I’ve been accused of being one of the few that actually reads the bimonthly journal Health Affairs. Well, guilty as charged, although the pub has a lot more than a ‘few’ devotees. What it does particularly well is challenge core beliefs.
The latest edition focuses on bending the cost curve – a phrase likely to inspire William Safire to dissect it in detail in one of his discourses on language. The idea is to find ways to reduce the rate of growth in health care costs, and this edition has plenty of ideas.
One of the most thought provoking articles contends that price controls are “central to curbing cost growth”. I’m going to comment on the article next week in detail, but here are a couple of points made by the authors.
- “out of pocket spending in the United States is roughly twice the OECD median. If some Americans have “Cadillac coverage,” than most workers in Germany or France must have “Mercedes coverage” – and they would likely view many American insurance policies as “Yugo coverage.”
- patients in OECD countries average more hospitaldays, more physician visits, and greater consumption of prescription drugs than American patients do. Higher US spending is not primarily explained by greater volume of services.
- analyzing data from Massachusetts, David Cutler and colleagues found<, for example, that virtually all of the savings that managed care plans achieved for heart disease treatment, relative to indemnity insurance, came from price reductions./li>
I’ve long believed, and still do, that utilization is a more significant cost driver than price. I’ve seen this time and time again – in data on physician in-office utilization from CMS (up 11% in 2006), in NCCI’s analysis of workers comp prescription drug costs, in analyzing client physical medicine experience, in the correlation between workers comp medical expenses and state fee schedules – or rather lack thereof, and a host of other examples.
What doe this mean for you?
The authors make a compelling case – not just for price as a cost driver, but to always question your assumptions.
I’m a case manager at a TPA. One of my patients had back surgery with instrumentation. He was inpateint for 3 days at a Mid-western hospital. The surgery was medically necessay & appropriate. The patient received appropriate conservative treatment & surgery was the only option. The 3 day hospital cost $173,900.00. The surgeon’s fees were over $20,000. These fees were the PPO discounted fees so the submitted claim was much higher. The cost of healthcare is being driven by Utilization X Price, in my view. The same hospital stay/surgery in another part of the country with a different fee schedule might be alot different. Consistent fee schedules across all payers/PPOs is necessary. Then consumers can select plans based on customer service, wellness & DM programs & other value-added services. And employers wouldn’t be choosing plans based on discount only with no regard to utilization & other services
While broad measures of physicians, nurses, hospital days etc. per capita consistently show the US generally near the OECD median rather than the top of the ranking. Given much higher spending per physician visit, hospital day, the simplest explanation would assign a big role to price variation in explaining higher spending. However, there are important exceptions to this pattern. The US makes far more intensive use of specialist physicians and pays them far more in real terms in comparison with other OECD economies. In comparison, the supply of primary care physicians is well below average for other countries, and they are paid closer to the OECD median in real terms. Secondly (and corresponding to the higher use of specialists) is a much higher utilization rate for surgical procedures such as angioplasty ( particularly among the very old) and of imaging and testing. The number of allied health personnel per inpatient day is also high in the US, symptomatic of more intensive treatment patterns. Ironically, the US uses far less of the primary care services that have been linked to improved health outcomes, while geographic variation within the US suggests that the use of multiple specialists is associated with poorer outcomes. Given the sharp imbalance in compensation, it is not surprizing that there is a acute and growing shortage of primary care physicians. Clearly we need to pay primary care physicians a lot more (10 percent won’t do it!) in order to make the choice appealing.
I agree with the previous comments. The utilization mix is towards high cost services delivered by subspecialists and are procedurally-oriented. The current reimbursement schemes only reward volume and were constructed on status quo models.
Increasing use of preventive care, including counseling services, needs to be considered as a cost containment strategy as well. Even if the mix of services between primary care and specialty care is moved, the focus is still unbalanced on prevention vs. treatment. There seems to be a lack of dialogue around preventive care in the health reform debate.
Moving towards a reimbursement reform that includes quality and outcomes need to be a part of health reform.
In my opinion, health care costs if left up to the insurance companies would not be jumping so high, but someone or something is causing the health costs to inflate. It is certainly easy to prove complicity with corporate-owned for profit hospitals. Insurance companies use margins and their profits always fall inside these profit margins, that leaves health care administration costs from the hospitals and the pharmaceutical companies.
Joe-“I’ve long believed, and still do, that utilization is a more significant cost driver than price.”
Yeah me too. If you receive a set fee for a service or good, how do you make more money? Greater volume….we all know this. Setting further price controls will only exacerbate this utilization problem. More coordination of care and pay incentive for valued outcomes will reduce utilization. Yes, I am suggesting revamping our fee for service model to reflect more of a “fee for value” model, and yes value can be measured. Lastly, once that value is measured it needs to be made public to create competition among providers to see who can provide the best value.
“The latest edition focuses on bending the cost curve – a phrase likely to inspire William Safire to dissect it in detail in one of his discourses on language.”
Considering what happened to the revered Mr. Safire over the weekend, Joe, you’ll understand when I ask not to be cited in Managed Care Matters anytime in the near future. Could we be looking at the genesis of a “Managed Care Matters Jinx”?
;-)