Improving America’s healthcare cost consciousness

By Felix Salmon
August 25, 2011
Sharon Begley's wonderful Newsweek cover story on how less healthcare can mean better health, I'd urge you to do so now -- it's one of those articles where I just want to quote pretty much the entire thing.

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If you haven’t read Sharon Begley’s wonderful Newsweek cover story on how less healthcare can mean better health, I’d urge you to do so now — it’s one of those articles where I just want to quote pretty much the entire thing. All manner of medicine, it turns out, from CT and MRI scans to antidepressants, have a habit of making people not better but worse.

The good news is that Big Medicine seems to be getting the message, and that’s having a real effect on Medicare cost inflation. Here’s Peter Orszag:

Partners HealthCare has used its health IT to be more selective about which patients should have diagnostic imaging tests, such as MRIs and CT scans. The cost to Medicare for imaging tests nationwide roughly doubled from 2001 to 2009. And such tests are not only expensive but potentially dangerous. Frequently imaged patients face an increased risk of cancer because of exposure to excessive radiation.

Doctors at Partners now order imaging scans through the computer system and are automatically queried about the patients’ characteristics. For each case, the software then provides an “appropriateness” score, reflecting evidence- based protocols for the image requested.

In a follow-up column, Orszag looks at another hospital, Mt Sinai, where he recently joined the board — a focus on reducing readmissions rates there has helped reduce its Medicare billing inflation to 2% — vastly lower than the 12% annualized inflation rate in Medicare costs that we’ve seen on average over the past 40 years or so.

The big question here, raised most promiently by Maggie Mahar, is why we’re seeing this unusual slowdown in Medicare costs right now. Mahar and Orszag say that a lot of the reason is the Affordable Care Act: a rare instance of a piece of legislation actually having its intended consequences. The act is designed to pay more for outputs and less for inputs — that is, to encourage the use of medical procedures only if they improve health outcomes, and to discourage them if they don’t.

I buy that. And if the healthcare industry broadly takes to heart the lessons of Begley’s article, then it’s easy to imagine a world where we can have our cake and eat it — lower healthcare costs (or, at least, lower healthcare-cost inflation) along with improved health outcomes.

The problem here is the incentives. From a public-policy perspective, there’s no doubt that getting doctors to order fewer harmful drugs and procedures is a really good idea. But from the point of view of the doctors and hospitals, they’re going to be leaving money on the table. Recent legislation includes some financial carrots and sticks, in a pretty well-designed manner.

Under the first stage of the HITECH Act, doctors who adopt electronic health records can receive incentive payments of as much as $44,000 from Medicare or $63,750 from Medicaid; hospitals can qualify for payments of $2 million or more. As of early August, Medicare providers had received $400 million in incentive payments for health IT, and much more is in the pipeline. Surveys suggest that while the first-stage incentives are available, at least two-thirds of American hospitals will adopt new systems.

Starting in 2015, the Medicare subsidies for adopting health IT systems are to be replaced by penalties for not doing so.

But it seems to me that the jury’s still out on whether these incentives are going to bend the famous cost curve over the medium to long run. Medical cost inflation is volatile and unpredictable, and downticks often just result in mean-reversion upticks the following year. The way to make sure these effects last is to get Begley’s message out to the population as a whole — and then to give them some amount of skin in the game when it comes to the cost of the procedures they do undergo. When people pay even a tiny amount of their direct healthcare costs, they become much more conscious of what those costs are. And the one thing this country really needs is much more cost-consciousness when it comes to healthcare.


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re. electronic health records…

Have you ever had an annual physical exam with a doc that uses a laptop and the canned practice software? Invariably they spend MORE time wading through menus and toggling radio buttons than they do actually examining you. Mt doc has had the software for 4 years and he is a fairly sharp guy — but there is LITTLE doubt in my mind that this degrades patient care because the computer requires more time that the actual exam. If they had a stenographer dorking around with the computer things would go much faster — it is a waste of professional time, IMO.

Electronic medical records are something for the benefit of insurance companies, software vendors and consultants.

Finally if people like Orszag and his ilk are really serious about controlling costs, then they should advocate single payer. Obamacare is an Obama-ination. Shut down private insurers and costs will go down to ex-US OECD averages very quickly.

Posted by upstater | Report as abusive

“All manner of medicine, it turns out, from CT and MRI scans to antidepressants, have a habit of making people not better but worse.” Insane statement. Having been a diabetic for over 40 years, “all manners of medicine” have saved me from what would have been fatal 70 years ago, prevented kidney disease through blood pressure control, and allowed a fairly normal life through insulin pumpes and real time blood sugar sensing. You don’t need to be hyperbolic to make an otherwise good point.

Posted by Ditman | Report as abusive

“Doctors at Partners now order imaging scans through the computer system and are automatically queried about the patients’ characteristics. For each case, the software then provides an “appropriateness” score, reflecting evidence- based protocols for the image requested.”

That sounds great unless you’re a patient with a nagging ailment whose GP has said, “hmm, maybe we should get an MRI on that just to be on the safe side,” and then get a letter from your insurer saying “Our computer says your appropriateness score is too low for us to pay for this.” I’m not saying that in the aggregate this isn’t a good idea, but it’s bound to cause any number of freakouts for individuals, a small percentage of with will be justified. That’s the trouble with applying economic rationality to health care: the stakes are so high that people are often very invested in getting all the info and trying all the avenues they can, even with low probability of results.

Posted by jfruh | Report as abusive

I saw a great Frontline piece on health care in a very poor town in New Jersey. A doctor tried to help a dying man and the police did not seem compassionate for the man. The doctor was outraged and he tried to get crime statistics from the law enforcement to encourage a targeted approach to reducing crime. Well the local law enforcement team told him to kick rocks.

So he decided to comb through hospital billing records to get almost identical information about crime statistics-because stabbing, gunshot wound, and rape victims go to hospitals. What he found was that one percent of the people in the town accounted for approximately 30% of the health care costs. When he plotted this against the addresses he found that about half of these lived in a high rise nursing facility-no real shock there considering how expensive end of life care can be.

The others were generally low income working class people with chronic conditions that were not being treated proactively-so they would end up in the ER frequently. So he worked with social services division to take a targeted approach and get them preventative care, regular check ups to keep on track, cleaning up their household environment-whatever needed to be done.

The town has saved millions of dollars-and this is the poorest town in New Jersey. The doctor’s point is that if he can do it there it can be done anywhere.

Can you imagine what this kind of targeted approach along with say ferreting out fraud or better approaches to end of life care could be?

Posted by nikanika | Report as abusive

The Docs are over using diagnostic equipment and medication because they are tired of being sued.

Patients won’t even give Obamacare the chance it needs to startup, so when it is quashed and dead in the water and all healthcare become unsustainable for Government and those unable to afford private insurance… the rising cost of insurance will mean only the very very rich will be able to afford care.

Once Obamacare is destroyed, who are you going to blame?

@ upstater …Obamacare isn’t an Obama-ination, although you obviously like the sound of your buzzword.

Newt shot down single payer in the 90′s and the Republicans have been railing against it ever since. (The insurance companies pay a lot of Insurers money to lobby against those they insure…)

Posted by hsvkitty | Report as abusive

Can we please have a moratorium on use of the phrase “skin in the game” when referring to a patient’s directly paid share of healthcare costs? Because, you know, when it comes to healthcare, and to their family’s healthcare, individual human beings already have skin in the game. It’s called skin. They also have hearts and lungs and eyes and various and sundry limbs in the game. And, frequently, the skin, hearts, lungs, eyes, limbs and so forth of their spouse and children as well. What you are talking about is “money in the game,” under the premise that when it comes to making decisions about how much healthcare to “consume,” individual patients (and the decision-making guardians of minor and incapacitated patients) will have a countervailing “money incentive” to play off against what we might call the “actual skin incentive” in any given round of “the game.” But of course it’s not a game at all, and push come to shove, when it comes to money versus skin (or, say, money versus your child’s skin) you’ll plump for overloading on the skin side every time, just to be safe. That’s pretty much the whole damn problem with “patient-as-consumer” models of healthcare cost control.

That being the case, what evidence do you have that “the one thing this country really needs is much more cost-consciousness when it comes to healthcare,” at least as far as the patient-as-consumer is concerned? Most people in most healthcare plans in this country (including those covered by Medicare) already pay far more than the “tiny amount of their direct healthcare costs” that you cite as a useful trigger for enhanced awareness of their care’s real cost. Co-pays and co-insurance are virtually universal these days, as is a set employee share of the insurance premium itself, which is usually taken as an itemized payroll deduction. (This applies to union healthcare plans as well as those of non-unionized employers; I can personally testify to that fact, having helped to bargain a number of union contracts. In the private sector, “unlimited” benefit plans are effectively dead; in the public sector they are going fast, and to the extent that they ever existed they only covered a small percentage of the insured population anyway.)

So I’d just ask you: What evidence is there that in the US right now the average insured individual has less direct-cost money (not skin) “in the game” compared to the average insured individual in any other major industrialized country? And what evidence is there that this has anything to do with our rate of healthcare cost inflation compared to that of any other major industrialized country? Numbers, please.

Posted by djseattle | Report as abusive

Felix: It is important that opinion writers exercise strict discipline in using words like “healthcare cost”, “inflation rate”, “Medicare billing inflation”, “Medicare costs”. These are not interchangeable terms. You understand that, right? We cannot begin to address the problem until we effectively define the problem.

Posted by done | Report as abusive

@djseattle, you said what I was going to say, and more eloquently. Felix, we all have much more, ahem, money in the game than we did a decade ago. We can use the web to “educate” ourselves as consumers, but we can never be the same educated consumers as we are when buying a car. Our doctor is our personal expert, and we generally do what he/she says, and will buy all of the additional bells and whistles, even if a chunk of the cost is coming out of our pockets.

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