What’s Driving Health Care Costs?
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A few weeks ago, I wrote a post about a recent study by the folks at Dartmouth concerning variation in resource utilization at various providers in Massachusetts during the last six months and two years of life. The study showed that the variation in practice patterns and resource utilization in health care, even for fairly standard procedures, during the period of time studied was gigantic — sometimes as much as 300-500%.
Practice pattern variation. It’s like a bad penny. Activists and advocates — and many others — prefer to talk about the money that’s wasted on administrative inefficiencies — and if we could just get everyone covered by one payer, everything would be fine. But then Jack Wennberg and Co. at Dartmouth keeps publishing these studies that show that the biggest opportunity to reduce health care costs and improve quality is linked to reducing the misuse, overuse and underuse of health care services — which has very little to do with who pays. After all, who pays represents about 10-15% of the total health care tab. Health care delivery — that is, the delivery of services — represents the other 85-90%.
The penny appears — again. This time, it’s the New England Healthcare Institute (NEHI), a Cambridge (MA) based non-profit research organization. NEHI just completed a study on waste in health care, analyzing much of the available literature on what could be done to reduce health care costs without reducing quality. Their study lists six primary culprits/opportunities…
1) Unexplained variation in the intensity of medical and surgical services, including but certainly not limited to: end of life care, overuse of CABGs (coronary artery bypass), and overuse of PCIs (percutaneous coronary procedures — more commonly known as “angioplasties”).
2) Misuse of drugs and treatments, resulting in avoidable adverse effects of medical treatment.
3) Overuse of non-urgent emergency department care (this one deserves its own post).
4) Underuse of generic antihypertensives.
5) Underuse of controller medicines in pediatric asthma.
6) Overuse of antibiotics for respiratory infections.
All in, NEHI estimates that improvements in these six areas could be worth as much as $680 billion. $680 billion is a big number. How big? It’s much bigger than the combined administrative expenses — including profits — of all of the private health insurance companies in the U.S. put together. It’s also far larger than the dollar amount required — under any health care reform plan currently on the radar — to fund universal coverage for everyone in the United States.
Truth in advertising — Harvard Pilgrim was one of the organizations that funded this study — but until I saw the final report, I had no idea where it was going or what it would say. But given some of the previous work that’s been done by other academics and researchers on this topic and these issues, I’m not surprised by the results.
The study does, however, confirm something I’ve thought for quite some time. That is, until we get serious about variation — in prices, in practice, in care delivery — we will continue to be frustrated by our inability to make progress on health care cost and quality.
Charlie -
Why do you suppose that the country’s most visible politicians - those who could actually push change and really help to reduce health care costs - ignore statistics like these? It seems to me that they are more interested in offering up a “quick fix” solution, ie, single payor like Canada. Speak with a Canadian, and it becomes obvious that the Utpoian image of single payor health care is more myth than reality. But ask one of our country’s leaders to take steps to truly tackle the issue(s) facing our industry, and all we get is the same-old same-old. It is really disheartening to know that solutions do exist, but our elected officials do not possess the backbone to do anything concrete about it.
I can think of several factors that could drive practice pattern variations both regionally and within a region. They include (1) regional differences in the culture of medical practice such as when and under what circumstances to order expensive tests, (2) varying degrees of defensive medicine based on regional differences in the litigation environment, (3) differences in financial incentives between doctors who have an ownership interest in either expensive equipment (like imaging) or in ASC’s and (4) in the case of hospitals, differences in the perceived need to keep beds filled and specialists busy in order to adequately service their debt.
I have written before that, so far, there are no adverse financial consequences for either doctors or hospitals that provide more care than is necessary or appropriate. Indeed, they are financially rewarded for doing so under our fee for service system. We need to develop new payment approaches like bundled pricing for expensive surgical procedures that reward value instead of just volume. I also think grouping doctors and hospitals into tiers like drugs are now, combined with lower patient co-pays for providers in the preferred tier, could help to steer patients toward the most cost-effective providers. Referring doctors would need a user friendly system to enable them to easily identify the most cost-effective doctors, hospitals, imaging centers and labs.
At the same time, the ranking system used to develop such tiers needs to be transparent with plenty of input from doctors and hospitals. There also needs to be an effective appeals mechanism to enable providers to challenge their ranking if they think the information used to develop it is incorrect or unfair. Insurers must process these appeals on a timely basis and reimburse both providers and patients that were underpaid or overcharged due to an incorrect (too low) ranking.
The bottom line is that incentives matter. That includes financial penalties for those who provide unnecessary or inappropriate care as well as tangible rewards in the form of either higher payments, gain sharing and/or more patients for the most cost-effective providers.
Isn’t some waste also caused by an unmet need for lower level clinics, not necessarily staffed by onsite physicians?
Please note, on page 24 of the NEHI report, in the conclusions section, two interesting points:
4. Failure of the Primary Care System to Provide Timely Access
5. Underuse of Cost Effective Diagnostic Tools.
(They conclude the latter point by wondering “whether the testing needs to be physically available in physician offices or is better placed in more accessible locations such as pharmacies.”)
Waste costs our health care system an estimated $680 billion per year – and practice variation among physicians is the single largest (multi-billion dollar) source of this waste. But as with specifying where and why waste exists in health care, it’s been challenging to identify why such variations in medical practice occur and how we could decrease them. We do know that when physicians standardize their practice and base clinical decisions on evidence, those variations decrease and patient care improves.
In addition to the study on waste that Charlie cites, NEHI recently published a policy paper with answers to the question: “When data exist, why do physicians NOT adhere to evidence-based practice guidelines?” This research included a Harris Interactive nationwide physician survey and found four interesting barriers to guideline adoption (full report at http://www.nehi.net):
1. Guideline Development – Guidelines are not readily accessible at the point of care, their development is not well understood, and they are not matched to the complexity and context of real clinical decisions;
2. IT Systems – Information technology is not yet available to make guidelines more broadly available;
3. Payment – Payments correlate with volume of procedures versus quality of outcomes; and
4. Physician Culture – Judgment and personal experience, not comparative feedback, govern and motivate physicians.
While it is discouraging to know that we don’t do the right thing for patients, even when clear evidence demonstrates what the “right thing” to do is, there is reason for optimism: Physicians believe that guidelines will have a major influence on clinical decision-making over the next five years. First, we must overcome these barriers. In addition to encouraging the application of innovation to guideline use, we must create a culture that steers physicians toward adopting clinical guidelines. Charlie and the previous commenters are exactly right: reducing waste created by clinical practice variation is critical to true reform in our health care system. We can’t wait any longer to begin.