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The Healthcare Price-Quality Conundrum

Price and Quality

As Americans, one thing is certain – we continue to pay a larger share of our medical bills through higher deductibles and out-of-pocket maximums. Proponents of ‘having more skin in the game’ suggest that we will eventually become better ‘consumers’ to drive down healthcare costs. The debate about whether this will happen continues.

When shopping for colonoscopies, mammograms or childbirth procedures, people are more likely to conduct cost information searches before seeking care. But will higher-priced doctors and hospitals result in higher quality of care?

Two recent reports approached this question differently. The first report, “The Price-Quality Paradox in Health Care,” generated by the Health Care Cost Institute (HCCI), looked at actual claims data to determine whether higher prices are indicative of receiving higher ‘quality of care.’ For this report, quality measures were based on whether ‘recommended’ services were provided.

As we know, quality can be evaluated many different ways. For example, even if treatment delivered is recommended care, was this care delivered appropriately, safely and to the patient’s satisfaction? There are a host of other qualitative measures that help define the quality of care we hope to consistently receive. The HCCI report did not use other methods because such information is difficult (or impossible) to cull from mere claims data.

HCCI’s conclusion is that “price alone may not be sufficient for identifying quality.” In some cases, higher prices are associated with lower quality, meaning that high-prices are not indicative of high-quality of care. HCCI concludes with an obvious statement:

If policy makers and health care industry leaders expect transparency efforts to have real impacts on the health care system, making quality information more accessible and useable by stakeholders is also necessary.

The second report comes from an April article in Health Affairs, “Most Americans Do Not Believe That There Is An Association Between Health Care Prices and Quality Of Care,” that analyzes how Americans perceive the healthcare price-quality conundrum based on behavioral economics. The findings indicate that a majority of consumers (58-71 percent) don’t believe that price and quality are associated with one another, meaning that paying higher prices does not guarantee higher quality of care. A hefty minority of respondents (21-24 percent) indicated there was an association between price and quality, while an additional 8-16 percent did not know if there was a correlation between price and quality.

Respondents who said they had compared prices before receiving care were more likely to think that higher prices are related to higher quality of care, compared to people who did not price shop before seeking care (37 percent vs 12 percent). Avoiding low-price care because it is perceived to be low-quality, is a detriment to having an efficient delivery system that beckons consumer decision making.

Due to the intricacies of behavioral economics, it appears that how price-quality information is communicated to the patient/consumer may very well determine whether healthcare prices are indicative of care quality.

The findings in this second report relating to our purchasing behaviors, are a good complement to HCCI’s findings. This emerging subject will generate a great deal of interest from many stakeholders in the future.

For now, the price and quality metrics are still being hotly debated to determine whether we can become informed consumers who make rational healthcare decisions.

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$3 Trillion Trip to the Moon!

Tower of MoneyTry to imagine one trillion dollars.

The significance of this number is…well, mind-boggling! Just add 12 zeroes after the number one and you quickly get the point. It would be laughable to try to stash this amount in your billfold, purse or any other safe location.

Here’s another perspective. If you stacked one trillion $1 bills on top of each other, it would extend 68,000 miles into the sky – one third of the way to the moon! Or let’s say you won the lottery and received $1 million a day for the next 2,000 years – you would have ‘only’ collected three-quarters of $1 trillion.* What a great incentive to live healthier!

It was just a matter of time before our nation would reach the $3 trillion milestone in healthcare spending – $3.03 trillion to be exact. Using my quick math, we would now be able to reach the moon.

This milepost was met in 2014, but due to calculation lag, we recently learned this news in December from Health Affairs, authored by the Office of the Actuary, an independent arm of the Centers for Medicare and Medicaid Services (CMS). Three trillion translates into about $9,525 per person spent for healthcare in our country.

In 2014, healthcare represented 17.5 percent of our nation’s gross domestic product (GDP), up from 17.3 percent in 2013. Healthcare spending most likely will reach one-fifth of our GDP during the next decade.

So what’s next – Mars? After all, when the earth and Mars are on the same side of the Sun, we are within spitting distance of 34 million miles – or just a mere $500 trillion!

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* According to a noted Temple University math professor, John Allen Paulos.

Healthcare Patients Want ‘Good Value’ for the Money

Cost +Quality = Value

…we are now entering into a new era in healthcare that appears to alter our behaviors toward the care we are receiving…

Similar to national data, Iowa spending on healthcare and insurance premiums has risen at historically lower rates in the last three years. However, according to the Kaiser Family Foundation, only three percent of Americans said health costs are “going up slower than usual,” and 52 percent said costs are “growing faster than usual.”  The other 35 percent say costs are about the same.

The amount that Iowans with employer-based health insurance pay for premiums has risen 167% in the last 14 years, while Iowa weekly wages have risen about 40%* and general inflation 43 percent. As we know, our incomes are suppressed by increasing health premiums, which certainly impact take-home pay and, ultimately, our capability of making consumption trade-offs for other priorities, such as food, shelter, education and retirement savings.

In addition to the premium cost, Americans are asked to pay increasingly more of the medical care they seek, through higher deductibles, copayments and out-of-pocket maximums. With lower-relative income, finding the financial resources to pay is problematic for many employees, causing them to put off receiving care or incur more medical debt.

In a recent Wall Street Journal article, Drew Altman, president and CEO of the Kaiser Family Foundation, wrote that Americans with health coverage care about:

  • Their premium costs, or the share of premiums they pay if they have employer coverage;
  • Their deductibles and other forms of cost-sharing, especially when deductibles have been rising steadily;
  • Their drug costs;
  • Whether they can go to the doctor or hospital they want without having to pay more;
  • The hassle and red tape in healthcare and health insurance. People care about getting information to be informed about their health and make smarter insurance and healthcare decisions;
  • Seniors care a lot about Medicare and sometimes vote on this issue.

Most people would agree to this list.

However, Mr. Altman then mentioned that “Americans don’t care as much as experts do about improving quality and eliminating unnecessary care. In general, people think that quality is good and they want more care not less.”

Perhaps this was true in the past, but we are now entering into a new era in healthcare that appears to alter our behaviors toward the care we are receiving. One prime example is a recent study that says cost is not the most important determinant of the care we seek – it is quality. From this report, when patients are provided hospital safety score grades and cost information together, they will choose safer hospitals 97 percent of the time, REGARDLESS OF COST.

Of course, this may also depend on WHO pays…the patient or a third party.

Making sure that such report cards reflect the most relevant performance measurements will be extremely important – if not critical – to the patient. Unfortunately, we don’t have this luxury at the present time. A March article on the Johns Hopkins Medicine website reports that national rating systems on the quality and safety of hospitals are too confusing because each will stress different measures from each other – sometimes providing a wide variation of grades on the same hospital (study source: Health Affairs).

In my blog last August, I wrote that the Urology Department at Cleveland Clinic received a top score by the U.S. News & World Report, yet received the lowest possible score by Healthgrades for prostatectomy outcomes. This type of reporting will only serve to confuse the general public before seeking care.

As healthcare delivery and payment initiatives continue to morph, look for quality and safety measurements to emerge with the cost component. The convergence of reliable safety and quality information with ‘real-time’ cost information can eventually catapult the healthcare industry into the 21st century.

Until then, many hurdles must be successfully cleared in order to achieve the desired value we all want.

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*2014 data from the Iowa Workforce Development is not yet available, and therefore, excluded.