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An Economic Dilemma – Healthcare Jobs vs. Costs

There’s a growing paradox in our healthcare world: Since the Great Recession hit in 2007, 35 percent of the nation’s job growth has come from the healthcare sector. In the year 2000, healthcare employed 1-in-12 Americans, but now employs 1-in-9, thanks partly to the 2010 Affordable Care Act (ACA). Jobs are critical for any thriving economy, but it appears the U.S. economy has become increasingly dependent on one sector that has proven to be both highly inefficient and dysfunctional.

The dilemma? Maintaining affordable healthcare is not compatible with the health service sector’s job growth strategy.

A recent article in Health Affairs, “What’s Behind 2.5 Million New Health Jobs?” reported that from 2007 through 2016, there was about a 19 percent growth in new healthcare jobs. From this, hospital jobs grew by 11 percent, nursing and residential care by 12 percent, and ambulatory care by 30 percent.

More than half of the $3.4 trillion we spend on healthcare in this country is spent on labor, much of it on those who provide care. However, a growing segment of healthcare jobs come from our increasingly complex ‘system’ that can be described as an administrative nightmare. Data-entry clerks, revenue-cycle analysts and medical billing coders provide busy backroom work to a multitude of payers concerning the procedures that were performed on behalf of patients. Put another way, for every U.S. physician, there are 16 other healthcare workers. Half of those 16 are in administrative and other nonclinical positions. This is becoming a monster of a problem.

According to a report by Organization for Economic Cooperation and Development, administrative costs in the U.S. healthcare ‘system’ are the highest in the industrialized world. While the average global administration cost average is 3 percent, it is almost three times this amount in the U.S. (8 percent).

In Iowa, the Iowa Hospital Association (IHA) serves the advocacy role for 118 hospitals. From this, IHA conducts a frequent report to validate the economic impact hospitals have within their communities, which is presumably performed to counter public concerns or scrutiny about hospital behaviors and outcomes. We are often reminded that “hospitals are the economic engines that employ thousands of Iowans” and “create an enormous economic impact across the state.” In short, hospitals are a vital ‘jobs program’ that provide an economic “multiplier” effect to our communities.

On the surface, the presence of hospital jobs is extremely beneficial to having healthy and productive communities. After all, it does provide a boost to the local economies. But portraying hospital jobs as the “economic engine” in communities may be somewhat disingenuous – if not grossly misguided.

Salaries and benefits for healthcare jobs are essentially funded by those who pay taxes, higher-health premiums and higher out-of-pocket medical costs – all of which consequently result in stunting the growth of take-home pay from other parts of the economy. Having additional healthcare jobs creates a financial void. It reduces monies Americans have available to pay for groceries, mortgages, college tuition and other discretionary items that benefit families – including philanthropic causes. Equally important, local, state and federal governments are hard pressed to find additional money to pay for other critical functions that profoundly affect our communities and the future of our country – namely, our infrastructure and STEM (Science, Technology, Engineering and Math).

The problem with linking healthcare jobs with economic growth is perplexing. If having more healthcare jobs is the end goal because it creates more wealth within our communities, then maybe we should spend more on healthcare and allow the jobs component to flourish. Unfortunately, it’s not that easy. There is an opportunity cost, or trade-off, that will rob other (more efficient) alternative resources within our economy.

Instead of measuring the economic value of healthcare by counting the number of jobs it creates, how about accurately measuring the commensurate value in the outcomes we receive from the jobs we have financed? If we don’t receive greater ‘value’ from the care provided, then why create more jobs – or keep the existing jobs? The arguments made by the healthcare sector, therefore, should not be about job creation and growth, but rather, whether we are using our limited financial resources wisely. If not, we should put those resources to better use. I’m not an economist, but this should spark a basic economic discussion.

Rising employment in healthcare does not correlate with the goal of improving our health and economic well-being. In healthcare, unlike many other sectors of our economy, there are tradeoffs with the amount we can afford. It’s no surprise that the healthcare sector’s lobbying efforts are formidable. According to the Center for Responsive Politics, a nonpartisan research organization, healthcare companies spend millions annually on lobbying efforts to influence government officials and legislators, with the American Hospital Association (AHA) ranking second highest among all healthcare lobbyists (behind the American Medical Association) and fifth highest among all lobbyists since 1998 – a total of $332 million spent by the AHA. In 2016 alone, the AHA spent over $22 million to ‘educate’ public officials. Other health-related organizations, such as Blue Cross and Blue Shield Association, the pharmaceutical industry and the AMA appeared very high on this Top Spenders List.

Despite the U.S. healthcare system being the most expensive in the world, the Commonwealth Fund reports the “U.S. underperforms relative to other countries on most dimensions of performance.” In America, we pay world-class prices for care that cannot be substantiated due largely to lax reporting requirements.

The healthcare sector’s primary purpose is not to be a jobs program, but rather, to safely deliver high-quality care to patients in our communities – and, do so responsibly, efficiently and transparently.

What are your thoughts?

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Why It Matters to Have Private Health Coverage

I should not be astonished, but I am.

In 1910, Dr. William J. Mayo wrote his view on making patients a central reason for his organization to exist: “The best interest of the patient is the only interest to be considered, and in order that the sick may have the benefit of advancing knowledge, union of forces is necessary.”

But 107 years later, the healthcare landscape has changed, running opposite to Dr. Mayo’s credo.

A March 15 article in the Star Tribune revealed a healthcare system truth that some have suspected for years – that it’s a tier-system of care dependent on the type of health insurance card you carry in your wallet or purse. If you are fortunate to have private insurance coverage through your employer or have personally purchased it through a commercial insurance company, you should feel somewhat privileged. However, if you have Medicaid or Medicare coverage, please step to the back of the line.

Dr. John Noseworthy, CEO at the famed Mayo Clinic, was videotaped speaking to his staff last fall about giving preference to patients with private insurance over lower-paying public coverage (e.g. Medicaid and Medicare). “We’re asking…if the patient has commercial insurance, or they’re Medicaid or Medicare patients and they’re equal, that we prioritize the commercial insured patients enough so…we can be financially strong at the end of the year to continue to advance, advance our mission…”.

It is important to note that, regardless of payer source, Mayo will always take patients when they’re unable to find medical expertise elsewhere. However, when given two patients who have equivalent medical conditions, the Mayo health system will “prioritize” the patient with private insurance – private plans pay Mayo (and all other providers) more than public coverages. Noseworthy continued, “If we don’t grow the commercially insured patients, we won’t have income at the end of the year to pay our staff, pay the pensions, and so on…so we’re looking for a really mild or modest change of a couple percentage points to shift that balance.”

Hospitals are not allowed to discriminate against patients seeking care in the emergency room. Outside the ER walls, however, providers can choose to accept (or decline) Medicaid and Medicare patients. Mayo recently indicated to Modern Healthcare that Medicare and Medicaid patients account for half of their services, but with more baby boomers becoming eligible for Medicare, coupled with Medicaid expansion, Mayo is looking to have higher-paying private insurance offset the shortfalls received from public health plans.

The ‘dirty little secret’ of establishing a pecking order of patients, based on payment sources, has not been widely known. In that sense, kudos to Mayo for their honesty, as it appears they are not attempting to sweep this fact under the rug. Yet, the Mayo acknowledgement that commercially-insured patients would get preferential consideration in certain situations should raise questions for those of us who are covered by private payers.

If the provider community establishes a pecking order between public and private payers, could special consideration also be given AMONG private payers? Think about it. If margins are so thin for world-reknown providers like Mayo, why wouldn’t other medical providers seek similarly-related practices with all sources of revenue?

For example, if insurer A reimburses hospitals at a higher rate over other private insurers within that particular market, would insurer A patients receive preferential consideration, much like what Mayo described? If so, are you better off purchasing health coverage at a higher premium from insurer A because their reimbursement rates will guarantee preferential service compared to other insurers within that market?

This raises questions about the potential practices initiated by the provider community. Having a particular insurance card provides a ticket of entry into our healthcare system. But does it also determine the level of care we ultimately receive?

What’s in your pocket or purse? In healthcare, it just might matter a great deal.

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‘Silently Harmed’ in Iowa – Bare Essentials

Silently-Harmed-IowaThe Silently Harmed white papers recently published by nonprofit, Heartland Health Research Institute, reveal a largely unknown problem in Iowa and nationwide. It is the number of patients seriously- and fatally-harmed in hospitals due to medical errors, also known as preventable adverse events (PAEs).

In addition to the state of Iowa, Silently Harmed provides estimated ranges of PAEs for a number of critical metrics in each of Iowa’s six neighboring states: Illinois, Minnesota, Missouri, Nebraska, South Dakota and Wisconsin. The difference between patients seriously- or fatally-harmed in each of the seven ‘Heartland’ states – as estimated in Silently Harmed – is a reflection of the number of inpatient admissions reported for each state – a metric primarily driven by state population.

Let’s review the highlights from Silently Harmed in Iowa.

Digging in-slide 1 (2)In 2012, hospitals in the United States had 34.8 million admissions, while during that same year, Iowa hospitals had about one percent of that number, or 340,000 admissions. It is important to note that Silently Harmed did not provide estimates for outpatient settings, such as doctors’ offices, nursing homes, outpatient surgeries, etc.

The annual estimated number of patients seriously- and fatally-harmed in U.S. hospitals due to PAEs is nothing short of staggering. Because PAEs go largely underreported or unreported, the national estimations vary wildly – primarily because the referenced national studies use a variety of research assumptions and methods that reach disparate conclusions that may or may not relate to each individual state. The slide below provides low- and high-end estimates for patients seriously- and fatally-harmed within U.S. hospitals.

Digging Deep Down

Seriously Harmed
From national estimates, HHRI extrapolated that as few as 64,500 patients are harmed in Iowa hospitals due to PAEs, with a high-end of 112,200 patients. The mid-range estimate of 85,000 patients are harmed in Iowa hospitals due to medical errors – enough to fill BOTH Kinnick Stadium and the Hilton Coliseum. Assuming the mid-range estimate is true, one patient is harmed every six minutes, or one in every four hospital admissions. In just one week, over 1,630 patients are harmed.

Seriously Harmed in Iowa

Fatally Harmed
Extrapolating from national estimated fatalities, annual Iowa fatalities from PAEs are 960 at the low-end, with 4,300 fatalities at the high-end. The mid-range estimate of 2,440 fatalities would mean that one fatality occurs every four hours, or one in every 139 admissions. Put another way, almost seven patients die from PAEs for every vehicle death in Iowa. For every murder in Iowa, 57 die from medical errors.

Fatally Harmed in Iowa

Social Cost of Mistakes
According to the Robert Wood Johnson Foundation, poor quality of care costs employers between $1,900 – $2,250 per employee per year, or about one-third of the single-employer premium in Iowa. The social cost of medical mistakes is massive. Social cost is determined by the “value of a statistical life,” a term used by economists. The estimated social cost for injuries due to medical mistakes can range from $909 million to $1.6 billion annually – just in Iowa. For fatally-harmed patients, the social cost ranges from $5.3 billion to almost $24 billion annually.

Social Cost of Mistakes

The estimated numbers provided in this particular post, in addition to the specifics on how these numbers were determined, are found in our free white paper, Silently Harmed: Hospital Medical Errors in Iowa.

Since the release of the Silently Harmed white papers, a number of employers have inquired about how their role must evolve to influence patient safety practices in the hospitals that serve their communities. We will address the employer role regarding patient safety issues in an upcoming blog.

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