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Tackling Healthcare Spending – One Percent at a Time

One Percent Steps Adding Up to Something BIG?In healthcare, there is plenty of waste…and this waste is enormously costly to those who pay. This unnecessary spending is baked into the outrageous health insurance premiums we pay. In 2019, I estimated that ANNUAL waste baked into Iowa premiums for single and family coverage averaged $2,400 and $6,600 respectively. This translates into nearly 34 percent of all healthcare costs as non-value-added. 

Now, to be fair, there are those who make a living from this waste. Waste becomes a paycheck. Removing this unnecessary payroll, however, will most likely erupt into anguished rebellion. Justifications can always be made by various healthcare stakeholders about the necessity of their ‘value’ in a highly-convoluted and dysfunctional system. Admittedly, some may have a point. 

Six Domains of Waste

In the broadest sense, waste is found in six ‘domains’ of healthcare – as identified by Donald Berwick and Andrew Hackbarth in a 2012 study:

  1. Overtreatment (low value care)
  2. Failures of care coordination
  3. Failures in execution of care processes
  4. Administrative complexity
  5. Pricing failures
  6. Fraud and abuse

Using each of these six broad buckets of waste, my aforementioned 2019 blog provided the estimated impact of waste to health insurance premiums. Eliminating too much unnecessary spending at one time, however, will most likely create a backlash of stakeholder opposition. This may result in missed opportunities to actually fix the expensive leaks in our healthcare ‘system’.

How can costs be incrementally reduced to make a sizeable impact to payers?

One Percent Steps for Health Care Reform Project

According to a February article in Health Affairs, authors Zack Cooper and Fiona Scott Morton discuss implementing a series of one percent solutions that could collectively lower healthcare costs by hundreds of billions of dollars. If you are an employer that offers health coverage, this should grab your attention.

The authors explain their reasoning on using the one percent solutions:

Rather than speaking about health spending via abstractions, we should view high U.S. health care costs as the result of a series of discrete problems that each incrementally raises health spending by a percent or two — so-called ‘one percent problems’. While each problem is unremarkable in isolation, the collective impact of a series of one percent problems can help explain why the U.S. spends more than other nations.

The vastness of healthcare issues require new approaches that disrupt the status quo from being replayed into the future. Doing so begins with smaller steps that make sense. Cooper and Morton prescribe 16 steps that economists and policymakers can take to reframe healthcare spending as a series of one percent problems. These problems, they argue, can be used as a road map for cost reduction. 

If implemented, the following 16 steps would decrease overall annual healthcare spending by nearly nine percent. This amount of savings may not sound impressive, but when nearly nine percent can be lopped off from the health system that absorbs $3.8 trillion of costs, it is an impressive beginning. Each step does not serve as a silver bullet, but rather, an incremental solution that makes sense.

These 16 evidence-based steps are ranked by their projected annual savings as a share of national health spending:

  1. Regulating healthcare provider prices: 1.89 percent
  2. Addressing surprise medical bills: 1.67 percent
  3. Increasing the efficiency of claims adjudication: 1.25 percent
  4. Addressing vertical integration of hospitals and physicians: 0.91 percent
  5. Introducing smart provider networks: 0.83 percent
  6. Addressing hospital consolidation: 0.69 percent
  7. Improving health insurance plan choice: 0.63 percent
  8. Improving plan auto-assignment in Medicaid managed care: 0.24 percent
  9. Reforming how Medicare reimburses biosimilars: 0.21 percent
  10. Addressing orphan drugs: 0.15 percent
  11. Reducing fraud in home health: 0.12 percent
  12. Reforming the payments for long-term care hospitals: 0.11 percent
  13. Decrease cost barriers for living kidney donations: 0.08 percent
  14. Expanding preferred pharmacy networks: 0.04 percent
  15. Eliminating prescription copay coupons: 0.03 percent
  16. Expanding kidney exchanges: 0.02 percent

Zack Cooper, Associate Professor at the School of Public Health and the Department of Economics (Yale), discusses the ‘one percent’ approach in a ‘Creating a New Healthcare’ podcast. He can also be found on Freakonomics Radio, “How to Fix the Hot Mess of U.S. Healthcare.”

As we fight the daily battles of the Covid-19 pandemic, we are reminded that many inherent problems continue to persist in our costly healthcare system. Without action, these problems will not go away. Will market solutions be able to fix many of these issues? The clock continues to tick – and healthcare costs continue upward.

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Optical Illusions of Healthcare ‘Reality’

I spend a great deal of time studying healthcare issues, giving balanced attention to both the ‘delivery’ and ‘payment’ of medical care. Admittedly, I have my own biases. How healthcare is delivered in our country is largely dependent on the incentives and disincentives that come from the payment side of our healthcare infrastructure. As a result, the fallout from the misalignment of these incentives cause a great deal of unintentional consequences.

It is true there are positive stories about exceptional doctors and medical staff who shine brightly when caring for patients. In fact, their work can be awe-inspiring, as most people performing this work are honorable and want to do the right thing for patients. However, these well-intentioned professionals are relegated to work in systems ill-equipped for them to consistently succeed. This too-often causes morale problems that can eventually lead to job burnout for medical professionals – which adversely impacts all of us.

For me, cynicism about our healthcare ‘system’ has become a way of life. Key healthcare players are legally allowed to operate within their own myopic sphere to justify their ‘value’ within increasingly complex – yet profitable – inter-related sectors that suck oxygen from our economy. What escalating costs are doing to our families and to our economy, to put it mildly, remains deeply disturbing. Healthcare’s inability to control costs continues to shortchange other sectors of our economy. Opaqueness and creating illusions are important tools to ensuring the status quo will not go away soon.

Within the span of two hours one recent morning, I perused the following topics that fed my skepticism about the true intent of the healthcare sector:

Axios – Executive Pay Packages

This article analyzed the pay of CEOs from 70 of the largest U.S. healthcare companies, who have, on a cumulative basis, earned $9.8 BILLION during the seven years following the passage of the Affordable Care Act (ACA). Why does this matter? Because the pay packages rarely, if ever, incentivize CEOs to control healthcare spending, eliminate unnecessary procedures, tests or devices and coordinate care. Instead, CEOs are motivated to sell more prescription drugs, perform more tests and procedures, purchase another practice/competitor and create new medical therapies that may not add value to one’s life. In short, CEOs are paid to “do anything to create higher earnings per share” for their shareholders.

My Takeaway: Developing an organizational infrastructure to ensure “value-based healthcare” is evidently dependent on someone else’s pay-scale.

Modern Healthcare – Other Revenue Streams are the Priority

Ninety percent of surveyed hospital and health-system executives have an “urgent priority” to find new revenue streams in the next three years due to downward revenue pressure causing massive financial headwinds to their profitability goals. In healthcare, it is all about revenue growth.

My Takeaway: Too bad the revenue streams derived from patient-centric and safety programs are paltry when compared to other appealing opportunities being pursued by these executives.

A transcript of the most recent ‘Fixing Healthcare’ podcast – Perverse Incentives

Dr. Robert Pearl and Jeremy Corr interviewed Dr. Elisabeth Rosenthal, Editor-in-Chief at Kaiser Health News. Dr. Rosenthal does not mince words within this podcast, or in her bestselling book, An American Sickness, as well as other articles she has carefully researched and written. Within this nearly one-hour interview, Rosenthal pointed out many perverse bugaboos found in U.S. healthcare – many of which I have previously written about over the years. But one particular comment she made was screaming at me. Largely unnoticed in mainstream media is the perverse incentive for insurance companies to have little motivation to keep costs down. Yes, you heard me right.

Under the ACA, a well-intentioned, but flawed regulation was directed at insurance companies to spend 80 to 85 percent of premiums on medical care – a much larger chunk than what was spent by some insurers in the pre-ACA era. Put another way, insurers are bound by this rule to not spend more than 20 percent of individual and 15 percent of small-group premium revenue on administration, marketing and profit. On the surface, this seems to make sense. Insurance companies must spend a higher proportion of premiums on medical care, rather than retain as profit. However, insurers can skirt around this issue by paying inflated medical bills so that they can retain a larger piece of the cost pie. This certainly benefits the medical providers, as well. To be sure, this is seldom (if ever) admitted by industry insiders – and is also very difficult to prove this is intentionally done.

My Takeaway: No wonder why larger employers and states are looking to bypass the inflated appearance of negotiated ‘discounts’ arranged by insurance companies, and instead, directly negotiate payment arrangements with providers based on methods tied to lower Medicare costs. But when this happens, using the state of North Carolina as an example, hospitals and insurers balk at this approach.

Health Affairs Blog – Health Costs Major Concern for Americans

This blog is a direct result of the previous behaviors briefly described earlier. Cost-shifting fatigue is taking its toll on the payers. One quarter of surveyed U.S. adults reported that cost was the nation’s most pressing healthcare issue, while 61 percent indicated that paying higher premiums (or a greater portion of medical expenses) was a “major concern.” About one-half of U.S. adults worry they will not have enough money to afford care.

My Takeaway: The ‘optics’ in healthcare are alive – indeed thriving.  The hypnotic messages you hear and see from many key stakeholders may not be the reality we wish and hope to have. The desire to ‘reform’ our healthcare infrastructure to become more affordable with better outcomes runs contrary with how major stakeholders are being incentivized and motivated to act. Re-engineering appropriate incentives (and disincentives) is necessary before we can obtain meaningful progress. Until this happens, the chairs are on the Titanic are merely being rearranged for appearance purposes only.

Skepticism, especially in healthcare, can be a virtue. Accepting the truth that this is happening is the first step of recovery.

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Hospital Pricing Mandate – A Sort of ‘Bird Box’ Reality

NOTE: This photo is not Sandra Bullock, but rather, a healthcare shopper seeking assistance online.

Over the holidays, my daughter and I watched a newly-released Netflix movie, ‘Bird Box.’ Other than having Sandra Bullock as the lead actress, I knew nothing about the film. The plot of this show, without issuing a spoiler alert, is that some unknown force mysteriously destroys the earth’s population, and the only certainty of survival is to not ‘see’ this evil. To remain alive, survivors must cover their eyes from the evil that chases them. One small peek can spell doom for those curious. In this riveting movie, having blindfold vigilance is the difference between life and death.

Recent findings in the January issue of the Health Affairs journal reveals that higher costs, not better patient care, serve as the primary explanation on why the U.S. spends much more on healthcare than other developed countries. Researchers found that U.S. healthcare spending was $9,892 per person in 2016, about 25 percent more than second-place Switzerland, which averaged $7,919 per person. Our neighbor to the north, Canada, is less than half of what we spend, $4,753.

The drivers for this enormous cost chasm, according to this article, is that the U.S. has higher drug prices, higher salaries for doctors and nurses, higher hospital administration costs and, yes, higher prices for many other medical services. Despite these costs, Americans have less access to many healthcare services than residents of other developed countries. A perfect storm, we might say. I have reported similar findings in a prior blog.

To make matters worse, the same study indicated that in 2015, there were 7.9 practicing nurses and 2.6 practicing physicians for every 1,000 Americans, compared to OECD medians of 9.9 nurses and 3.2 physicians. The long-term prospects of our numbers improving are not promising. Also in 2015, the U.S. had only 7.5 new medical school graduates per 100,000 people, considerably less than the median of 12.1 in developed countries.

Certainly, there must be some good news to share with you, right? Yes…and no.

Hospital Price Transparency Requirement

The prices we pay for hospital care, clinics, surgery centers, and prescribed medications, are usually unknown until sometime AFTER the interaction – typically following review and payment by our insurance vendor. The healthcare infrastructure gives much lip service to patient centricity, but follow through is underwhelming, to put it mildly. Transparency is extremely important these days because most Iowans and Americans are required by their health plans to pay higher deductibles and co-pays when seeking medical care.

Beginning January 1, the Centers for Medicare and Medicaid Service (CMS) is attempting to force price transparency by requiring all hospitals to post their list prices online. Under this arrangement, hospitals are required to publish a list of their standard charges online in a “machine-readable” format and to update this information at least annually. Hospitals are currently required to make this information publicly available or available upon request.

On the surface, this appears to be a hopeful beginning for all shoppers – and it is. However, when I look at hospital websites in Iowa and elsewhere, mandated compliance is far from patient centric. Using two of the largest hospital systems in Des Moines as proof – Mercy Medical Center and UnityPoint – we have a long way to go before price transparency nirvana can be reached.

Mercy Medical Center – Des Moines

The Mercy ‘Cost Estimator’ tab begins with a disclaimer that any costs published are nothing more than ‘estimates.’ The price-shopping patient must first click the “I Agree” button before being allowed to advance to the next page, which is sort of a magical mystery tour (special thanks to Lennon and McCartney). This page shows a similar disclaimer that all prices are mere ‘estimates,’ (special thanks this time to lawyers and marketing). In the left margin, we find links to a dozen ‘body systems’ that will allow price-shoppers to analyze procedures, median charges, various percentile charges, MS-DRG/CPT and Codes.

Not to be outdone, an exhausting ‘list of current standard charges’ is found subtly at the bottom of the ‘Body System’ list. Progress is now being made (tongue in cheek), as the price-shopper (hopefully not needing urgent care while searching for helpful prices) can find a treasure trove of data in an Excel spreadsheet:

  • CDM Numbers
  • Code Descriptions
  • CPT Codes
  • Revenue Codes
  • Charge

This spreadsheet shows 40,054 charge description masters (CDMs), which are incomprehensible medical procedures that are a hodgepodge of numbers and technical medical terms. One example is the 46040 4405 Abscess I&D Ischiorect, which has a charge (before discounts) of $10,936.  Huh?

In fairness to Mercy Medical Center, largely due to their repeated disclaimers, my expectations for finding value were set reasonably low. Put another way, I would not use this website as a shopper, as it is absolutely meaningless. Hospitals provide this data (and the gibberish language that comes with it) only because they are federally required to do so, not because they have a profound desire to empower patients.

Have you ever bought a non-medical product or service using ‘estimated’ prices? I didn’t think so…nor have I.

UnityPoint Health

UnityPoint’s ‘prices’ are found in the tab aptly labeled, ‘Patient Charges and Costs.’ On this page, the hospital does a reasonable job of explaining what the charges are…and are not. About halfway down this page the price-shopper can find two links that provide “Des Moines’s current charge information as of December 31, 2018,” in addition to “Des Moines’s standard Diagnosis-Related Group charge information as of December 31, 2018.” Each link will take the shopper to Excel spreadsheets that make little to no sense…even for someone like me, who makes a living using spreadsheets.

UnityPoint also provides a link to Iowa Hospital Charges Compare, a website provided by the Iowa Hospital Association. In addition to comparing ‘estimated’ hospital inpatient services by selected Iowa hospitals, it also provides ‘estimated’ prices for outpatient surgery procedures.

Trying to determine hospital prices in advance of a test, procedure or stay is daunting, frustrating and futile. This new hospital ‘transparency’ requirement is a very small step that needs a rocket boost into the 21st Century. What price-shoppers now see on hospital websites come from ‘chargemasters,’ which are massive compendiums of prices set by each hospital for every service or drug a patient receives. Historically, even hospital administrators can be flummoxed by how chargemasters are established.

But the real issue is that each published price is nothing more than a ‘list’ or ‘estimated’ cost. Currently, most procedures are still being charged separately, and are not bundled together. In most hospital encounters, it is extremely difficult to determine whether additional procedures will be required PRIOR to the patient entering the hospital. On top of this, the negotiated price of any claim is determined by the third-party payer (e.g. insurance companies, self-funded plans, Medicare, Medicaid, etc.) the shopper uses. Additionally, hospital location and the shopper’s specific health plan features (deductibles, coinsurance, etc.) will also determine the final cost.

Here’s a novel concept: Instead of pricing their services using the ‘horseshoes and hand grenades’ approach, hospitals could take the initiative and partner with ‘motivated’ insurance payers to develop a patient-friendly tool that provides legitimate ‘real-time’ prices along with patient-specific health plan out-of-pocket calculators. This sounds much too simple, doesn’t it?

Transparency WITHOUT the blindfold

To stay alive, Sandra Bullock needed to keep her blindfold close by before navigating outdoors. Healthcare shoppers, on the other hand, are trying remove their blindfolds to make appropriate decisions when seeking high-value healthcare. Unfortunately, to maintain the status quo, the current healthcare infrastructure works very hard to keep the blindfolds tight and opaque. But, to do the right thing in healthcare, we must tear down the existing silos of self-interest that dominate the care that Iowans and Americans deserve – and pay for.

Much work needs to be done to find this common good. By doing so, our blindfolds may finally be removed and clarity revealed.

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