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Tag: Health care spending

The Most Powerful Health Care Group You’ve Never Heard Of

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By Brian Klepper and Paul Fischer

Excessive health care spending is overwhelming America’s economy, but the subtler truth is that this excess has been largely facilitated by subjugating primary care. A wealth of evidence shows that empowered primary care results in better outcomes at lower cost. Other developed nations have heeded this truth. But US payment policy has undervalued primary care while favoring specialists. The result has been spotty health quality, with costs that are double those in other industrialized countries. How did this happen, and what can we do about it.

American primary care physicians make about half what the average specialist takes home, so only the most idealistic medical students now choose primary care. Over a 30 year career, the average specialist will earn about $3.5 million more. Orthopedic surgeons will make $10 million more. Despite this pay difference, the volume, complexity and risk of primary care work has increased over time. Primary care office visits have, on average, shrunk from 20 minutes to 10 or less, and the next patient could have any disease, presenting in any way.

By contrast, specialists’ work most often has a narrower, repetitive focus, but with richer financial rewards. Ophthalmologists may line up 25 cataract operations at a time, earning 12.5 times a primary care doctor’s hourly rate for what may be less challenging or risky work.

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Innovation is Key to Controlling Health Care Costs

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By Wendy Everett, ScD

In the battle over health care that lies ahead, how strongly will the public rally around the need for innovation in confronting health care costs?  Does the public view innovation as relevant to the challenge in the first place?

These aren’t idle questions. The news that growth in overall national health care spending has been moderating has raised speculation that innovations in payment and health care delivery are already paying off, notwithstanding the unquestioned impact of the Great Recession.

Looking ahead, uncertainty over the fate of the Affordable Care Act and the likelihood of federal budget cuts yet to come has many fearing that innovations will be vulnerable. And it is not just federal spending that will be at risk. Hospitals and health plans will all be watching their margins carefully to assess how far and how fast they can keep making investments that support innovation (such as investments in healthcare IT, analytics and care coordination) but that may take months or years to generate a return.

All of which places the role of innovation in controlling costs center stage. After all, this is what undergirds the Triple Aim that so many health care leaders have embraced as the only realistic alternative to arbitrary cutbacks in health care services and spending. Health care leaders can defend innovation if they have public support. But do they?

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You Get What You Pay For

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By David Dranove

Two recent research papers remind us that it may be difficult to cut U.S. healthcare spending without harming quality. The first, written by a research team led by University of Chicago economist Tomas Philipson, appears in the latest issue of Health Affairs and has deservedly garnered a fair bit of media attention. The authors examine cancer spending and survival times for patients in the United States and ten European countries during the period 1983-1999 (later data were not available.) Their data confirm what we already know about health spending; the average cost of treating a cancer patient was about $15,000 higher in the United States. But the data also show that the typical U.S. cancer patient lives nearly two years longer; most of the difference is attributable to prostate and breast cancer patients. The gain appears to be due to greater longevity rather than early diagnosis. Using generally accepted measures of the value of a life, they conclude that the benefits of additional health spending outweigh the costs by a factor of 4:1 or higher. The latter calculation does not consider QALYs (quality adjusted life years) and so may be overstated. The authors acknowledge that other nations may do a better job of cancer prevention, so that their overall approach to cancer may be superior to that in the U.S., but they can find no evidence of this one way or another.

Philipson’s study suggests that U.S. healthcare consumers may get a substantial bang for their higher bucks. Maybe the U.S. system is not so inefficient after all. What about efficiency within the U.S. system? Some providers are far more expensive than others. Is the higher cost worth it? A new study by a team led by MIT economist Joseph Doyle, and released as an NBER Working Paper, suggests that you may get what you pay for within the United States. Doyle and his colleagues ask whether higher cost hospitals in the United States achieve better outcomes than lower cost hospitals. It is not easy to answer this question, because higher cost hospitals may admit more severely ill patients. This results in a statistical problem known as selection bias that is difficult to eliminate with available severity measures.

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The Testing Glut

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By H. Gilbert Welch

In case you missed it, a recommendation came out last month that physicians cut back on using 45 common tests and treatments. In addition, patients were advised to question doctors who recommend such things as antibiotics for mild sinusitis, CT scans for an uncomplicated headache or a repeat colonoscopy within 10 years of a normal exam.

The general idea wasn’t all that new — my colleagues and I have been questioning many of the same tests and treatments for years. What was different this time was the source of the recommendations. They came from the heart of the medical profession: the medical specialty boards and societies representing cardiologists, radiologists, gastroenterologists and other doctors. In other words, they came from the very groups that stand to benefit from doing more, not less.

Nine specialty societies contributed five recommendations each to the list (others are expected to contribute in the future). The recommendations each started with the word “don’t” — as in “don’t perform,” “don’t order,” “don’t recommend.”

Could American medicine be changing?

For years, medical organizations have been developing recommendations and guidelines focused on things doctors should do. The specialty societies have been focused on protecting the financial interests of their most profligate members and have been reluctant to acknowledge the problem of overuse. Maybe they are now owning up to the problem.

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Recession Drives Lower Health Spending

By Merrill Goozner

The Great Recession has achieved what 20 years of policy machinations in Washington could not. For the second straight year, the world’s most expensive health-care system did not gobble up a greater share of the nation’s economy. In fact, health care grew at a slightly slower pace.

Health spending rose just 3.9 percent to $2.59 trillion in 2010, only one-tenth of a percentage point faster than the previous year. That was slightly below the 4.2 percent nominal growth in gross domestic product (GDP), which means health care stayed at 17.9 of the total economy, no different than the prior year.

This represents the third straight year of markedly slower growth in health-care spending, compared to the prior decade. Health care was 13.8 percent of GDP in 2000 and 12.5 percent in 1990.

The lingering effects of the U.S. economic slowdown were largely responsible for a slower growth of health-care consumption, economists at the Centers for Medicare and Medicaid Services said. Cash-strapped consumers postponed elective surgeries, put off doctor visits and switched to generic drugs to hold down out-of-pocket costs, which grew just 1.8 percent in 2010.

The economic downturn “caused many people to lose employer-sponsored health insurance and people cut back on their use of care,” said Anne B. Martin, an economist at the Centers for Medicare and Medicaid Services.

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What Is Sustainable Health Spending?

By Charles Roehrig, Ph.D.

There is broad agreement that historical rates of increase in health spending are “unsustainable”, and we must therefore find ways to bend the health care cost curve. However, there is surprisingly little consensus – and not even much being written – about what growth rate would be “sustainable”?  Defining sustainable growth and establishing a credible target is one of the top research priorities of our Center. We have put a lot of energy into providing more timely estimates of health spending and having a target for comparison is a key next step.

In this blog, the first in a planned series, I lay the groundwork needed to estimate sustainable health spending growth rates.  I begin with a definition of sustainable health spending that I hope you will find intuitively appealing, even if it does not match your own perspective. I then identify key stakeholders affected by health spending increases and who, in the absence of the Affordable Care Act (ACA), would have their own particular sustainability thresholds. Next, I argue that under ACA, the federal government blunts the impact of health spending growth on most other stakeholders and, in so doing, focuses the sustainability question more fully on its ability to raise the tax dollars required to meet its ACA commitments.

Defining “sustainable” health spending

I consider the nation to have achieved sustainable health spending when the projected growth path of spending is within what the nation is willing and able to pay. Note that this definition introduces elements of choice into the determination of sustainability. If there is an absence of willingness to pay, the spending will be unsustainable even if there is ability to pay.

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Hobson’s Choice

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By David Dranove

I recently moderated a Crain’s Business Breakfast. The panel included four highly respected Chicago-area hospital CEOs. I questioned the panel on a wide range of topics, from near term operational issues to long term public policy concerns. One expects well-rehearsed answers from senior executives so I was pleasantly surprised by the thoughtfulness and thoroughness of many of their comments. I was rather looking forward to how they would respond to this question, which they had been told in advance:

“Secretary of Labor Hilda Solis recently commented that the healthcare sector continues to be a bright spot for job creation. How is the nation to reconcile the desire for “job creation” with the desire for cost containment?”

First, some background. Secretary Solis is correct – the healthcare sector is a jobs engine. In just the past year, healthcare has added about 325,000 jobs, accounting for perhaps a third of total U.S. job growth. By way of perspective, the rapidly growing energy sector creates about 100,000 jobs annually. Job growth is great, but more jobs in health care means more spending on health care. Despite the technological imperative that propels the system, healthcare remains a labor intensive business. Half or more of hospital spending goes to labor, not including physician expenses. Labor expenses dominate home health and long term care. It is nigh on impossible to reduce healthcare spending without reducing labor spending. Thus, job creation and cost containment are enemies.

I put the ball in the hands of the panelists: do you favor job growth or do you favor spending cuts? The panel punted.

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Off-base Optimism

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By PAUL LEVY

I like to view myself as an optimist, but two recent reports demonstrate the danger of misplaced or premature optimism.  I fear that they are influenced by what the authors hope will be the case rather than what has proven to be the case.  I find this generally to be the situation in the health care arena, where public policy is often based on shallow interpretations of data and on people’s political wishes rather than rigorous analysis.

The first comes from Karen Davis at the Commonwealth Fund, in a blog post entitled, “Health Spending Continues to Moderate, Cost of Reform Overestimated.”  We should know from the title alone that the conclusions cannot be accurate:  It is just too soon to reach them.  It would be like drawing a picture of climate change from one year of data about temperatures.

Here’s an excerpt:

A recent report from the Centers for Medicare and Medicaid Services (CMS) shows that national health spending grew at a historically low rate of 3.9 percent in 2010, almost paralleling the 3.8 percent increase in our gross domestic product (GDP) last year. This is . . . good news for the federal government as the slowdown indicates that the cost of health reform has been overestimated.

Now, let’s look at the possible reasons:

First . . . continuing declines in employment and private health insurance coverage have contributed to fewer people receiving both essential and nonessential treatment. [F]ewer people have received needed preventive and acute care. And people have increasingly gone without prescriptions, tests, and elective procedures.

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Health Alert: Health and Education

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By JOHN GOODMAN, PhD John Goodman

I believe I am one the few commentators on the Internet who routinely compares the fields of health and education (see previous posts here and here). The reason: lessons from one field are often applicable to the other.

The parallels are obvious: In both fields (1) we have systematically suppressed normal market forces; (2) the entity that pays the bill is usually separate from the beneficiaries of the spending; (3) providers of the services see the payers, not the beneficiaries, as their real customers and often shape their practice to satisfy the payers’ demands — even if the beneficiaries are made worse off; (4) even though the providers and the payers are in a constant tug-of-war over what is to be paid for and how much, the beneficiaries are almost never part of these discussions; and (5) there is rampant inefficiency on a scale not found in other markets.

Long before there was a Dartmouth Atlas for health care, education researchers found large differences in per pupil spending (more than three to one among large school districts, e.g.) that were unrelated to differences in results. In fact, study after study has found no correlation between education spending and education results. (See Linda Gorman’s summary at Econlog.)

Internationally, the parallels continue. Just as the United States is said to spend more than any other country and produce worse outcomes in health care, the same claim is now made for education.Continue reading…