Tag Archives: health cost

Are Your Health Cost Savings an Illusion?

The New England Journal of Medicine carried an excellent article by David Casarette, MD, on the topic of healthcare illusions and medical appropriateness. Click here to read the full article.

Casarette observes that humans have a tendency to see success in what they do, even if there is none. Casarette writes, “Psychologists call this phenomenon, which is based on our tendency to infer causality where none exists, the ‘illusion of control.’” This illusion applies in all walks of life, especially in politics and parenting, and it includes medical care.

In medical care, the phenomenon has been referred to as “therapeutic illusion,“ and it affects both doctors and patients. Undoubtedly, therapeutic illusion is why placebos can be so effective.

In one clinical study, faux surgery worked as well or better than an actual surgery for the treatment of specific conditions. If patients perceive they need surgery, e.g. for knee pain, even though it may not be medically appropriate some will search for a surgeon who can validate the need and perform the surgery.

Casarette writes, “Physicians also overestimate the benefits of everything from interventions for back pain to cancer chemotherapy.”

Casarette’s article is most interesting to us. Why? We’ve often felt that doctors who perform unnecessary surgeries have ethical problems. The reality may be a little more complicated. The surgery decisions may have a subconscious influence.

Toomey had an interesting conversation with the chief medical officer (CMO) of a major health system. The CMO relayed that his wife was having pain in her hand, so they scheduled an appointment with one of their system’s highly recommended specialists. The specialist looked at the wife’s hand and, after a few minutes, stated that she needed surgery. The specialist did not know he was taking to a physician, and the CMO questioned how the specialist could arrive at a diagnosis from just looking at a hand. The response was, “years of experience.” The CMO and his wife got a second opinion and opted for the recommended therapy rather than surgery, and the therapy solved her issue.

The attention today is on value-based contracting and data analysis. A group of 20 national employers have come together to share data, so they can assess the healthcare supply chain. But, as noted in our last blog post, analyzing the data is complex, especially because claims data are just a collection of medical bills. How are employers assessing medical appropriateness? What reports can be generated to assess a need for care?

In 2014, one state’s Medicare costs were $6,631 per capita while another’s were $10,610. A big driver was the variation in the volume of procedures, and cognitive biases among doctors can help drive those volumes.

Healthcare involves people – patients, physicians, and other providers — and the human element makes it even more complex. So how do those involved in healthcare address the variation in medical care that is driving up costs?

We are biased – we believe the employers are the catalyst to drive change for increased consistency by working collaboratively with suppliers (think Six Sigma).

In any case, it’s time for change.

Important Alliance to Fight Health Costs

The Wall Street Journal reported that 20 large U.S. companies joined to fight high healthcare costs, launching the aptly named Health Transformation Alliance. Employers account for one in five dollars spent on healthcare in the U.S., yet they have relatively weak influence in the marketplace. But these influential companies are intent on aggressive action. With this kind of unified leadership, the alliance promises to shake the foundations of our health care economy.

There have been other efforts to harness the power of the business community to improve health care. My organization, the Leapfrog Group, is one such effort, founded by Business Roundtable in 2000 to address quality and patient safety in hospitals. Based on what we’ve learned over the past 16 years, here are three key principles for the alliance to start with:

  1. Lowering costs won’t automatically lower prices.

Whenever the subject of cost reduction comes up, some providers tout the enormous cost savings they have put in place through improved efficiencies, better technology or less invasive procedures. Recently, they have also pointed to the potential of large hospital system mergers to reduce costs through economies of scale. But employers are right to wonder why their own healthcare price tag continues to rise, despite these marvelous advances. Why don’t they see the cost savings?

Simply put, cost savings to the provider are not the same as cost savings to the purchaser. This sounds like such an obvious point. But the obfuscation over whose costs are saved persists and trips up progress year after year, with purchasers left scratching their heads. The alliance members will succeed in cutting their own prices only if they clearly demand that cost-reduction strategies have visible and substantial effects on their own bottom lines.

  1. Lowering prices won’t automatically lower costs.

Even if purchasers do succeed in lowering prices, the cost-reduction job is not done. That’s because the amount of waste in healthcare is profound. The Institute of Medicine estimates that as much as one-third of all costs are associated with unnecessary services, errors, infections and management inefficiencies. Not all providers are the same, and some incur much more waste than others. Whatever the price of a particular procedure, it’s no bargain when there are infections, complications and mismanagement—or if the procedure wasn’t medically necessary in the first place.

This is not chump change, this is game change. A 2013 study in the Journal of the American Medical Associaton (JAMA) reported that, on average, purchasers paid $39,000 extra when a patient contracted a surgical site infection. That excess doesn’t show up on the claim as a line item called “waste.” It is buried in a series of excess fees, tests, treatments and time spent in the hospital. Employers intent on cutting costs must factor wastefulness into the pricing equation.

  1.  Focus on the market incentives.

Our system of costs and pricing creates perverse incentives. The more a provider wastes, the more it can bill the employers. New financing models are slowly emerging, aimed at achieving value—the novel idea that payments align with patient outcomes. One of the most promising models is called “bundled pricing,” in which a health system is paid one total price for a particular procedure, including physician fees, radiology, hospital charges, etc. In this model, a provider is given incentives to actually reduce waste, so it maximizes profit under the bundle.

Some large employers have developed bundled pricing arrangements with a select group of health systems, for a select group of procedures. Walmart is a leader in this, as are employer members of the Pacific Business Group on Health. What have they found? A significant reduction in waste and better care for employees.

Another promising use of bundled pricing is coming from international medical tourism. Health services and pharmaceuticals are often much less expensive overseas than in the U.S. Most international providers offer bundled pricing and concierge hosting services. For example, Health City Cayman Islands offers bundled prices for certain heart and orthopedic surgeries, including all facility and physician fees, along with pre- and post-operative care at a lovely beachfront hotel. Its prices are one-fourth to one-fifth those for comparable services in the U.S.

The problem with medical tourism: determining the quality of international providers. Employer groups, like the Health Transformation Alliance, must address this in their work. Once again, waste and quality need to be factored into the cost equation.

healthcare

Why Healthcare Costs Rise So Fast

This is the first of a two-part series, by David Toomey and me, on why healthcare cost growth has historically been much higher that general inflation. 

If you want to truly understand why corporate healthcare costs have risen faster than nearly anything else over the past 40 years, read this article.

In 2001, David was managing large accounts for a major carrier/TPA (third-party administrator) when the largest hospital system in the market issued a notice to terminate its relationship with the carrier, to begin negotiating for higher unit prices. (When hospitals want a very high fee increase, they sometimes start the process by terminating participation in a carrier’s network.) This notice began a tumultuous series of negotiations that involved the local press. The fee increase demanded by the hospital system was high single digits, above market and highly inflationary for the area. This system was already paid a premium because of its large market presence.

David moved quickly to engage major self-insured clients and educated them on the cost impact. They told him to hold firm, as they could not absorb the increases. When asked what they would do if this major hospital was not in the network of the carrier that employed David, many responded that they would turn to another carrier so as not to disrupt employees who used the hospital system!

There were no questions by employers on the quality of the hospital’s care or on its commitment to process improvement. Although they realized that they could not really afford the higher prices, they felt that avoiding disrupting employees (even in a fairly minor way, by having them use a different hospital system) trumps company profits and affordable payroll deductions. That position meant David had no leverage at all in negotiating with the hospital system.

As a result, employer and employee health costs ratcheted up in that market. That’s too bad, but this story is the norm.

We’ve seen this same scenario continuously in our careers. Even if a hospital or clinic is used by fewer than 5% to 10% of a company’s employees, getting complaints from employees—even just a few—trumps corporate profits, shareholder returns, rising payroll deductions, restraining rising deductibles and rising employee out-of-pocket health costs. Even though self-insured employers are the ultimate purchasers of healthcare, they usually just roll over when providers keep raising their charges year after year.

In every market, by definition, half the providers are below average. While company benefit managers profess to want the best-quality care for their employees, they willingly accept larger fee increases from the worst providers. Why? Avoiding a few employee complaints has always been more important than deleting poor-quality providers, ones with a high rate of harming patients. (By “harming patients,” we mean providers with high rates of misdiagnoses, high rates of prescribing bad or suboptimal treatment plans and high rates of infections, some of which are deadly.)

Sally Welborn, head of benefits for Walmart Stores, recently called for self-insured employers to take the lead in reforming how providers are paid and in making hard, value-based purchasing decisions. (The term “value” excludes providers that have a high rate of misdiagnosed patients and give them profitable but unnecessary treatments.)

Soon, you can read Part Two on how employers can obtain value from the provider community.

The Destructive Search for an Elixir of Life

For 3,500 or more years, mankind has been searching for the mythological elixir of life, the Fountain of Youth, the philosopher’s stone, pool of nectar, etc. that will defeat aging and extend life, if not achieve immortality.

According to Wiki, “The elixir of life, also known as the elixir of immortality and sometimes equated with the philosopher’s stone, is a mythical potion that, when drunk from a certain cup at a certain time, supposedly grants the drinker eternal life and/or eternal youth.”

All around the globe from 400 BC on, alchemists from India to China to Europe were seeking the elixir of life. Many thought gold was an essential ingredient.

The Fountain of Youth, also known as the water of life, was part of the search for the elixir of life. That search was in full throttle during the crusades and was carried to the New World by Spanish explorers, the most famous of whom was Ponce de Leon in the 1500s. Even the Mayans had legends about waters of eternal youth.

The search for the elixir of life didn’t end there.

In the 19th century in the U.S., many believed that bathing in special springs had healing powers. During that era, people flocked to eureka springs, hot springs, healing springs and many, many more. So-called healing spas are still very popular today.

“Snake oil” salesmen were peddling various cure-alls into the 20th century. A search on the Internet will reveal a large number of “promising” balms and salves, some of which actually worked for minor scrapes and burns.

If you’re over 60 or so, you may recall Carter’s Little Liver Pills. They were advertised to treat biliousness and other ailments. The FTC made the company drop the word “liver” from the name. Carter’s Little Pills are still sold, but as a laxative.

If you watched the Lawrence Welk show, you saw ads for Serutan, which is “natures” spelled backward. It’s a “vegetable hydrogel.”

Today, the search for an elixir of life, by various names, is still in high gear, and salesmen abound.

People still pursue the same goal of longer and healthier lives through a mix of vitamins, supplements, wellness, incentives, education, exams, tests, etc. that will push the time of their death out a few years.

But, alas, the human body and its organs simply wear out over time. No insurance plan, wellness plan, patient education program or prevention combination can defeat the inevitable. As we age, our bodies just wear out. For example, the reason brain aneurysms and strokes occur in the elderly is that blood vessels get thinner and more fragile with age. The same applies to other vascular diseases. Joint diseases are common as we age. Why? Joints just wear out over time. Dementia is usually related to aging. The list goes on and on.

According to NIH data, all cancer rates begin to skyrocket at about age 65. That is partially the effect of age-related diminishing immune systems. Our immune systems wear out as we age.

Companies are paying huge dollars to elixir of life promoters today, when all the facts show the elixirs just doesn’t work as advertised. Such companies’ intentions are good, even noble, but doomed to fail. Lesson: Whatever you seek, someone will find a way to sell it to you.

We are all going to have a mortal illness someday unless we die sooner from something like an auto accident. My grandfather died at age 99. Every organ in his body was failing. His kidneys were failing, as were his vascular system, his brain and his liver. Why? He simply outlived his body. I’ve known a number of good people who died a miserable death after years in nursing homes. I wouldn’t wish that on my worst enemy.

Another factor driving up costs in the U.S. has been the creation of the emergency phone number system — dialing 911 and having a life-saving trained team show up at your door in a few minutes. The 911 system saves live, no doubt, but there have been unintended health cost consequences.

If one survives a heart attack, the average cost is about $250,000. Because of the 911 phone system, some 80-year-olds are surviving three heart attacks in nine months just to die from the fourth one, adding $750,000 of cost to their last 12 months. Now, healthcare providers are even putting ventricular assist devices in people like that to keep them alive for one more day. The cost for that procedure alone is $900,000.

I’m not making a comment on the morality of deferring an elderly person’s death for nine months at a cost of $750,000 to $2 million. But we need to have an adult conversation in America about how we are going to pay for all this. By any measurement, Medicare and Social Security are both totally unsustainable unless huge changes are made that will affect everyone. Beware of proposed changes that promote intergenerational rivalries.

This chart shows death rates by age). When people hit about age 50, the death and sickness rates begin to skyrocket.

This chart shows leading causes of death. See the strong correlation to aging and heart disease. People are simply outliving their hearts and blood vessels. In 1900, people rarely died of heart disease because they didn’t live long enough to develop chronic conditions. Most of the chronic diseases we worry about are simply a consequence of aging. They are irreversible. As with the Hydra of Greek mythology, if you defeat one chronic condition, three others will pop up.

The third chart shows health spending by age; again, disease correlates to aging. That will always be the case until someone comes up with a way to prevent aging or finds an “elixir of life.” That chart also illustrates the massive, wasteful spending on end-of-life care in the U.S. compared with peer countries.

People born in the U.S. today can expect to die along a bell curve centering on age 80. If we all do everything we can possibly do to be healthier for all of our lives, there will be slightly fewer deaths around ages 78 or 79. (A great source of information on this topic is Nortin Hadler’s The Last Well Person: How to Stay Well Despite the Health-Care System.)

In any case, if you are able to add a year to your life it will, obviously, be added to the end. For most people, that will mean another year in a nursing home, in assisted living or as an invalid at home. (For a Washington Post article on just how nasty nursing homes can be, click here. Again, I would not wish that on my worst enemy.) People sometimes tell me about someone who was more or less healthy and independent at age 90. For every person like that there are a hundred in nursing homes or dementia units.

Most people retiring today don’t have enough in savings to support themselves for more than a few years, let alone enough to pay for assisted living or nursing homes when they are elderly and frail. Medicaid nursing home budgets are likewise unsustainable. Don’t count on that. For many people, living a year or two longer will simply mean being a burden to your children for another year or two, both financially and emotionally.

What about your children’s lives? Do you really want them to have to look after you well into their 60s? At that age, they should be concentrating on their own welfare.

As people age into their 80s and 90s, many become demanding in an irrational way. Some people aged 55 and up are relieved when their elderly parents pass away, but often with feelings of guilt. Most people have witnessed this in their own families.

Someday, researchers may discover a way to delay the effects of aging. Personally, I believe such is the province of science fiction. If aging is ever reversed, God help us. That would be very destructive to mankind.

Imagine our world populated by a billion or more centenarians. Imagine a nation with an average age of 65. Imagine yourself at age 90 with a 120-year-old parent or two. Who will look after whom? Will 70-year-old children or their 45-year-old children be able to look after and support such parents, grandparents and great-grandparents? The news from Asia is that many young people are no longer willing to support their centenarian parents or grandparents today, let alone great-grandparents.

What should we all do then? Simple. Spend less time wringing your hands over which illness will get you in the end; rather, make the most of the time you have. Worry will never add a day to your life.

The Romans had a blessing: May you live well and die suddenly.

A Radical Shift in Pricing Cancer Drugs?

“Cancer drugs aren’t just really expensive; they’re a bad value.”

That stunning headline is from a Washington Post article. The author is Carolyn Johnson.

She writes, “With some cancer drug prices soaring past $10,000 a month, doctors have begun to ask one nagging question: Do drug prices correctly reflect the value they bring to patients by extending or improving their lives?” The short answer is that many cancer drugs do not. That comment will not surprise regular readers of my book Cracking Health Costs.

Further: “‘Currently, the prices of cancer drugs are increasing, and the prices are not linked to the benefit that the drug provides,’ Daniel Goldstein, an oncologist at the Winship Cancer Institute at Emory University who led the study, said in an e-mail.”

Goldstein suggests: “We propose that drugs that provide a minimal benefit should have a low price, while drugs that provide a major benefit should have a high price.”

Makes sense.

Alas.