technology that is failing them.  We’ve laboriously endeavored to get medical records into an electronic state, when the real challenge is deciding what health data we want tracked, and what views/inputs are needed by different types of users – including patients.   I’ll point to a nice column by Shahid Shah that details some of the kind of patient-centered forward thinking we need, as well as to a recent study by Hripcsak and Albers that reminds us that poorly designed data going in has damaging effects on the usefulness of that data. 

Maybe we need to scrap all those legacy practice management systems and EMRs and study what modern CRM systems in other industries can teach us about tracking and knowing patients, as well as take advantage of lessons learned from just-in-time manufacturing to improve care delivery efficiencies.  Add to those all the real-time data that mobile tracking apps and other monitoring devices can provide on patients’ health and we have a shot at disruptive innovation. 

Job number one in improving our health system has to be measuring who is doing what to which patients, and what impact it is having on those patients’ health.  Without better data on those, we’ll still just be rounding up those usual suspects.  


Too Bad About Your Coverage 

By Kim Bellard, July 30 2012

There’s more data that shows health coverage is good for people.  Too bad fewer people than expected will have it. 

The New England Journal of Medicine recently reported on a study by Sommers et. alia which showed that Medicaid expansions can be linked to lower mortality rates in the impacted populations, along with better access to care and improved self-reported health status.  Not surprising, really, especially on top of last year’s study from the Oregon Medicaid program, that also showed that those lucky enough to win their coverage “lottery” did fare better. 

ACA was supposed to greatly increase the population covered by Medicaid, but with the Supreme Court ruling’s loophole on states adapting the expansion, that picture no longer looks quite as rosy.  The Congressional Budget now estimates that 6 million fewer people will get coverage through Medicaid and CHIP, although they obviously do not yet know which states will elect not to expand their programs.  CBO believes that half of those 6 million people will get coverage via the insurance exchanges – although I’m not clear why someone who would have gotten coverage in the Medicaid expansion would have income above the magic 133% of poverty level – leaving a net increase of 3 million more uninsured than under the original ACA estimates. 

CBO also believes those 3 million additional enrollees in the insurance exchanges will cost more than average, and as a result add about 2% to the cost of individual insurance in the exchanges.  That is another hidden “tax” on the private sector.

Whenever I think about the injustice of millions of poor people not having access to coverage while middle class people get subsidies, I remind myself that this is nothing new.  We’ve been doing that with the tax preference for employer health coverage for decades, so this latest indignity merely makes things quantitatively worse, but is not qualitatively new. 

Speaking of employer health benefits, Deloitte’s recent survey of employers forecasts 9% of employers will drop their health coverage, with another 10% uncertain what they will do.  This compares to the GfK study estimate from last winter of 12% drop/32% uncertain, and the now infamous McKinsey estimate from last summer that 30% of employers would drop coverage.  Deloitte’s survey, though, was only of employers with more than 50 employees; if smaller employers were included, the number would no doubt be higher than the 9%.

Reasonable experts can probably agree that the estimate of employers initially dropping coverage is somewhere in that 10-20% range, recognizing that many employers have not yet made up their minds.  The trouble I see is that once this ball starts rolling downhill, it won’t stop; it’s only going to pick up speed.  No one is going to want to be the last one in the benefits pool.

A little history lesson might be helpful.  Health insurance used to be virtually all fully insured and community rated.  That worked for a while, until some employers and insurers figured out that both could benefit by offering lower rates to employers with lower cost populations.  That gradually led to the demise of community rating – HMOs were the last to give up the ghost – in the group market, as fewer and fewer employers were willing to subsidize their higher cost fellow employers.  Use of employer-specific claims experience became the norm, especially for larger employers.  In the early 1970s, spurred by the passage of ERISA, employers also realized even with experience rating, being part of the insurance pool at all still had limitations they wanted to avoid, and they began to adopt various forms of self-funding.  It initially was only for very large employers, but, again, gradually became adopted by employers or more and more sizes – some of whom were/are really too small from an actuarial point of view to justify it.  Again, once some employers escaped being insured, other employers became more uneasy about still being part of the insurance pool.

Self-funding had the specific advantage of escaping state benefit mandates, although recent federal mandates, including ACA’s, are rapidly eroding this advantage of self-insurance.  The ACA requirements have added costs to most employer plans – e.g., coverage dependents, unlimited maximums, no coinsurance on preventive services – and the government’s involvement in their benefit design is probably not sitting well with many employers who thought they had escaped it.

At this point in time, most group business is self-funded.  Kaiser Family Foundations’ 2011 Employer Health Benefits survey found 60% of employees were in self-funded plans, up from 49% in 2000.  Over 80% of employees in firms with 200 or more employees are in self-funded plans.   I.e., to the extent they can, employers have made rational business decisions not to subsidize anyone they don’t have to.

Why anyone would believe employers would not act the same way once some employers start dropping their health plans is beyond me. 

Employers have invested a lot in their current health plans.  They have shown much thought leadership in driving changes to both insurers and providers, but the auto and steel industries, to pick two, have shown us how legacy health costs can hamper domestic and local competitiveness.  Right now, not offering health plans is a huge disadvantage in attracting and retaining employees; Deloitte’s survey shows over 80% of employers cite attracting/retaining employees as a key reason for offering health benefits.  However, it would only take a few bellwether employers to start dropping coverage to start a rush by other employers for a similar exit.

Employer coverage still has the advantage of the tax preference, plus the fact is that the health insurance exchanges are not up and running and the individual market is not yet reformed or robust.  Come 2014 or 2015, though, the exchanges may be a more appealing option, especially for smaller employers, and if anyone believes the tax preference will survive as is in the coming deficit reduction wars, well, good luck with that.

People aren’t going to keep their current health plan.  Many poor people will still not be protected by Medicaid.  We will still have some 30 million uninsured.  And we’re still not getting good value for our exorbitant health care spending.  Until that problem is solved, everyone’s coverage is in danger.


The Role of Pharmaceuticals in Value-Based Healthcare

by Clive Riddle, July 19, 2012

Who is the “Working Group on Optimizing Medication Therapy in Value-Based Healthcare” you ask? They consist of National Pharmaceutical Council (NPC), the American Medical Group Association (AMGA) and the Premier health care alliance, along with seven provider organizations, formed to develop a “framework for considering the role of pharmaceuticals in achieving value-based success.”

It could seem somewhat self-serving, given the National Pharmaceutical Council was a driving force in the initiative and issued the press release about their newly published framework. However the group does say some interesting things. Their entire thoughts on the matter are published in a web article,  Role of Pharmaceuticals in Value-Based Healthcare: A Framework for Success, in the American Journal of Managed Care.

NPC Chief Science Officer Robert Dubois, MD, PhD tell us “Providers are shifting to value-based care models to provide better care for individuals, improve population health and slow cost growth. Many of these models, such as the Centers for Medicare & Medicaid Services' Medicare Shared Savings Program, include quality benchmarks and incentives for reducing costs. As providers evaluate optimal care for their patient populations in these new models, prescription medications should be thoughtfully integrated into the process.”

Here’s the components of the framework they have constructed:

  1.  Success in a value-based environment will depend on understanding the unique contribution of medications and utilizing them optimally across conditions and populations.
  2. Medications cannot be viewed as a siloed expense item in a value-based environment. They need to be integrated so that the cost offsets and quality benefits resulting from optimized pharmaceutical use can be recognized and calculated.
  3. Services meant to optimize patient outcomes cannot be undertaken as a one-size-fits-all approach; the role, impact and characteristics of these services will vary by a patient's condition.
  4. Overall risk factors can be used to identify patients who are candidates for medication therapy management strategies to watch for drug-drug, drug-disease, or polypharmacy concerns.
  5. In each circumstance where there are condition-specific incentives to achieve cost savings, there should also be a quality metric to detect under-use of pharmaceuticals.

The group views ACOs as a centerpiece of value based programs. Doctor Dubois leaves us with this thought: "It is crucial for ACOs to view prescription drugs as a tool, not simply an expense.”


The Emerging Pharmaceutical Pendulum

By Clive Riddle, July 12, 2012

Conventional wisdom tells us that pharmaceutical growth is not the beast it once was. Growth has decelerated and been tamed to the point of 3-4 percent this year, due to a variety of factors including the lingering economic downturn, patent expirations with the corresponding conversion to generics, and a dip in patient demand due to increased cost sharing requirements and coverage concerns.

The IMS Institute for Healthcare Informatics now tells us the pendulum is poised to swing back the other way, and they are forecasting 5-7 percent growth in 2016. However, this resurgence is significantly projected to be driven by emerging versus developed markets.

Their just released report: The Global Use of Medicines: Outlook through 2016, “found that annual global spending on medicines will rise from $956 billion in 2011 to nearly $1.2 trillion in 2016, representing a compound annual growth rate of 3-6 percent. Growth in annual global spending is forecast to more than double by 2016 to as much as $70 billion, up from a $30 billion pace this year, driven by volume increases in the pharmerging markets and an uptick in spending in developed nations.”

Murray Aitken, the Executive Director of the IMS Institute for Healthcare Informatics tells us, “as health systems around the world grapple with macroeconomic pressures and the demand for expanded access and improved outcomes, medicines will play an even more vital role in patient care over the next five years. The trillion-dollar spending on medicines we forecast for 2016 represents a rebound in growth that will accentuate the challenges of access and affordability facing those who consume and pay for healthcare around the world.”

Their report also projects that around the globe:

  • Spending on medicines in developed nations will increase by a total of $60-70 billion from 2011 to 2016, following an increase of $104 billion between 2006 and 2011.
  • Spending in the U.S. will grow by $35-45 billion over the next five years, representing an average annual growth rate of 1-4 percent
  • In Europe, growth will be in the -1 to 2 percent range due to significant austerity programs and healthcare cost-containment initiatives.
  • The Japanese market for medicines is forecast to grow 1-4 percent annually through 2016, slightly lower than the rate during the prior five years and reflecting biennial price cuts scheduled for 2012, 2014 and 2016.
  • Overall, patent expiries in developed markets will yield a five-year “patent dividend” of $106 billion, reflecting reduced brand spending of $127 billion offset by $21 billion in higher generics spending
  • Annual spending on medicines in the pharmerging markets will increase from $194 billion last year to $345-375 billion by 2016, or $91 in drug spending per capita. Generics and other products, including over-the-counter medicines, diagnostics and non-therapeutics, will account for approximately 83 percent of the increase.
  • Pharma manufacturers will see minimal growth in their branded products through 2016. The market for branded medicines will experience flat to 3 percent annual growth through 2016 to $615-645 billion, up from $596 billion in 2011.
  • In the major developed markets, branded medicine growth will be severely constrained at only $10 billion over the five-year period due to patent expiries, increased cost-containment actions by payers and modest spending on newly launched products.
  • The pharmerging markets are expected to contribute $25-30 billion in branded product growth over the same period. Off-invoice discounts and rebates will offset about $5 billion of global branded medicine growth.
  • Global generic spending is expected to increase from $242 billion in 2011 to $400-430 billion by 2016, fueled by volume growth in pharmerging markets and the ongoing transition to generics in developed nations.
  • Global launches for New Molecular Entities (NMEs) will rebound during the next five years, as 32-37 NMEs are expected to be launched per year through 2016. Between 2011-16, 160-185 NMEs are expected to launch, compared with 142 between 2007-11.
  • Biologics are expected to account for about 17 percent of total global spending on medicines by 2016, as important clinical advances continue to emerge from research.

A Practical Roadmap for the Perilous Journey from a Culture of Entitlement to a Culture of Accountability

By Nate Kaufman, May 4, 2012

In a culture of entitlement there is the belief that one deserves certain rewards, rights and privileges based on tradition or past achievements. In contrast, in a culture of accountability rewards, rights and privileges are only earned based on the merits of one’s current behaviors and actions. The transition from a culture of entitlement to a culture of accountability is a perilous journey for rights and privileges are no longer automatic, the ‘entitled party’ usually feels disappointed, angry, or mistreated.

A culture of entitlement is deeply embedded in the US healthcare system: patients believe they are entitled to state of the art care regardless of their unhealthy lifestyle; physicians believe they are entitled to a high degree of clinical autonomy and historical levels of compensation; hospitals believe they are entitled to be reimbursed at the highest rates in the world regardless of their inefficiencies or the results they produce; and suppliers e.g., insurance and pharmaceutical companies believe they are entitled to high margins regardless of the value they provide to the system.

This culture of entitlement has driven per capita healthcare spending in the US to twice what our “peer countries spend on healthcare (commonwealth fund.) It has driven healthcare costs to a point where neither the public nor private sectors can continue to absorb the historical rate of cost growth. And it has called the question as to whether the U.S. healthcare system is creating sufficient value, i.e., outputs per unit cost.

In recent years, data on the value created by the US healthcare system has become more available and the early numbers are not good. According to McKinsey, “In 2006, the United States spent $2.1 Trillion on healthcare, more than twice what the nation spent on food and more than China’s citizens consumed for all goods and services. In addition, adjusting for economics, health status etc, the US spent $650 Billion more on health care than expected base on comparison to peer countries.  Hospital and physician care accounted for almost 85% of the spending above expected levels, with drugs, health administration and insurance comprising the remained components of excess spending.

The primary driver of this excessive cost appears to be the salaries and revenues of providers and suppliers. For example, McKinsey estimates that for inpatient care, “Revenue per equivalent admission” accounts for $54 Billion in excess costs compared to peer countries. This is driven in part by the cost of nurses who are paid 36% more than their peers in other countries. Drug prices are 50% higher in the US than in other developed countries. Based on a multiple of per capita GDP, primary care physicians in the US are paid 46% more than physicians in peer countries and US specialists are paid 67% more than their peers. It is no wonder that the global fee for a normal delivery in the US is twice that of most peer countries (international federation of health plans 2010)

Given the relatively high investment in “input costs” one would expect a commensurate benefit in outcomes; however this does not appear to be the case. According to the Commonwealth Fund Study:

The U.S. health system is the most expensive in the world, but comparative analyses consistently show the United States underperforms relative to other countries on most dimensions of performance.

Data on life expectancy vs. cost by country is further evidence that the outcomes produced by the US healthcare system are not commensurate with the investment.

Finally, the high variability in care raises questions as to whether everyone is getting appropriate care:

  1. The rate of mastectomy vs. lumpectomy in North Carolina varied from .4 per 1000 Medicare Beneficiaries in the Wilson HSA to 2.7 in the Goldsboro HSA (Dartmouth)
  2. The rate of Coronary Artery Bypass Surgery ranged from 8.9 per 1000 in McAllen to 1.9 per 1000 in Pueblo CO. (Dartmouth)
  3. Non-radiologist self referrers of medical imaging are 2.48 times more likely to order imaging than clinicians with no financial interest in imaging equipment
  4. 53 percent of the heart attack patients underwent a procedure to restore blood flow to the heart through a blocked artery that caused a heart attack more than 24 hours earlier despite clinical practice guidelines recommending against it.

The often quoted disparity in the per capita cost of care of Medicare patients in McAllen vs. El Paso has raised many eyebrows. Recent research from Franzini et. Al. shows that while per capita Medicare spending was 86% higher in McAllen than in El Paso, the per capita  spending for Blue Cross patients in McAllen was actually 7% less than in McAllen. The authors concluded that their study is “consistent with Gawande’s finding that our healthcare system can create a “culture of money, – increasing the use of profitable Medicare services when there is [unconstrained] diagnostic and procedural discretion and clinical latitude.” 

In a recent study of ‘value’ of healthcare services in Massachusetts conducted by the Attorney General, it was found that the difference in prices paid by insurers to its lowest paid physician group vs. highest paid exceeded 145% and the difference in hospital payments exceeded 170%.  The Attorney concluded that this wide variation in the payments made by health insurers to providers is not adequately explained by differences in quality, complexity of services or their characteristics that might justify variation in prices. “Instead prices reflect the relative market leverage of health insurers and health care providers.”

In his recent speech to the American College of Surgeons, Senator Mark Kirk (R-Ill) summarized the government’s position on the current healthcare system when he stated that “every group that relies on federal funding should expect a 10% to 20% drop in that funding.”  When Dr. L.D. Britt, President of the ACS, warned that such cuts could send some healthcare providers into a "tailspin," Kirk replied that “the tailspin is the U.S. economy. There is a new audience at play," Kirk said, referring to U.S. creditors. "The judgments they render, they are swift and severe.”

Shifts in culture are painful but if not recognized, and managed they can be terminal for an organization. Through the implementation of value based purchasing, reduced reimbursement, data transparency health systems are being steered on a perilous journey from entitlement to accountability. The healthcare literature is overflowing with tactics and strategies that sound great on paper and/or may be working in Cleveland or Chicago or Rochester MN after decades of trial and error, however there is little evidence that these proposed solutions will work in most healthcare communities in a reasonably short time frame. Michael Porter provides excellent advice on how to increase the value of the healthcare. He notes that:

“Improving performance and accountability depends on having shared goals that unite stakeholders

In healthcare, the absence of clarity about goals has led to divergent approaches, gaming the system and slow progress in performance improvement

Rigorous, disciplined measurement is the best way to drive progress”

The following are practical steps that a health system can implement to begin the long journey of transformation.

1) Conduct regular briefings for the board members, physicians, employees and the community on the structural changes in healthcare occurring at the local, state and federal level

2) Designate a group of physician leader to be the clinical transformation task force. Use this group as a sounding board and to lead implementation efforts

3) Develop accountability measures for every specialty and hospital department. Initially this data should be blinded but designate a time in the future when all results will be transparent. Note: the health plans and the government have already begun publishing an ever increasing amount of un-blinded outcome data by hospital and physician.

4) The Chief Medical Officer or his/her should actively manage the performance of hospital-based physicians.

5) Select a few high volume Medicare DRGs and initiate a process for designing care to improve cost and quality and reduce readmissions. Pick a redesign methodology health systems are using LEAN. Consider a bundled payment demonstration if the health system and physicians share a common vision for decreasing cost and improving quality (and probably getting paid less per unit of service than under fee for service)

6) ACO-Caveat Emptor --buyer beware. Webster defines ‘risk’ as “hazard, danger, peril; exposure to loss, injury or destruction.” While it is true that there is a theoretical opportunity to make more money by doing less, we learned in the mid-nineties that organizations that take the financial risk for the health of the population can end up much worse off than if they did nothing. After decades of successfully taking risk in California it is clear that the critical competencies needed to successfully take risk include:

a.  Physicians that share a common electronic health record system,
b. A culture focused on reducing utilization of hospitals and high end interventions,
c. A strong base of primary care physicians,
d. Selective use of specialists based on the efficiency of the care they provide, and
e. Robust, mature infrastructure.

Since most of the health systems do not possess these competencies they should limit their exposure to risk and test these competencies on the employee population of the health system. If a health system wants to be in the Medicare risk business consider joint venturing a Medicare Advantage Plan with a local payer.

7)      Finally, every journey requires a roadmap and every health system needs to define its strategic direction, a.k.a. “true north.” To maximize performance under the traditional model most health systems strategic behavior can be  characterized as:

Operating a financially strong health system by maximizing revenues through pricing and volume growth, the provision of a broad range of services and meeting the individual clinical and financial needs of each physician

                The new “true north” is clear:

To operate a financially strong, high functioning health system that consistently achieves optimal measureable value, i.e., outcomes/cost, for every patient.

                Define your ‘true north,’ and begin the journey by taking practical, incremental steps described above. Enjoy the ride!