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healthcare cost

Why Healthcare Costs Soar (Part 5)

Readers of Cracking Health Costs know that healthcare is both complex and consuming, and an ever-greater share of GDP in the U.S., while our health outcomes are falling behind our peer countries.

According to the 2015 Health Care Services Acquisition Report, the deal volume for businesses in the healthcare services sector rose 18%, with 752 transactions in 2014, for a total of $62 billion; acquisitions of physician practices accounted for $3.2 billion of the total. As healthcare suppliers continue to consolidate, what does this mean for the employers who pay for these services?

With the attention around value-based contracts and affordable care organizations (ACOs), we should expect the number of ACO contracts will continue to expand beyond the 750 in existence today, and the value-based concept sounds good. But Dr. Eric Bricker’s blog pointed out that 41% of all physicians did not know if they participated in an ACO, as referenced in the Feb. 10, 2016, issue of Medical Economics magazine. Is there real motivation to change?

Hospital mergers lead to average price increases of more than 20% for care, while physician prices increase nearly 14% post-acquisition. The result: The value-based contracts will be based on higher fees for the combined entities.

In Part 3 of this series, the provider we mentioned built a strong reputation, which let it charge higher per-unit fees. But, when that provider enters into value-based contracts, renewals will depend on the ability to hit cost targets agreed on with the insurance companies. While the per-unit price in those contracts will be important, the Seattle provider’s biggest opportunity is to establish a more consistent process of care among its physicians, so employers stop paying for the wide variation in treatment and for unnecessary care.

Here’s what we know: 1) There has been value-based contracting, 2) there has been data to assess performance and 3) yet there remains extremely wide variation in care among providers, especially for patients with complex health problems. Where such variation exists in healthcare, many people are getting substandard care.

So why is there still variation? Well, if you sold a consumer product, like a flat screen TV, that had wide variation in results yet commanded a premium price and saw sales stay strong, how motivated are you to change your process?

With TVs, there is ample competition. Consumers will purchase another TV brand if one is over-priced or of poor quality. But, in self-insured benefit plans, most employers have not had the appetite to take tough but necessary steps to engage in disintermediation despite the huge differences in price and quality.

It’s high time for employers to replicate how purchasers in other industries have collaborated with their suppliers to address variations in process and quality and to eliminate cost inefficiencies.

Hospitals Buy Practices, Raise Prices

There was an interesting article in Medical Economics magazine titled, “Lopsided Value: Why cost may ‘level the playing field’ for independent, office-based physicians.”

The article by Tammy Worth describes how, when a hospital system buys a physician practice, the hospital can then consider the doctor’s office part of its “outpatient” facility and therefore charge a facility fee in addition to the doctor’s professional fee. This holds true for when hospitals bill Medicare or private insurance carriers.

As an example, the article states how an EKG at a doctor’s office cost $188 before it was bought by a hospital. If that same EKG is billed as an “outpatient” hospital service, it costs $452.89—more than twice as much, because of that additional facility fee.

In another example, an office visit for a complex new patient appointment costs $200 at an physician practice not owned by a hospital. However, if the hospital buys the practice and charges the additional facility fee, the price goes up to $340—170% as much.

Medicare and private insurance carriers have been slow to adjust their reimbursements, so, as of now, they are just paying these higher fees.

What does this mean to employee benefits professionals and healthcare consumers?

  • If you do nothing to your plan, your costs will go up because the provider community is consolidating and using that consolidation to charge more. Even if your population does not use more medical services, your costs will go up because the cost per service is going up.
  • If you are a healthcare consumer and are going to doctor’s offices that are owned by hospitals, expect an additional facility charge and find out how much it will be in advance. It could double the price of your medical care. You might want to vote with your feet and go elsewhere.

Screening: More Does NOT Equal Better

In an important op-ed piece in the New York Times, “An Epidemic of Thyroid Cancer?”, Dr. H. Gilbert Welch from Dartmouth University wrote that he and his team of researchers found that the rate of thyroid cancer in South Korea has increased 15-fold!

15X! How can this be?!

Were South Koreans exposed to massive amounts of radiation? Did South Koreans start using some dangerous skin product?

No. And no.

South Korean doctors and the South Korean government encouraged increased cancer screening. More screening must be better, right?

No. Not at all…

This is an important concept for employee benefits professionals to understand: More screening is not necessarily better.

What happened in South Korea is that the thyroid cancer had been there all along, just undetected. The most common type of thyroid cancer — papillary thyroid cancer — is usually very slow-growing, and people with this cancer never know it is there. It does not affect their health, and it does not kill them. According to the article, it is estimated that 1/3 of ALL ADULTS have thyroid cancer.

Thyroid cancer screening is performed by an ultrasound of the neck. It is an un-invasive, painless, fairly simple test. So what happened in South Korea was not an epidemic of thyroid cancer but, as the article puts it, “an epidemic of diagnosis.”

There is potential harm in treating a cancer that will likely not cause you any problems. Two out of every 1,000 thyroid surgeries result in death. Removal of the thyroid means a person will have to take thyroid replacement medication for the rest of her life. This medication can be hard to adjust, leading to problems with metabolism, such as weight gain or low energy.

In the U.S., there are many screenings that the U.S. Preventive Services Task Force has deemed “unproven” for application across entire populations of asymptomatic individuals. For example:

  • Screening the skin for skin cancer
  • Screening the carotid arteries (neck blood vessels) for narrowing

It is important to address the converse. Increased screening that has been shown to reduce morbidity and mortality is a good thing. Screening for high blood pressure is a good thing. Screening for diabetes is a good thing. Screening for certain types of cancers is a good thing.

What does this mean for the employee benefits professionals and the healthcare consumer?

  • Beware of “blanket” statements that more screening is better or of companies that are offering screenings that are not vetted.
  • Know that screening can actually cause harm because of side effects or complications of treatment for a “disease” that is really not a problem.
  • As you set up prevention programs for your employees, ensure that those programs are based on scientific evidence.

Disease Management: Savings at Pepsi

The second-most read article from Health Affairs in 2014 was a fantastic piece by the employee benefits professionals from Pepsi and researchers from the RAND Corp.

The Pepsi team and the RAND researchers evaluated PepsiCo’s wellness program over a seven-year period and found the following:

  • The disease management component of the overall wellness program lowered healthcare costs by $136 per member per month (PMPM) and decreased hospital admissions by 29%
  • Lifestyle management/wellness showed a return on investment (ROI) of .48 to 1 (in other words, it LOST money)
  • Disease management’s ROI was 3.78 to 1
  • Combined ROI for wellness and disease management was 1.46 to 1
  • Findings were consistent with RAND’s workplace wellness programs study, which found that lifestyle management did not lower healthcare costs
  • Lifestyle management program’s cost was $144 per participant per year

The article concludes that “blanket statements like ‘wellness saves money’ are not warranted.”

As employers evaluate their healthcare strategies, it is important to keep these findings in mind.

Are Annual Physicals Really Worthless?

Dr. Ezekiel Emanuel wrote a contrarian opinion piece in the Jan. 8, 2015, issue of the New York Times titled, “Skip Your Annual Physical.” Dr. Emanuel is an oncologist at the University of Pennsylvania and was an adviser to the Obama administration regarding the design of health reform. He is also the brother of Rahm Emanuel, a former presidential chief of staff.

As you can guess from the title of the opinion article, Dr. Emanuel believes that annual physicals are not worth having because they do not reduce mortality. He cites a Cochrane Review study to back up his statement. Click here to read a summary of the study by the American Association of Family Practice.

Dr. Emanuel’s comments bring the following question to mind: How is one to have the evidence-based screenings recommended by the U.S. Preventive Services Task Force (USPSTF) without an annual physical?

Here is a list of some of the USPSTF screenings and interventions that studies have shown to be of value by reducing morbidity or mortality that could be accomplished at an annual physical:

  1. Screening for Type II diabetes
  2. Screening for hypertension
  3. Screening for lipid disorders (e.g. high cholesterol)
  4. Screening and counseling for alcohol abuse
  5. Screening for cervical cancer every 3-5 years
  6. Screening for obesity
  7. Potential use of aspirin for the prevention of heart attack
  8. Counseling on folate vitamin supplements for all women capable of pregnancy to prevent neural tube defects
  9. Counseling overweight and obese patients to improve their diet and exercise habits

Source: American Association of Family Practice

Many of these conditions are not rare.  For example:

  • 9.3% of the U.S. population has diabetes-of whom, 9 million are undiagnosed (Click here for ADA source). Assuming a U.S. population of 300 million, 9 million is 3% of the population, so three in 100 screenings would find undiagnosed diabetes. In a company with 1,000 employees, screening for diabetes would result in identifying 30 new cases of diabetes.
  • 29% of the adult U.S. population has hypertension-17% are undiagnosed (Click here for CDC source). 17% of 29% is about (again) 3% of the adult U.S. population, so three in 100 screenings would find undiagnosed hypertension. In a company with 1,000 employees, screening for hypertension would result in identifying 30 new cases of hypertension.

An annual physical is a great way to address these nine proven screening tests and interventions that will lengthen life and reduce suffering. This is only a representative sample from the USPSTF.  There are actually more than nine. You would not “technically” need an annual physical, but you would have to have some other mechanism for having these screenings and interventions performed.  A similar point is made by the American Academy of Family Physicians in its review of the Cochrane study. However, the use of the doctor’s office as the setting for the screening means that if an abnormality is found (i.e. diabetes, hypertension, etc.), then the doctor can prescribe an intervention.

To skip an annual physical and to not have the screening performed some other way-and followed up on-is hazardous to your health