A Guide to Accountable Care Organizations, and Their Role in the Senate’s Health Reform Bill

The accountable care organization has been a model for health care reform, yet its modest success has been limited to a handful of health care systems across the country. However, the accountable care organization model has recently taken on far greater significance since being introduced as one of Medicare’s pilot programs in the Senate’s health reform bill.

The phrase is attributed to Dr. Elliot Fisher of Dartmouth Medical School.  Dr. Fisher has led the Dartmouth Atlas Project — a project that has, for the last 30 years, painstakingly documented the variation in care across the United States. (Click here for an interactive map of some of the Dartmouth Atlas results). The Dartmouth Atlas has focused on both the quality of health care as well as its cost. More importantly, they have reported on the relationship between the two, and their findings are nothing short of an indictment of our current paradigm.

Specifically, their findings illustrate that there exists wide variations in the cost of care across the country, and profoundly, that the regions that spend more per patient do not necessarily obtain better outcomes. So what to do? Dr. Fisher believes he has found at least part of the answer: the Accountable Care Organization, known as an “ACO”.

What is an ACO, and How Does it Differ from Other Payment Reforms?

In his paper “Creating Accountable Care Organizations: The Extended Hospital Medical Staff,” Dr. Fisher acknowledges that the term ACO “grew out of an exchange between he and Dr. Glenn Hackbarth at a MedPAC meeting in November of 2006″. (Fisher, 2006 n. 7). Dr. Fisher’s purpose in writing the aforementioned paper was to help identify the proper “locus for shared accountability” for a patient’s health care. HMO’s and other health insurers are obvious candidates, but as Dr. Fisher notes, HMOs only comprise a small percentage of the current market, and health plans in general have focused on negotiating favorable prices within relatively open networks of providers. (Fisher, 2006, p. 45).  The “medical home” (also referred to as a Patient Centered Medical Home or PCMH) is another candidate, but is taken out of the running by Dr. Fisher because of the untested nature of medical homes, and their requirement of new payment mechanisms. (Id.).

Dr. Fisher notes that a better option already exists: “virtual” organizations consisting of the various physicians that are associated with local acute care hospitals. As Dr. Fisher notes, these physicians are either directly affiliated with such hospitals through their inpatient work, or through the care patterns of the patients they serve.  Dr. Fisher refers to these multi-speciality group practices that are bunched around local hospitals as an “extended hospital medical staff.” He argues that improving quality and lowering cost should be realized by fostering greater accountability on the part of this “extended medical staff.”

In a recent Urban Institute paper on ACOs by Kelly Devers and Robert Berenson (pdf summary here, full pdf here), the authors point to three essential characteristics of ACOs:

1. The ability to provide, and manage with patients, the continuum of care across different institutional settings, including at least ambulatory and inpatient hospital care and possibly post acute care;
2. The capability of prospectively planning budgets and resource needs; and
3. Sufficient size to support comprehensive, valid, and reliable performance measurement. (Berenson, p. 2.).

In exchange for investing in this reformed health care provider structure, the ACO members will  share in the savings that results from their cooperation and coordination. Thus, ACOs can–theoretically–act as a reform tool by incentivizing more efficient and effective care. This would help to combat the current perverse incentives of overutilization and overbuilding of health care facilities and technology.

In 2007, Dartmouth’s Institute for Health Policy and Clinical Practice headed by Dr. Fisher and Dr. James Weinstein, teamed up with the Brookings Institution’s Mark McClellan to create The Brookings-Dartmouth ACO Learning Network. The ACO Learning Network will serve as a support tool for providers looking to transition to the ACO framework. In the “Overview” section of their site (available as a pdf here), the Brookings-Dartmouth team provide a useful chart comparing the ACO model to other payment reform models such as “bundled payments,” “medical homes” and capitation. Click the image below to enlarge.

Various Extant Structures Utilized

Since Dr. Fisher’s introduction of the ACO concept, the idea has continued to be refined. In their 2007 paper “Accountable Care Systems For Comprehensive Health,” Dr. Stephen Shortell and Dr. Lawrence Casalino envision a broad range of ACOs in addition to the “extended medical staff” originally described by Dr. Fisher. Drs. Shortell and Casalino identify extant organizational structures that could be leveraged to create ACOs, including the Multi-speciality Group Practice (MSGP), the Hospital Medical Staff Organization (HMSO), the Physician-Hospital Organization (PHO), the Interdependent Physician Organization (IPO), and the Health Plan Provider Organization or Network (HPPO/HPPN). (Shortell et al., 2007, p. 10). Below is a table from their paper that organizes the different ACO models while comparing their capabilities. Click the image below to Enlarge.

ACOs In Practice

Building on the Physician Group Practice (PGP) demonstration project that rewarded the provision of quality care with a share of the savings, the Brookings-Dartmouth group propose a “voluntary and incremental” ACO program. (Fisher et al., 2009, p. 2).  The ACO would have to be a legal organization that can receive shared savings, and would have to incorporate primary care physicians who solely practice under the ACO. (Id.). Furthermore, the Brookings-Dartmouth group believes there would have to be at least 5,000 beneficiaries in the ACO for it to be viable. The ACO would provide CMS with a list of their providers willing to participate in the ACO. As discussed above, the beneficiaries would be determined by, among other things, the patterns of patient referrals in the region. However, beneficiaries would not be “locked in” to a given provider. (Fisher et al., 2009, p. 4). The ACO would receive savings if their risk-adjusted, per beneficiary spending levels were below their benchmark. Id.

An Ultra-Simplified Example

A hypothetical independent practice association (IPA) teams up with a community hospital to create an ACO. Medicare determines a benchmark, that is, what it will cost to treat the average beneficiary in that geographic area per year–let’s say $10,000. The physicians submit their traditional claims to Medicare under the RBRVS system while the hospital submits its typical DRG-base claim. Thus, the traditional fee-for-service system remains in place. At the end of the year, Medicare determines if the ACO has provided care for less than $10,000. If they have, the ACO is entitled to share in the cost savings, and the savings are divided among the providers and hospital. Though simple in theory, ACOs become more difficult when attempting to construct payment models that will distribute the savings of the ACO to the individual providers. Shortell provides another helpful chart that lays out some of the options; Click on the image to enlarge.

Criticism of the ACO Model

The strongest criticism that I am aware of is from Dr. Jeff Goldsmith PhD, president of Public Health Services at the University of Virginia. In his Health Affairs article entitled “The Accountable Care Organization: Not Ready for Prime Time,” Dr. Goldsmith recalls previous attempts to at implementing payment reform models based on shared risk:

The problem with this movie is that we’ve actually seen it before, and it was a colossal and expensive failure. During the 1990s, many hospitals and physicians believed that the Clinton health reforms would force them into capitated contracts with health plans. . . . Risk-bearing physician/hospital organizations and hospital-sponsored preferred provider organizations (PPOs) sprang up all over the country. . . . Some of these hospital/physician efforts actually succeeded and survive today. . . . However, these were outliers in an expensive failure.  Employers and patients preferred open panels managed by health insurers to closed panels managed by providers. Billions of dollars were lost.. . . Many of the practice acquisitions were reversed, as hospital systems sought to rein in their expenses and adjust to an open-panel world dominated by point-of-service style health plans

However, the 1990s left behind an expensive legacy:  highly concentrated local provider markets….There were numerous reasons for the 1990s collapse of at-risk hospital/physician partnerships, besides the failure to find willing buyers of their services. These efforts lacked infrastructure, experienced management, as well as reliable and timely cost information to support cost management. They assumed global risk but paid for care on a fee basis, just as Fisher and colleagues propose.  But these hospital-sponsored organizations could neither redistribute income nor exclude their high-cost providers (who inconveniently generate most hospital profits).

Some things have clearly changed in the ensuing decade. . . . A rapidly increasing percentage of physicians, particularly primary care physicians, are now hospital employees.  A larger percentage of the physician community receives hospital subsidies for call coverage. Many of these subsidies are, in fact, extorted from the hospital by specialists in scarce supply, destined to become scarcer.  An entire generation of 80-hour-a-week baby-boomer physicians are retiring and being replaced by younger physicians who want to work 30 hours a week.  You are not going to see a lot of these younger physicians in utilization review committee meetings after hours; they are going to be at their kids’ soccer practices.

What hasn’t changed is the fragmentation of care, the huge disparities in income and political power inside physician communities, and also the level of suspicion that physicians have of their now much more powerful local hospitals.  There is also, sadly, a thundering absence of collegiality – in my view, the central precondition of assuming risk and managing care. This absence is palpable in suburbs and even more pronounced in many “lifestyle dominated” resort communities in the sunbelt.. . .They are “collections” of physicians, not communities.

The hospitals in these areas appear formidable:  they have beautiful campuses,  prestigious boards, and deep financial reserves. . . . But these hospitals have been picked clean of vital outpatient services by their medical “communities.”

….Entire disciplines have disappeared from hospitals: ophthalmology, cosmetic surgery, gastroenterology, urology. Even community-based internists and family practitioners have stopped coming to the hospital; their patients are cared for by hospitalists who work full time inside the hospital.

The result of our previous attempts at ACO-like integrated care, Dr. Goldsmith points out, is that…

. . . .while the hospital has become more involved in subsidizing physician practice, physician communities have drawn away from the hospital and function increasingly independently on a day-to-day basis. Wennberg’s own data show that something like 40% of physicians no longer have any Medicare hospital-related fee income. So squashing hospitals and physicians back together into economic interdependence in a joint hospital/physician economic pool makes no real-world sense.

Dr. Goldsmith goes on to note that there have been some successful ACOs, but that they haven’t been “virtual” in the sense that Dr. Fisher points out, rather, they are

. . . real organizations with P+Ls, medical directors, and management infrastructure. Prominent examples in my home region include Carilion Health System in Roanoke and the Bon Secours Health System in Richmond. Voluntary ACO arrangements, with Medicare and with private insurers, may find enthusiastic partnerships with many of these hospital-sponsored physician groups. . . .

The Senate Bill

In defense of the Brookings-Dartmouth model, the group has gone on record in favor of voluntary ACOs. To Dr. Goldsmith’s relief, the Senate’s health reform plan incorporates ACOs on a voluntary pilot program basis. You can read their rebuttal to Dr. Goldsmith here.  Section 3022 of the Senate bill — which amends Title XVIII of the Social Security Act (42 U.S.C. 1395) — introduces ACOs under the name “Medicare Shared Savings Program. (View a pdf of the extracted ACO part of Senate bill here).

The Senate’s plan is remarkably similar to the Brookings-Dartmouth model. Under the Senate’s plan, ACOs will be eligible to receive a percentage of the cost savings that they have realized under the traditional fee-for-service Medicare system. The requirements are set forth in section (B)(2). Furthermore, the ACO shall enter into a 3 year agreement with HHS whereby the ACO must agree to contain at least 5,000 Medicare beneficiaries, while being prevented from engaging in risk selection. The ACO must define processes to promote evidence-based medicine and patient engagement, report on quality and cost measures, and coordinate care, such as through the use of telehealth or other remote patient monitoring tools. The ACO must also demonstrate to HHS that it meets the yet-to-be defined criteria for “patient-centeredness”.

Whether ACOs will succeed is impossible to determine with certainty. The panopticon that would be ACO management looking over the shoulders of physicians may be enough to turn off many physicians. Nevertheless, as even Dr. Goldsmith acknowledges, some ACOs have thrived. Moreover, the voluntary ACOs in the Senate’s bill represent a measured approach towards reforming our system without a wholesale transformation. As Dr. Atul Gawande describes in a lesser-cited pre-”Cost Conundrum” article, the most sound approach is often “path-dependent,”  that is, it builds on what already exists. As Dr. Gawande notes:

. . .accepting the path-dependent nature of our health-care system—recognizing that we had better build on what we’ve got—doesn’t mean that we have to curtail our ambitions. The overarching goal of health-care reform is to establish a system that has three basic attributes. It should leave no one uncovered—medical debt must disappear as a cause of personal bankruptcy in America. It should no longer be an economic catastrophe for employers. And it should hold doctors, nurses, hospitals, drug and device companies, and insurers collectively responsible for making care better, safer, and less costly. . .

Whether the shared savings will entice physicians on a large scale is uncertain.  What is certain is that our current fragmented system incentivizes providers to offer neither cost-effective nor coordinated care. Though it is unlikely that physicians and hospitals will flock to ACOs from the start, the vision of ACOs conceived of by the Dartmouth-Group and described in the Senate bill may nevertheless prove itself a useful tool in a larger arsenal of approaches meant to salvage our unsustainable health care system. In other words, the Senate’s approach could provide a path-dependent solution toward the collective responsibility and better outcomes that Dr. Gawande mentions. And as described in the Senate bill, physicians and hospitals will not be offered a new path, but rather a resurfaced path that would retain fee-for-service, while providing a safer and smoother ride for the patient.

Why Primary Care in Medicare Matters

Why should we care about primary care in Medicare?  Early in the reform discussions, preventive and primary care was emphasized; in addition to extending medical care to all, reform would also implement preventive measures to keep them well.  In the current reform scrum, some are back peddling pretty fast, and in the course of finding “consensus” points (often focusing on cost-savings), we might lose conceptual coherence.

Ken Thorpe’s new Health Affairs article on chronic care patients in Medicare offers sound research and helpful analysis.  Thorpe’s data point toward a subtle explanation for health inflation keyed not to the increased cost of high-tech interventions, but to a shift in the conditions for which treatment is provided:

Our results highlight important changes in the medical conditions accounting for the rise in spending among beneficiaries over time. The most notable changes were in spending on a handful of chronic conditions: diabetes, kidney disease, hyperlipidemia, hypertension, mental disorders, and arthritis.

Thorpe has long argued that our health care delivery and finance system is stuck in a 20^th Century of acute care, while our 21^st Century needs have migrated toward chronic care.  As he has argued previously, these chronic care needs call for care at a human scale, including care management and supportive community-based care.  But he also points out that many chronic conditions are at least partially preventable, and that attention and resources should not be directed only to treating these conditions, but also to forestalling their incidence.

Prevention is, then, vital to any health care system.  But haven’t studies repeatedly shown that preventive care is not cost-effective?   Sorting this out requires that we step back and assess not only what “prevention” means, but also what we value in health care.

Preventive care can usefully be separated into three categories, as Ron Goetzel  (an Emory University colleague of Thorpe’s) has described.

• Primary prevention: Health promotion measures focus on lifestyle and simple interventions such as vaccinations to keep people from developing sickness; often cost-saving.
• Secondary prevention: Targeting people with preconditions for illness, including genetic or lifestyle markers, with screening technology, maintenance drugs, in order to forestall or prevent the manifestation of the condition; rarely cost-saving, in part because it is often applied to low-risk populations. Worth it? That depends on the design of the intervention and one’s metric for assessing health care value.
• Tertiary prevention: In this context, coordinated care management for those with chronic illness.  Properly implemented, chronic car management could “flatten the curve,” but is unlikely to be “cost-saving.”

So, whether “prevention” can save money (a claim Thorpe’s paper doesn’t make) is a complicated question.  In addition, it is often a poorly framed one. Explicitly or implicitly, cost-based objections to prevention often suggest that preventing one illness simply means that the person will die of something else, or less simplistically, that keeping people alive longer is cost-increasing, not cost saving.  Steven Wolf has elegantly responded to both objections:

[S]keptics of prevention argue that everyone dies of something; preventing demise serves only to allow a different disease to generate illness and spending. However, the aim of health promotion and disease prevention is not to prevent the inevitable but to “compress” morbidity, maximizing health until death.

Another common criticism is that prevention rarely saves money; it costs society if people live longer. The same applies to disease treatments. Health is a good; it is not purchased to save money. Health is a good that costs too much under the current medical care system, a problem of inefficiency that calls for wiser resource use, such as spending less per health unit gained (lower cost-effectiveness ratio). Disease prevention offers a way to improve health with low cost-effectiveness ratios and to also modulate disease rates. To reject health promotion and disease prevention because they do not save money (i.e., cost-effectiveness ratios are not negative) misses the point. (citations omitted)

Advocates who would shift our systemic emphasis to prevention and management of chronic illness, then, are not naïve about cost implications.  To the contrary, they address the issue head-on, with a three-step argument:

• The purpose of our system is or should be the maintenance of or restoration to high levels of functioning consistent with a fulfilling life.
• Our needs have largely shifted from acute to chronic interventions, and our system should shift to meet those needs.
• In preventing or managing chronic illness, as with all interventions, we should carefully examine the capacity of methods to meet our needs, and to demand value for those being served.

Applying this sort of argument to primary care, Goetzel elsewhere advocates skepticism of attempts by medicine to turn prevention into a high-tech enterprise:

We have medicalized prevention and health promotion in this country so that most people believe that only doctors in clinical settings can deliver these services. Although effective in many cases, this approach is the most expensive method of delivering prevention. If we expand our arsenal of potential interventions to include environmental, ecological, and policy changes, in addition to individually focused counseling and coaching programs, we can change the cost-effectiveness equation.

Thorpe’s article has garnered much-deserved attention, although it is tempting to think of his data in only cost-benefit terms.  That is not true to Thorpe’s conclusion, which is consistent with efforts to redirect attention from the business enterprise of health care to the health needs of Americans:

The U.S. health system remains predicated on providing acute, episodic care that is inadequate to address the altered patterns of disease now facing the American public. Our results highlight the need for prevention and care outside doctors’ offices and hospitals designed to address the changing needs of patients at risk for or living with chronic disease and, often, multiple comorbidities. As [reformers] continue their efforts to reshape the U.S. health system, they must address these changed health needs through evidence-based preventive care in the community, care coordination, and support for patient self-management.

Use of APRNs in Primary Care Settings

Some health care problems must be addressed whatever happens with reform. High on the list is the supply of primary care professionals.  Shortages have been reported in Massachusetts, and primary care access concerns have been raised in national reform discussions.  The shortage of primary care physicians is often tied to their low income, compared to specialists, and the consequent diversion of medical graduates to specialties.  The shortage of primary (and in some areas, specialty) physicians has prompted recommendations for increased medical school enrollment and residency slots for all areas of medical practice.

The wisdom of pumping up physician supply has been questioned.   It has been noted that, beyond a low threshold, increasing specialty physician supply is poorly correlated with better outcomes, and that previous efforts to increase supply has made the rich richer and the poor poorer, as graduates have flocked to locales and specialties already well-served by physicians.

So what is the proper policy response to a shortage of primary care physicians?  Physicians claim exclusive control of a broad swath of professional practice.  They dominate primary care, and exclusively control a more and more finely differentiated series of specialty fields.  With power comes responsibility, one might think.  Richard Cooper, a leading analyst of physician supply, commented in 2002 (at a time when many saw a surplus, not a shortage, of physicians) in an article with colleagues on the ramifications of this broad near-monopoly in a profession with falling production and fixed supply:

The sociologist Andrew Abbott has observed that “a profession whose jurisdiction is excessive must increase its productivity or expand its numbers.” Conversely, “when a powerful profession ignores a potential clientele, paraprofessionals appear to provide the needed services.” These statements characterize the dilemma that physicians now face. Their ability to increase their productivity is limited by their declining work effort. Their ability to grow their numbers is hostage to the belief that surpluses exist. And organized medicine has embarked on a vigorous campaign to thwart expansion of the NPC [non-physician clinician] disciplines. Yet it was shortages in the past that motivated state legislatures to remove the barriers to licensure for NPCs and to enlarge their range of privileges, and it is perceived professional opportunities that stimulated the creation of new disciplines and the expansion of existing ones. (footnotes omitted)

So, health reform efforts have emphasized access to primary care for its beneficial effects, while the supply of primary care docs has suffered a flight to specialty practice.  Is it, as Cooper suggested, time to rethink the place of non-physician caregivers on the front line of primary care?  As advanced practice registered nurses (”APRNs”) have gradually increased their scope of practice, studies and meta-studies have found that outcomes are equivalent when services are provided by a physician or APRN, and patients satisfaction measures may favor nurse practitioners.

But what about the nursing shortage?  It may be that expanding the profile and responsibilities of APRNs could further efforts to recruit and retain nurses.  Talented, hard-working nurses have long been concerned that their career path is limited; their salary steps are few and shallow, and they are unable to gain responsibility and autonomy commensurate with their training and experience.  Facilitating RNs’ graduate education to allow licensure as advanced practice nurses would enrich their career paths and encourage then to remain in the profession.   To move in this direction, those states that have not done so could expand the scope of licensure of APRNs to permit more fully independent primary care practice options.   The length of time needed for education and training would be long, but not as long as for physicians; compensation would have to be increased to reflect a higher level of training and responsibility, but not to the compensation level of physicians.

The path to regularizing the scope of practice for APRNs is described in a 2008 consensus document endorsed by 39 national general nursing and nursing specialty organizations.  A 2009 report from the Connecticut Office of Legislative Research described that state’s APRN scope of practice:

Advanced practice registered nursing is defined as the performance of advanced level nursing practice activities that, by virtue of postbasic specialized education and experience, are appropriate to and may be performed by an APRN. The APRN performs acts of diagnosis, and treatment of alterations in health status and must collaborate with a Connecticut-licensed physician. In all settings, the APRN may, in collaboration with a licensed physician, prescribe, dispense, and administer medical therapeutics and corrective measures and may request, sign for, receive, and dispense drug samples.

The required “collaboration” with physicians was also described:

The law defines “collaboration” as a mutually agreed upon relationship between an APRN and a physician who is educated, trained, or has relevant experience that is related to the work of the APRN. The collaboration must address a reasonable and appropriate level of consultation and referral, patient coverage in the absence of the APRN, a method to review patient outcomes, and a method of disclosing the relationship to the patient.

The physician oversight rule is typical, and has been the source of tension with APRNs.   Physicians can be suspicious of APRNs, and it has even been suggested that physicians may avoid working with them as APRNs gain more autonomy — a reaction that could be fueled by concerns with APRNs’ competency and training, or by a desire to weaken a source of competition for control of the profession.

APRNs might fill the primary care end of the physician practice spectrum, should physicians continue to flee primary care for more remunerative specialties.  There are genuine professional competency issues to work out, but they ought not be resolved by physicians as a matter of naked market power.  In addition, the terms of appropriate collaboration between physicians and APRNs need to be ironed out, to protect patients while avoiding the possibility of anti-competitive refusals to deal with APRNs.  Many researchers and physicians welcome the emergence of APRNs as partners in primary care practice.  Further research on the proper autonomous practice settings for APRNs will serve the interests of patients, and can guide planning for the future of primary care.

Cost, Choice, and Value

The Massachusetts Massacre has everyone stepping back a bit.  The President says that we should “coalesce around those elements of the package that people agree on,” but it is unclear just which elements those might be, given the extreme polarization that has defined the debate.  He suggests that points of agreement might center on insurance reform and cost containment, which are both important goals.  I’m skeptical that a sudden flowering of bipartisanship will allow such agreement, however.  Ezra Klein, on the other hand, has a paring proposal that goes in another direction, and reminds us of why we got into this in the first place: to extend coverage to the uninsured.  If we must narrow our focus, Klein says we should extend Medicare to those over 50, and expand Medicaid to those under 200% of poverty.  This would get lots of people insured, and could well be accomplished through budget reconciliation if no Congressional coalescing is to be had.

However the parsing, paring, and palavering goes, cost control is and will be at or near the health reform debate for years to come.  Two recent articles are worth a look for those interested in analysis of cost-containment strategies.

In his health care speech to Congress, the President suggested that one component of an effort to lower health care costs should be to empower a commission of “doctors and medical experts” to identify and,

encourage the adoption of  . . . common-sense best practices by doctors and medical professionals throughout the system. Wrapped up in that suggestion are notions of adhering to expert guidance in treatment decisions.

The stimulus bill passed in February pushed for scientific assessment of modes of care, providing $1.1 billion for comparative effectiveness research.  The current reform bills further emphasize CER, and would encourage the adoption of proven and promising treatments through professional education and some payment reform.  Harvard Medical School professor Jerome Groopman writes on evidence-based medicine in the latest New York Review of Books.   In his 2007 book, How Doctors Think, Groopman did a great job of explaining the complex and fraught process by which doctors make decisions, and he is fully on board with the notion that there is ample room for improvement.  His new article, however, cautions that the use of panels of experts with authority to impose or even recommend best practices is a dangerous way to go.

Groopman acknowledges the need for health policy folks to consider the bounded rationality of both doctor and patient.  He examines the Obama Administration’s policies on evidence-based practice by contrasting the views of two key advisors: Cass Sunstein, whose view of “libertarian paternalism” incline him to favor gentle “nudges” that may encourage certain behavior while leaving people free to reject the advice if they wish, and Peter Orszag, who is more inclined to employ forceful regulatory standards and financial incentives to achieve cost effective medical practice.  Groopman is compellingly  skeptical of expert claims of definitive standards on what “works” in health care, and cautions that such standards can result in harm to patients who fit uncomfortably into the hard categories defined in such best practices.

Groopman’s analysis seems incomplete for two closely intertwined reasons, and surely as a result of space constraints.  First, he suggests that the administration is faced with a stark choice between

aggressively pushing doctors and patients to do what the government defines as best, or [being] respectful of their own autonomy in making decisions.

Surely there is much middle ground between tying doctors’ hands and respecting complete clinical independence.  And it is not enough to say, as does Groopman, that

Most physicians seek data and views on treatments from peers and, as needed, specialists, and then present information and opinion to patients who ultimately decide.

Maybe so, but physicians are sometimes self-interested, and patients’ choices  are sometimes influenced by advertisements or other considerations disconnected from quality concerns.  For these and other reasons, spending decisions are no longer consigned to the doctor/patient dyad, but increasingly must accommodate the cost-containment interests of third party payers — government, employers, or insurers.

Second, Groopman describes two exclusive categories of procedures: “mechanical procedures” such as the  insertion an intravenous catheter (where he argues that enforcing standards to avoid infections is proper) and all other procedures, where the individual patient’s condition becomes relevant, and where he argues that coercing clinical choices is out of bounds.  It is not obvious that the universe of procedures is so divisible; it is even less clear that the dividing line between the two categories is uncontroversial.

Many questions remain.  Groopman is surely right that we must be cautious in enforcing categorical “best practices;” it is important to create public processes for vetting their accuracy and usefulness.  He is also surely right that public and private health finance rules must accommodate variation in medical needs, and must bend readily when a “best practice” is not suitable for a particular case.  But cost is relevant, and encouraging efficient practice can reduce the cost (and therefore the extent) of coverage.

So, how might a balance between financial constraints and patient protection work?  In a Health Affairs article posted  yesterday, Michael Chernew and coauthors examine the growing phenomenon of “value-based insurance” — a structuring of insurance co-payments responsive to the needs of people with chronic illness.  The co-payments imposed by insurers are, of course, intended to reduce demand for health care services (an Orszag, not a Sunstein tool, you might say).  Value based insurance reduces or eliminates these co-payments for services of “high clinical value.”  That is, if an insurer determines that it would rather not discourage utilization for a particular service, it reduces or removes the patient cost-sharing, presumably increasing usage, for cost as well as clinical reasons.  As the authors explain,

The belief that a value-based insurance program will lower health care spending rests on the recognition that the use of high-value health care services reduces the probability of adverse events related to chronic disease and that on a population basis, these events are much more costly than the services aimed at preventing them.

The authors found some evidence that such programs are cost effective, even in the narrow sense of reducing a plan’s health care expenditures.  They suggest that widening the economic lens to consider broader societal goals would only strengthen those conclusions.

The article acknowledges the reality of economic coercion in the clinical setting, and measures attempts to shape the tools of cost containment in a way that protects patients while maintaining cost containment.  One doesn’t have to accept the general wisdom of patient cost-sharing to value attempts to protect patients from untoward effects of its use.

The need to obtain “value” for health care spending and to take steps to restrain health inflation will persist however we come out of the current reform debate.  The discussion will benefit from both the erudite analysis of Groopman and others warning us away from answers that are too easy, and that of Chernew and others who can shine a light on the efficacy of particular cost containing measures.

Does the VA Cost Less Than Private Health Care?

Taking a break from law, this post is about whether the Veterans Health Administration provides care more efficiently than the private sector.  Paul Krugman and others have held the VA out as a shining example of the government’s ability to provide high quality care efficiently, as well as the private sector’s need to lower costs and improve quality through electronic medical records, comparative effectiveness research, reduced overhead, salaried physicians, and integrated delivery systems — all issues that are central to current health reform debates.  It would be a huge blow if it turns out none of this is true — but that’s precisely what’s suggested by an article published by VA researchers earlier this year.

Wm. Weeks, MD (at Dartmouth and the VA’s regional  center) reported that, from 2001-2006, the VA cost 33% more than equivalent care in the private sector, and its quality was not notably better.  Here, I focus on the cost findings, since they diverge dramatically from the prior, state-of-the-art, study by Nugent, Hendricks et al (also from the VA), which found that, in 1999, the VA cost about 20% less than Medicare.  Since Medicare itself costs 25-30% less than the private sector, Dr. Weeks reports the VA costs about twice what Dr. Nugent and other VA colleagues  previously reported.  What makes this discrepancy even more remarkable is that Weeks did not even cite this prior work of VA colleagues, published in multiple articles in leading journals.

What gives?  I’m not expert, but its clear their methods differed sharply.  Nugent et al. took all care delivered at 6 VA centers and valued the services at actual Medicare fee-for-service rates, comparing the total with costs borne by the 6 VA centers.  Thus, the measures and comparison are direct, apples-to-apples.  Weeks, on the other hand, compared total VA medical costs (excluding nursing homes) per user with per person costs reported by VA users in the Medical Expenditure Panel Survey (MEPS), which values those services at private sector rates.  MEPS is a national survey that contains only a small subsample of 500 VA users, about 1 of every 50,000 VA user.  Extrapolating from such a small sample is a much more indirect comparison, so merits closer scrutiny, which reveals many potential flaws:

1. The 500 VA users in MEPS  are probably not an accurate reflection of 5 million total users.  MEPS surveys people living at home who respond to surveys.  This entirely excludes people who are homeless, institutionalized, or have died earlier in the year, and it under-represents mentally ill or substance abusers.  All of these categories have worse health, and regrettably are prevalent among vets, so MEPS almost certainly omits vets who reflect the highest burden of illness.
2. This sample may lacks much statistical validity, even for the vets it does include.  MEPS weights responses to make them nationally representative for demographic characteristics, but not for veteran status.  Without this weighting, the chance of random error is much greater.  This is suggested, for instance, by the fact that the value of VA care reported over this six-year study ranged two-fold from year to year, with no discernible pattern (the sixth year was twice the fifth year, which was half the third year, etc.)
3. Even for those whom MEPS does represent, it underreports actual health care costs.  Exactly how much and why is somewhat unsettled, but what seem to be the most recent studies conclude that MEPS underreports by 14% - 19%, in large part because reports of both utilization and costs are understated.    Weeks acknowledges these possible flaws, but asserts that studies he and others have done show MEPS is reasonably accurate — again without citing any of the leading studies to the contrary.

Moreover, even Weeks’ self-selected cites do not fully support his accuracy claim.  For instance, he says a RAND study reports that “MEPS expenditure estimates ‘agree quite well’ with estimates from other databases.”  But, the RAND study (p. 34) spoke in that phrase only to utilization, not to expenditures, and even for utilization it said MEPS underreports by 85% for outpatient hospital use.  For expenditures (use X price), RAND (on the very next page) said that MEPS underreports hospital costs by 21% and physician costs by 54%.

What is this Journal of Health Care Finance that would publish a flawed use of MEPS?  It is hardly a leading health research journal.  According to its website, it is

devoted solely to helping you meet your facility’s financial goals. . . . Make easier, better decisions, with advice from industry experts. . . .  Experts in the field share their experiences on successful programs, proven strategies, practical management tools, and innovative alternatives, . . . including hospital/physician contracts, alternative delivery systems, generating maximum margins under PPS, improving productivity, taxation management, health care insurance, employee benefit cost-containment, joint ventures, mergers and acquisitions, employee incentive systems, and more.

An e-mail from its editor states that most articles are reviewed only internally, by its editorial board whose members are drawn primarily from industry.

It appears the Weeks article did not receive peer academic scrutiny, but what about scrutiny from the study’s own coauthors, who are affiliated with Dartmouth and Washington & Lee?  The second author happens to be Weeks’ wife, and the third appears to be their son.  As for Weeks himself, he is deeply embroiled in two serious legal controversies with the VA.

On balance, the Nugent, Hendricks et al. study remains unrebutted. In my view, the Weeks study suffers from too many serious flaws, and is too lacking in objective critique, to hold much or any credence in this important debate.

Originally posted at the O’Neill Institute for National Global Health.

Mammography, Cervical Cytology Screens, and Rationing

The recent recommendations on mammography and cervical cytology screens by the US Preventive Services Task force and ACOG (American College of Obstetricians and Gynecologists), respectively, have added a new dimension to reform discussions.  Some are inclined to say “gotcha,” suggesting that the recommendations are evidence of a creeping denial of needed care that would follow governmental insinuation into health finance and benefits design.  Others see the reports as serendipitous irrelevancies, unconnected to reform discussions.  The truth is, not surprisingly, more complex.  The irony is that consumers will be more represented in health technology assessment in a public plan than they have been in private insurance.

It seems inevitable that any future health finance system will rely on evidence-based assessments of new (and old) technologies for both quality and cost purposes.  Our experience with the widespread use of affirmatively harmful (e.g., hormone-replacement therapy) and apparently useless treatments (e.g., knee arthroscopy for osteoarthritis) points to the possible risks of rapid  or uncritical adoption of new technologies.  As Sara Rosenbaum and others have pointed out,  (subscription required) we don’t want to confuse population data with individually-applied diagnostic and treatment judgment.   Both reports, to their credit, got this part right, and advised individual patients and physicians to assess each case in context, notwithstanding the general population-level guidance.  But evidence-based population data on the efficacy and comparative benefit of new and expensive interventions will be of enormous assistance in future treatment and funding decisions.

How should such health technology assessment be done, if not by expert panels?  As Bill Sage has observed, private health plans were opaque and inconsistent when they were in the technology assessment business.  (They have pretty much gotten out of that field, leaving cost control to others.)   One criticism of the mammography and cervical cytology reports has been that they should have included a more public process before issuing recommendations.  As the reports are merely advisory, it is not clear that post-publication comment doesn’t get the job done.  Where, as may be the case in the future, such expert analysis has instrumental effect, pre-implementation public process is essential.   Two guides for public health technology assessment advise as much.  The Institute of Medicine, in guidance issued earlier this year for comparative effectiveness analysis funded by the stimulus bill, observed that,

Clinicians and patients do not always consider the same factors when weighing the tradeoffs posed by important health care alternatives.  To ensure that the fruits of CER support consumers’ health care decision making, the CER Program should focus on the questions of patients as well as their health care providers.

Similarly, a health technology assessment guide created by the European Observatory on Health Systems in 2008 describes well-functioning technical assessment as consultative and transparent:

Social accountability permeates the whole knowledge production and is reflected not only in the interpretation and diffusion of results but also in the definition of the problem and the setting of research priorities.

We don’t want a health system — public or private — that is blind to either sound evidence-based technology assessment or the particular health needs of individual patients.  One advantage to a public system is that the assessment of technologies can and should include a robust public process.  We didn’t get that with private managed care.  The mammography and cervical cytology reports should call our attention to the opportunity for public process in decision making in publicly-funded coverage, and the need for close attention to the implementing regulatory processes if and when a bill is signed.

The Cost of Dying, 60 Minutes

In case you missed it.

Watch CBS News Videos Online

Here’s an Idea: Asking Doctors about Health Care Reform

The New York Times just published a very interesting article that ties the efforts of the medical community to bring about change in the American health care system with Congress’s attempts to reform health care through legislation.  The article, which details the research of a team of health care providers in the Intermountain Healthcare system in Utah and Idaho, offers insight into what doctors are doing on their own to effect change while waiting for our nation’s leaders to implement the means to better health care for Americans.

As can be seen by American Medical Association’s recent endorsement of the Democratic House bill, and the long time call of the National Physician’s Alliance for reform, there is a consensus among  health care providers for health care reform.

Of course, essential in that reform is delivery system reform. Part of delivery reform is likely to emphasize not only preventive care, a cornerstone of Obama’s plan, but also a careful monitoring and consideration of the outcomes of health care practices.  Although there is debate about the best way to monitor and measure such practices, and some bridle at the prospect of being “confined” to protocols derived from large studies,  the evidence-based medicine model is emerging  as a favored tool with which to analyze how health care providers themselves can produce more cost-effective, life-preserving results. Evidence-based medicine puts protocols in place (which may be overridden at a doctor’s discretion) and relies heavily on the statistical analyses of a health care system’s performance (i.e., patient outcomes from particular practices).  Such is the model executed by the Intermountain Healthcare system highlighted in the Times article.

The protocols ultimately implemented sometimes differ from the usual course of treatment offered by some doctors. The physicians at Intermountain Healthcare admit that it is often hard for doctors to hear that they are doing something wrong– or perhaps “not optimally” would be a better choice of words.  The Executive Director of Intermountain Healthcare Institute for Healthcare Delivery and Research, Brent James, relates that some doctors do not believe the results of the statistical research because doctors are reluctant to change their ways, but that oftentimes when presented with clear statistical evidence doctors change their practices.  He gives the example of obstetricians who were performing elective inductions prior to 39 weeks for pregnant women for the sake of convenience, as the inductions save hours of labor for the mothers and therefore hours of hospital time.  However, an analysis showed that babies born prior to the 39th week of gestation were far more likely to wind up in intensive care. After doctors saw the data, and protocols were put in place, James found that the rate of elective inductions fell dramatically. A similar protocol developed for the treatment of one form of pneumonia was said to have cut the rate of death for that condition by 40% over several years.

Some doctors contend, however, that the medical metrics of evidence-based models are not the best way to bring change in health care practice, both because doctors will feel pressured to follow set protocols without considering other possible treatments and because humans are not statistical data that can be remedied through calculations and formulas. The danger, of course, is in negating the healing art– in throwing the proverbial baby– independent critical thought– out with the bathwater.  Doctors of this school of thought often espouse  revamped medical education as a better way to reform health care practices; after all, the basis of how health care providers develop their practices is the way in which they were/are taught.

And one wonders if there isn’t room for both approaches. If the education of medical students can be changed to incorporate better and cost effective practices based on studied outcomes (perhaps in part culled from the Health IT initiatives), and changed to incorporate greater emphasis on preventive care (coupled of course with a pay system which rewards patient wellness), while still respecting doctor autonomy so as not to prepare a generation of medical robots. It doesn’t sound “un-doable.”

Interestingly enough, medical schools have seen an increase in students applying to their programs.  In response, four new American medical schools have opened.  With the older generation of health care practitioners on its way to retirement, the need for more doctors is imminent.  But, we need doctors that are able to help carry the new ideals and practices of a reformed health care system; reaching into the med school curriculum would seem to make a lot of sense.

Medicare and Health Reform: Part II

In his closing remarks to the Senate Finance Committee last week, Senator Baucus pointed with special pride to the effect the Committee’s reform bill will have on shaping the health care system in the longer run:

One point I want to make… is about delivery system reform.  We are starting here in this bill to finally reform our delivery system so it’s based much more on quality and patient focus, moving ever so slowly, but inexorably, from fee for service….which causes a lot of the waste in our system. We’re not going to see savings, the benefits, to the system for a while… but after four, five, six years from now, we’re going to see the real benefits of reform.

There is no doubt that the Committee’s America’s Healthy Future Act devotes considerable attention to fixing what’s wrong with the existing delivery “nonsystem” and improving government oversight. Title II (Disease Prevention and Wellness), Title III (Improving the Quality and Efficiency of Health Care), Title IV (Transparency and Program Integrity) and Title V (Fraud Waste and Abuse) of the Act consume 143 pages of the 259-page Chairman’s Mark.

And well it should.  As Professor Bill Sage’s aphorism, “It’s the delivery system stupid,” suggests, changing the structure and interactions of health care providers has long been seen as critical to efforts to control cost and improve quality.  Given serious questions about the strength and effectiveness of competition among private health insurers, especially without a public plan option to spur them, Medicare reform stands as the only viable means to bring about delivery system change.  Policy analysts have made the point that “Medicare is the place to start delivery system reform,” recommending payment reforms that reward accountable health organizations and move toward bundled payments  as a means to spur needed integration in health care delivery.

But how quickly can all this be accomplished? Read more

Managed Health Services Offers Money Incentive to Visit Doctor, Get Screenings

We’ve talked often enough on this blog about the cost efficacy of preventive care–and how the failure to address smaller medical issues under more affordable conditions (such as a visit to a primary care doctor or clinic) can readily become larger medical issues that wind up having to be treated under the most expensive of conditions (emergency room and hospital treatment). Which is to say, ” a stitch in time saves nine.”

But what if you need someone else to come forward in order to save those eight stitches?

According to the Washington Post, Managed Health Services (MHS), which bills itself as being  “Real Life Solutions for HealthCare,” has begun offering Medicaid patients a monetary incentive, which can be spent on health care or health care related items “simply by visiting the doctor or seeking routine preventive care.”

WaPo reports

Some Indiana Medicaid patients can now earn money to spend on health care simply by visiting the doctor or seeking routine preventive care.

Managed Health Services on Monday announced a new debit card program that rewards patients for making regular trips to the doctor, taking their babies in for checkups and getting screened for several conditions.

Participants can earn between $10 and $20 on their cards for each visit or screening.

The  MHS website, offers the following from a letter it recently sent out to providers:

Members will receive their monetary reward loaded on a Debit MasterCard® that is sent to the member only after the first eligible PMP visit or screening has been completed. The CentAccount MasterCard will be accepted at participating groceries and pharmacies, and is restricted to the purchase of health-related items, such as over-the-counter medicine. The CentAccount can also be used at www.diapers.com to purchase items such as diapers and bottles, and at doctor offices that accept Debit MasterCard® for the payment of co-pays.

WaPo reports that

Patients can earn $15 simply by visiting a primary care doctor within 90 days of joining the program. An annual checkup leads to another $20 deposit on the card.

Parents who take their newborn children for required checkups can receive $10 per visit. The program also serves children covered by the State Children’s Health Insurance Program up to age 20.

Money also can be earned through screenings for breast and cervical cancers, diabetes and the venereal disease chlamydia.

WaPo also reports that according to Pat Rooney, president and CEO of Managed Health Services, a subsidiary of St. Louis-based health insurer Centene Corp, “In some cases, patients might add more than $100 to their card over a year.” Rooney stated: “Just getting people in to see their primary care doctor is always a challenge with this population. They tend to want to go to the emergency room for care.”

WaPo reports that “Rooney said Managed Health Services debuted a similar program more than a year ago in South Carolina, and patients appear to be seeing their doctors more since that program started.”

As the South Carolina system is, one might say, in a state of flux because of relatively recent measures to shift Medicaid participants over to a managed care system, hard numbers may, understandably, be hard to come by. But this program strikes me as one which bears following. I would hope that at least one of the major foundations will study the matter and gauge the effect of a relatively nominal monetary incentive on preventive and primary care usage. As this particular population is comprised of Medicaid recipients, if said population have been recipients over a period of time, their historical emergency room visits, hospital stays– and the cost thereof– are all ascertainable.

And these are numbers that could make a difference. As a matter of common sense, to keep from having to pay for all those “additional stitches,” it may prove beneficial to give a half-a-stitch to the person we need to come forward in time in order to save the nine. Simple Math.

CBO Wrong on Health Care Reform Cost Numbers

Just as opponents of  the current Health Care Reform plans often cite reports from The Lewin Group, which, as we posted the other day, turns out to be wholly owned by one of the Nation’s leading insurers, UnitedHealth; they also cite to recent reports by the Congressional Budget Office (CBO) as to the relative fiscal impact of the various plans. Although the CBO does not seem to be owned by UnitedHealth (though recent statements by the CBO (as made clear by Professor Frank Pasquale here) they are certainly susceptible to being labeled “partisan” for exceeding the scope of their role), CBO is prone, it seems, to being wrong.

Professor Pasquale’s post, “Politicized Prognostication at CBO,” details and quotes a number of experts who have expressed grave doubt as to the methodology of the CBO as well as the resultant numbers. For example

Bruce Vladeck: “The CBO’s track record in predicting the effects of health legislation is abysmal. Over the last two decades, the CBO has routinely overestimated the costs of expanded government health care benefits and underestimated the savings from program changes designed to reduce expenditures.

Mr. Vladeck, Maggie Mahar, Timothy Jost, Frank Pasquale and Timothy Westmoreland have more company for their doubts regarding the CBO’s numbers.  The rather politic but wholly effective Commonwealth Fund reports that

Over the last 30 years, the Congressional Budget Office (CBO), which assesses the costs of health reform and other legislation as it moves through Congress and is widely respected for its competence and integrity, has underestimated the amount of savings and overestimated the costs that major changes in the health care system would bring, says Jon Gabel in an op-ed published in today’s New York Times.

Drawing on Commonwealth Fund-supported research, Gabel, a senior fellow at the National Opinion Research Center of the University of Chicago, analyzed CBO’s forecasts of three major changes in the Medicare program relative to their ultimate outcomes.

What he found was alarming:

In the first, in the early eighties, Congress adjusted the way in which Medicare would pay hospitals-under the new law paying a fixed amount per admission based upon primary medical condition. “CBO predicted that by 1986 total spending would be $60 billion. Actual spending in 1986 was $49 billion.”

That’s $11 billion on 60. That’s wrong by more than 18%.

In the second, Commonwealth Fund reports that Gabel “found that savings from the Balanced Budget Act of 1997, which changed the way skilled nursing facilities and home health services were reimbursed under Medicare, turned out to be 50 percent greater in 1998 and 113 percent greater in 1999 than the budget office forecast.”

Wrong by 50% and by 113%.

In the third, Commonwealth Fund reports that “CBO predicted that drug prices would rise following the Medicare Modernization Act of 2003, which added prescription drug benefits to Medicare, estimating that spending on the drug benefit would be $206 billion. Actual spending was nearly 40 percent less than that, Gabel found.”

Wrong by nearly 40%.

Combining the error rates for the two years stated in regard to the Balanced Budget Act of 1997, that’s three major Health Reform changes with an average error rate of  more than 46%. That’s nearly half. Wrong by nearly half.

According to the Commonwealth Fund,

Gabel explains that when CBO analyzes initiatives aimed at reducing costs, it requires considerable evidence that similar previous policy changes have saved money. When there is a lack of historical examples, the “unknown” variable often becomes zero. The task for the budget office becomes even more challenging when it considers the impact of more than one change simultaneously-changes that might have synergies.

Considering that we are entertaining unprecedented Health Care Reform which relies upon  the manifold synergies of numerous changes for cost reduction, the CBO process which ascribes a numerical dollar value of  zero to that which is new, seems particularly ill-equipped to assess the fiscal impact of the proposed changes.

The Commonwealth Fund reports that

Gabel observes that underestimating savings that can come from cost-control initiatives in Medicare and throughout the health system could undermine efforts to pass health reform legislation. “As Congress now works on its greatest push for health care reform in generations, the budget office needs to revise the methods it uses to make predictions about costs,” he says.

Failing the methodology revisions requisite to make the CBO’s estimate’s  of cost reduction a valid measure of fiscal impact, the least they could do is preface their lofty and dire pronouncements with an accurate disclaimer: “Historically, Give or take, roughly 50%.”

What Health Care Costs

In light of reports of a recent rising clamor to not enact comprehensive Health Care Reform, in our last post we noted that the total U.S. health care expenses for 2008 was $2.4 trillion or, if written out: $2,400,000,000,000. In an attempt to contextualize that number we noted that to count to 2.4 trillion would take 228,000 years; and that if we piled thousand dollar bills $2.4 trillion would rise 151,200 miles into the air (significantly more than half the distance to the moon) or more than 6 times around the circumference of the earth at the equator.

We also noted that:

If, for the sake of even numbers a family is four people and a house costs $250,000, then $2.4 trillion would be enough to buy 9,600,000 houses, or  a house for every single family in New York City, Los Angeles, Chicago, Houston, Philadelphia, Phoenix, San Francisco, Baltimore, Boston, Denver, Milwaukee, Seattle, Atlanta, Cleveland, Miami, Omaha, Raleigh, Oakland, Kansas City, Mo., Tulsa, Portland, Or., Albuquerque, San Antonio, San Diego, Dallas, Detroit, Indianapolis, Jacksonville, Memphis, Virginia Beach, Honolulu, Tulsa, Minneapolis, Arlington, Tx, and Washington, D.C. combined. That’s only one year of health care expenses.

And that

$2.4 trillion is 4.3 times the amount spent on defense; 17% of the GDP and that the number–if we do nothing–is expected to rise to $4.3 trillion by 2016– close to double the incomprehensible $2.4 trillion we spent last year in a mere 7 years and enough thousand dollar bills stacked atop each other to get us to the moon.

Today we take a little closer look at that $2.4 trillion in the life of the economy at large and people at home.

$2.4 trillion equals $7,900 per person. Although this chart below from Kaiser Health only goes up to 2007, look closely at the rising percentage of health care expenses to Gross Domestic Product. GDP (as per the Dogs of the Dow), “is defined as the value of all goods and services produced within the geographic territory of an economy in a given interval, such as a year.” Roughly speaking, that’s the value of everything we make or do. We’re at 17% of GDP for 2008. That’s one out of every six dollars. In 1970 it was 7.2%; about one out of every 14 dollars.

Again, 2008’s percentage is roughly 17%; the Centers for Medicare and Medicaid Services (CMS) projects that health spending will be a little more than 20% of GDP  by 2018.

According to Kaiser, “Over the last four decades, the average growth in health spending has exceeded the growth of the economy as a whole by between 1.3 and 3.0 percentage points. Since 1970, health care spending has grown at an average annual rate of 9.6 percent or 2.4 percentage points faster than nominal GDP.”

In looking at dollar amounts over time, one may, and should, consider inflation– as a rising tide lifts all boats, so to speak– and an expense of $1.00 in 1970 is equivalent, because of inflation, to an expense of $5.55 in 2009. One must account for that.  But in considering expenses relative to GDP over time the rate of inflation is less significant as it is, in a sense, already factored in–as we are speaking in terms of percentage of the whole of all we make or do from one year to the next. The whole is the whole, regardless. From one in fourteen to one in six is, to say the least, significant.

But having said that, it may be worth taking a quick look at inflation, wages and the cost of health insurance premiums over the last 10 years– if you receive your health benefits through your employer, the chart below should make it clearer where the bulk of that raise you thought you had coming went.

According to National Coalition on Health Care the annual premium for an employer health plan covering a family of four in 2008 averaged nearly $12,700. The annual premium for single coverage averaged over $4,700. That’s over $1000 per month ($1058) for the family of four; nine dollars shy of $400 per month for an individual. The average 30 year fixed mortgage rate for this week is 5.29%. For the sake of even numbers, if a house costs $250,000, the monthly mortgage payment on that house would, at 5.29%, be $1387. Which is to say that the average cost of health insurance for a family of four in 2008 was a scant $329 less than the monthly mortgage for a house. For renters, according to the Census Bureau’s most recent report, the median monthly housing cost– rent, utilities: gas, electric, water, and garbage– was $755 per month.

Importantly, the insurance premiums above: $1058 and $391, do not include co-pays and deductibles– an expense increasingly borne by consumers of health care. And in 2009 both the premiums and the employee contributions rose significantly.

In a post a few months back we noted that HealthCare Finance News reported that according to the Milliman Medical Index (MMI) the average medical bill for a typical family of four covered by an employer-sponsored preferred provider organization (PPO) program rose 7.4 percent from 2008 to 2009. In actual dollars:

The total 2009 medical bill for a typical American family of four is $16,771, compared with the 2008 figure of $15,609. The $1,162 increase is the highest measured by the MMI since the 2006 increase of $1,168, when cost trends were at 9.6 percent.

The MMI found that employers are expected to pay $9,9947, or 5.4 percent more than in 2008, while employees are expected to contribute $4,004 toward their health costs, an increase of 14.7 percent, and pay $2,820 in out-of-pocket expenses, an increase of 5.4 percent.

As we pointed out then, one should note that the employers’ contribution is nearly $10,000 per year, or $833.33 per month. Together, with employee premium contributions and out-of-pocket for deductibles, co-pays and the like– the actual total is $16,771 or $1397.59 per month. Which is to say that the average expense for medical for a family of four is now greater than the $1387 per month it would cost them in mortgage for that $250,000 house.

It is also worth mentioning, as we have before,  that in 2008  Ronald A. Williams, the CEO of Aetna, received $24,300,112 in total compensation. That’s $467,309.85 PER WEEK.

Last Year’s Health Care Bill Equaled $2.4 Trillion

We heard the Sermon on the Mount and I knew it was too complex
–B. Dylan

Recent events have convinced me that Health Care Reform is simply too complex. I say this without recrimination or acrimony towards our public school system or the entertainment networks which do their best to titilate us with the steady diet of the inane we seemingly require. The debate has quickly turned from the hope of informed dialogue into scare tactics, a quest for political advantage, and talk about “death panels” killing Grandma. Sound bites are emerging and they are not pretty. In fact, if you have an elderly parent or grandparent, now might be a good time to talk to them.

In speaking about Health Care Reform, we necessarily embrace (or run from) the complex; very smart people spend the entirety of their lives working with, and studying the intricacies of, any of the myriad aspects which constitute the Health Care System–and those people often disagree. It is a massive field. Health Care expenditures are said to have reached $2.4 trillion in 2008 and account for roughly 16 to 17% of our GDP. The American Public is being asked to digest the entirety of this massive complexity in a matter of months.

It is not surprising that voices which offer simplistic (even if wildly erroneous) explanations have been given an ear. Most people juggling work or children and expenses and dinner don’t have the time to even make sure their phone bill is correct–never mind the time for a wonkish devotion to the intricacies of the pay mechanisms in health care or the subtleties of the HITECH Act. But Healthcare Reform is of the moment–and one of the few things that seemingly all experts  agree on is that the present system is unsustainable. But there is caution to be had even there. As the debate heats up, there are many newcomers to the fray and a recent Kaiser article describes angry seniors (who vote) descending upon town hall meetings demanding to know about the impact reform would have on Medicare and expressing displeasure at the prospect of a health care overhaul. They’re covered. They want to know, beyond anything else, that they will remain so. And I suppose the key point here is to reiterate, as President Obama has recently done, that yes, they will remain covered.  But another point that must be made is that the health care system is very costly and is long-term unsustainable as as presently constituted. It is also worth noting that it has been estimated that a couple retiring this year, covered only by Medicare, will need $240,000 of their own money to pay for health care expenses during the course of their retirement. That’s a second mortgage on a house. And to quote Professor Nathan Cortez again, “The Less You Change the More it Costs.”

Dylan’s stanza referenced above ends with the following lines:

When you bite off more than you can chew you pay the penalty,
Somebody’s got to tell the tale,
I guess it must be up to me

I’m no Bob Dylan, nor am I hubristic enough to think that I’m capable of telling this tale by myself–but maybe it’s time to take a few steps back and again take a look, in simple  factual terms at the health care system itself–and begin to come to terms concretely with the need to effect change. Comprehensive Health Care Reform is a mouthfull, but if we fail to successfully “chew” it, the cost of Health Care will ultimately choke us.

Health Care expenditures are said to have reached $2.4 trillion in 2008 and account for roughly 16 to 17% of our GDP.

I repeat and emphasize this line from above because it bears repeating. We hear it bandied about, but I firmly believe that a number like $2.4 trillion is incomprehensible–as is “17% of the GDP.”

I need comparisons, and quite frankly, I have nothing to compare a trillion to–never mind 2.4 of them. In a post about the incomprehensibility of the word “billions” a few months back I wrote the following in reference to $825 billion in the stimulus bill :

I hate to admit this, but I really don’t know how much a billion is. I can grasp millions (I can just multiply the value of my house–though the multiplier has grown considerably over the last few years) but billions escape me (considering TARP, that last phrase may be more apt than I am comfortable with). But…

A billion is a thousand million. It is written 1,000,000,000.

I do not find that particularly helpful, but it’s a start.

Years ago, the United States produced $1000 bills; Grover Cleveland graces the front of them and there are said to be a number of them still in existence. It is also said that if you tightly stacked 1 billion dollars in clean crisp thousand dollar bills and piled them-they would rise 63 miles into the air. If you did the same for $825 billion the stack would rise 51,975 miles into the air. Commercial jets generally fly at around 7.7 miles in the air. The circumference of the earth at the equator is roughly 24,901 miles-that’s twice around and then some. And remember, these are thousand dollar bills.

It is estimated that to count from one to a billion would take you 95 years. To count to 825 billion would take you at least 78,375 years. It will not take us nearly as long to spend it.

And by the way, 825 billion is just 175 billion short of a trillion. A trillion is a thousand billion, or a million million, and is written 1,000,000,000,000.

And yes, I find this even less helpful. But my guess is, before the two years are up, we’ll have to figure out what “a trillion” is as well.

That was only a few months ago, we’ve arrived rather quickly at the need to understand $2.4 trillion. That’s $2,400,000,000,000. Again, not particularly helpful, but it’s a start. If we piled those thousand dollar bills again, at 2.4 trillion the stack would rise 151,200 miles into the air. That’s more than 6 times around the circumference of the earth at the equator and well more than half the distance to the moon. And remember, these are thousand dollar bills.

To count to 2.4 trillion would take 228,000 years.

If, for the sake of even numbers a family is four people and a house costs $250,000, then $2.4 trillion would be enough to buy 9,600,000 houses, or  a house for every single family in New York City, Los Angeles, Chicago, Houston, Philadelphia, Phoenix, San Francisco, Baltimore, Boston, Denver, Milwaukee, Seattle, Atlanta, Cleveland, Miami, Omaha, Raleigh, Oakland, Kansas City, Mo., Tulsa, Portland, Or., Albuquerque, San Antonio, San Diego, Dallas, Detroit, Indianapolis, Jacksonville, Memphis, Virginia Beach, Honolulu, Tulsa, Minneapolis, Arlington, Tx, and Washington, D.C. combined. That’s only one year of health care expenses. This year’s number is expected to exceed that, year after that the same.

A few more facts on Healthcare spending from the National Coalition on Health Care:

National Health Care Spending

• In 2008, health care spending in the United States reached $2.4 trillion, and was projected to reach $3.1 trillion in 2012. Health care spending is projected to reach $4.3 trillion by 2016.
• Health care spending is 4.3 times the amount spent on national defense.
• In 2008, the United States will spend 17 percent of its gross domestic product (GDP) on health care. It is projected that the percentage will reach 20 percent by 2017.
• Although nearly 46 million Americans are uninsured, the United States spends more on health care than other industrialized nations, and those countries provide health insurance to all their citizens.
• Health care spending accounted for 10.9 percent of the GDP in Switzerland, 10.7 percent in Germany, 9.7 percent in Canada and 9.5 percent in France, according to the Organization for Economic Cooperation and Development.

4.3 times the amount spent on defense; 17% of the GDP; $4.3 trillion by 2016– that’s close to double the incomprehensible $2.4 trillion we spent last year in a mere 7 years and enough thousand dollar bills to get us to the moon.

Soda & Diabetes, How Much Does That Can of Soda Really Cost? Part II

Diabetes. In a brief but interesting interview on NPR’s Marketplace, Kaiser Permanente CEO George Halvorson had this to say:

HALVORSEN: …. Right now, when you look at diabetes, 32 percent of the cost of Medicare is diabetes. It’s the number one cost of blindness, it’s the number one cause of amputations, it’s the number one cause of kidney failures. And when you look at the care delivery patterns in America, we only get care right for diabetics 8 percent of the time. If we got care right for diabetics 80 percent of the time, we’d cut the number of kidney failures in half.

A few days ago we began to ask, “How Much Does that Can of Soda Really Cost?” We considered cost in terms of external or social cost (not price for the actual can of soda, but that which results incidental to the primary transaction and may be borne by other than the buyer or seller), and noted that a recent study shows that obesity plays a prominent role in health care expenditures, and that many believe that soda and other sugary soft drinks play a prominent role in obesity. We noted that the Wall St. Journal reported that

Overall obesity-related health spending reaches $147 billion, double what it was nearly a decade ago, says the study published Monday by the journal Health Affairs.

Obesity-related conditions now account for 9.1% of all medical spending, up from 6.5% in 1998, the study concluded.

Obesity is a key factor in Type 2 diabetes. And  32% of Medicare costs are attributable to diabetes. It is no stretch to say that if we have a Medicare cost problem in this country (we do), what we really have is a diabetes problem (and, considering Halvorsen’s “we only get it right 8% of the time” figure, a diabetes treatment problem as well).

But first things first. 32% is a mere scooch (yes, that’s the technical term) away from ONE THIRD. That’s an enormous number. If one were to relate this portion of Medicare expense to houesehold expenditures, it occupies a place similar to a mortgage– but an expensive mortgage in a house that no one wants to live in.

In addition, according to the American Diabetes Association (ADA)

The total annual economic cost of diabetes in 2007 was estimated to be $174 billion.  Medical expenditures totaled $116 billion and were comprised of $27 billion for diabetes care, $58 billion for chronic diabetes-related complications, and $31 billion for excess general medical costs. Indirect costs resulting from increased absenteeism, reduced productivity, disease-related unemployment disability, and loss of productive capacity due to early mortality totaled $58 billion.  This is an increase of $42 billion since 2002. This 32% increase means the dollar amount has risen over $8 billion more each year.

Importantly, the ADA believes those numbers may be understated:

The actual national burden of diabetes likely exceeds the $174 billion estimate because it omits the social cost of intangibles such as pain and suffering, care provided by non-paid caregivers, excess medical costs associated with undiagnosed diabetes, and diabetes-attributed costs for health care expenditures categories not studied.

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The 85% Solution and Health Costs

Reform may be bogging down over cost issues.

Blue Dogs and Republicans argue that the cost of reform is too high.  Attempting to predict what large expenditures set off fiscal responsibility alarms is chancy (Financial bailout? Iraq war? Health coverage for all?).   Public money should be spent wisely, but outrage at the scale of the thing — about $100 billion per year to bring equity and sense to a system that cost $2.4 trillion in 2008, and is projected to cost $4.4 trillion by 2018 — doesn’t scan well.  Time lines have been stretched.  The level of political energy has ratcheted up, with the President fully engaged, and business and the health industry  more publicly pushing back.

It may be time to think back to a catch-phrase of the last health reform period.  It was common at that time for objectors to assert that reformers were applying a 100% solution to a 15% problem — that is, that comprehensive reform was unnecessary to address a problem affecting “only” the 15% of the population without health coverage.  There are glimmers of a similar argument this time, with objectors asking whether it is worth it for the haves (taxpayers) to provide for the have-nots (the uninsured).  This argument would be flawed definitionally, as plenty of the working poor without insurance pay a higher total tax rate than better-off insured people.  More significantly, the message should be rejected on its merits: this round of reform is necessary for everyone, and not just the uninsured.

So, what’s the 85% solution?  The figure 85% pops up in a couple of interesting places in the health reform debate.  First, a NYT/CBS poll last month found that about 85% of Americans believe that the American health system needs to be “fundamentally changed or completely rebuilt,” numbers that match well with an EBRI Issue Brief published earlier this month.  This number demonstrates the inclination of the insured to support reform.  After all, the other place the figure 85% pops up in insurance coverage rates — 85% of Americans are insured, and 85% of Americans recently told Gallup that their own health care as “excellent” or “good.”  In the sharpening public debate, progressives should keep this group in focus.  They’re empathetic toward the uninsured, but that empathy is doing too much work.  They should be engaged, in addition, by the fact that health reform is in their direct interest.  They need reform for at least three reasons: our system is fiscally unsustainable and will run off the rails in coming years without comprehensive reform; our system encourages procedure-driven medical practice that serves patients poorly, and even harms them; and the basis for competition in the private insurance market is less on quality and service, and more on seeking out “good risks,” driving into public programs or uninsurance those who most need care, inefficiently increasing taxes or health insurance premiums for the 85%.  Those rallying support for reform should pay heed to these issues.

Attention to an 85% solution is not in tension with covering the 15%.  Uninsurance kills people, and extending coverage to all is critical.  Most Americans clearly care about universal coverage, but the negative blitz will be intense, and it will be helpful to also emphasize that reform helps the 85% as well as the 15%.  Benefit to the 85% sometimes gets underplayed, allowing nay-sayers to create a divisive us-them dynamic.  Today’s reform efforts are necessary because the system is broken with respect to all participants.

All of the health reform draft bills address the key issues of cost, practice reform, and risk selection to greater or lesser degrees.  They could, of course, be improved in these areas. But too often, the debate tends to be reported as though sponsors are advocates only for the uninsured, while Blue Dogs and Republicans fight a rear-guard action to protect those with insurance.  If the struggle is so mischaracterized, reform is unlikely to pass.  We need reform that contains cost for all, restores incentives to practice humane medicine, and reduces as much as possible insurers’ incentives to avoid covering those most in need of care.  Below are some quick thoughts on comparative effectiveness analysis as cost containment, in this spirit.  I hope to touch, in coming days, on the need for reimbursement reform and for an end to insurance competition on the basis of risk.

Cost containment: Health Technology Assessment

There’s been a lot of talk about how to “bend the curve” of health care cost projections.  Containing cost increases helps everyone, of course.  It would be tragic indeed for Congress to expand coverage to all only to find in a few years that we can’t sustain the new program.  One important, and controversial, aspect of cost containment is comparative effectiveness research (CER).   CER is often demonized as rationing.  The Institute of Medicine’s recent work in this area defines this hobgoblin, however, in terms that seem positively pro-patient:

[CER] is the generation and synthesis of evidence that compares the benefits and harms of alternative methods to prevent, diagnose, treat, and monitor a clinical condition or to improve the delivery of care.  The purpose of CER is to assist consumers, clinicians, purchasers, and policy makers to make informed decisions that will improve health care at both the individual and population levels.

Shouldn’t we care about whether expensive new devices and procedures improve health?  The scare tactics should be taken on in two ways.  First, as the IOM makes clear, most CER is directed toward choosing the clinically appropriate alternative.  A second, rhetorically more difficult task, is to point out (as have both my colleague Frank Pasquale and economist Uwe Reinhardt ) that “rationing” is not a swear word, but rather a description of a method for allocating scarce resources.  The choice isn’t whether rationing to some degree will occur, but rather whether it will be done through a transparent process rather than on the basis of ability to pay — or on the basis of an insurer’s preference.

That good health technology assessment should be a concern for the 85% was made clear by David Leonhardt’s recent NYT piece on slow-growing, early stage prostate cancer.  Leonhardt describes the five forms of treatment commonly prescribed, ranging from “watchful waiting” to proton radiation therapy.  The price, he reports, ranges from “a few thousand dollars” to over $100,000.  Which works best?  No one knows.  Remember — the question posed by the article isn’t which produces the most QALYs per unit cost; rather, it reveals that there is no real scientific basis to choose among the options.  Shouldn’t we encourage research to allow us, and our doctors, to choose wisely?

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