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Are we steering patients to the right places? Comparing “in-network” and “out-of-network” costs.

Written on February 8, 2012 by in HCMS Blog

Authors:Nathan Kleinman, Justin Shaneman, and Ian Beren.

Anyone who has selected health insurance in the past decade is probably familiar with the concept of “networks.” Under the rules of an insurance policy, patients will pay a different portion of treatment costs depending on whether specific doctors and hospitals are part of the insurance plan’s approved “network.”  Some policies pay none of the costs when the patients gets care out-of-network, others pay some.  

While provider networks are created in part to deliver higher-quality care (1,2), the primary purposes of networks are cost management and standardization.  Insurers negotiate a standardized set of lower fees from provider groups in return for directing patients to those practices. 

From experience with large employers, most of us notice that networks in large health plans are rarely very restrictive because new plan members often want to maintain an existing relationship with their current doctor.  Similarly, when switching carriers, employers try to avoid the complaints that result from employees suddenly finding their doctors “out-of-network”.  This gives an advantage to plans with a larger, more inclusive network.

Even with large networks of available providers, the tiered structure of in- versus out-of-network can be one more complication that is confusing and frustrating for consumers to navigate (3,4).  Also, because many consumers have complained about restricted access, many states have laws requiring that plans admit “any willing provider” (AWP) and “freedom-of-choice” laws to insure access (2).  On the basis of AWP laws, plans have even been sued for excluding certain providers that supposedly had eroded plan profitability or advocated too strongly on behalf of patients (5).

Given the apparent all-inclusiveness of these networks, how well do they control costs?

A look at the data

Against this backdrop, we wondered if the savings associated with in-network prices is sufficient to justify the hassle and confusion it can cause for patients.  One could argue that if costs to payers are similar, the utility of networks might be questioned.

We selected one type of back procedure (6) and calculated the total episode cost for procedures done in-network and out-of-network in a one-year period from our Research Reference Database (RRDb).  We removed the highest cost 5% of episodes  and lowest cost 5% from the analysis.  Out of 176 back fusions performed in that year, 150 were done in-network and 26 were done out-of-network.  These preliminary results were surprising:

Type of Service

Plan Paid Cost

Member Paid Cost

Total Cost

Standard Deviation of Total Cost

25th Percentile of Total Cost

75th Percentile of Total Cost
In Network Services

$21,265

$1,394

$22,658

$21,199

$6,362

$32,237
Out of Network Service

$9,737

$4,373

$14,110

$13,707

$2,585

$24,797

 Patients paid more than three times as much for their out-of-network surgeries due to higher copayments, however, the plan sponsor paid 38% less and the overall cost of care for their episode was 25% less than in-network procedures.

What do we think causes the differences in these numbers?  We don’t know for sure.  However, we do know that the patients who were treated by in-network providers had more than twice as many charges (claims) per DRG episode than those treated in out-of-network settings.  Do in-network providers make up for the lower-negotiated fees by adding more charges (e.g. increasing volume to compensate for lower unit-cost)?  That remains to be seen.

More work needs to be done to control for possible differences in the patients who chose in-network versus out-of-network providers for their surgeries.  Even so, this finding is surprising enough that we decided to share it.  If one major purpose of networks is to control costs, wouldn’t we expect the distribution of costs inside networks to be less variable and consistently lower?  Instead we see the opposite.

Take a look at your own data…and let us know.  Are you steering employees to the best care (better quality care, more cost-effective care)?  What are the networks really getting us?

 

References

(1)    http://www.mainesense.org/Provider-Directory/Request-a-Provider.aspx

(2)    http://content.healthaffairs.org/content/14/4/297.full.pdf

(3)    http://commonhealth.wbur.org/2012/01/confusion-about-tiered-health-plans/

(4)    http://fairhealthconsumer.org/reimbursementseries/installment_two.aspx

(5)    http://www.prnewswire.com/news-releases/anthem-blue-cross-sued-for-limiting-doctors-in-its-provider-networks-103989648.html 

(6)    Fusions. DRGs included: 453-455,459-460,471-473,490-491.

 

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High-Cost Hospitals: Because Patients are Sicker? Think Again.

Written on December 30, 2011 by in HCMS Blog

Authors: Wendy Lynch, Ian Beren, Justin Shaneman and Nathan Kleinman.

It’s not surprising news that inpatient healthcare costs vary from hospital to hospital; large differences in price for the same procedure are common. But the reasons for variation are less clear. Some hospitals have consistently more expensive fees for identical treatments. However, these differences do not necessarily reflect better care: a recent study found that some high-cost hospitals rank low in quality scores and some high-quality hospitals are relatively low-cost (1). Plus, evidence shows that spending more does not produce better outcomes, higher satisfaction, or more appropriate care (2, 3).

Some plausible reasons for price differences include higher negotiated rates with health plans, delivery of additional or unnecessary services, poor efficiency or management of hospital stays, or several other possible causes. Yet, the most common assumption most of us make when we see price differences among hospitals is that some hospitals have patients that are simply sicker.

A recent HCMS analysis of hospital use by employees of a large, regional employer refutes that assumption.+   The graphic below shows cost per admission at ten different hospitals in the same geographic region according to the severity of illness burden of the patients the hospital treated. Most hospitals fall along this expected cost trend, with a median cost of $2,300 per increasing unit of illness. However, a few had costs above that expected rate of $15,000 to $20,000 per admission.

Represented in a different way, the next graphic demonstrates the projected cost across these ten hospitals for a person with the same illness burden. As we see, the same patient could expect to have an admission cost of about $8,000 at Hospital A versus $36,000 at Hospital J – over four times higher—after receiving the exact same services. Remember, these are real data from ten hospitals most commonly used (50 to 600 total admissions each during one year) by employees of a large, regional employer. The employer now knows that hospitals A, B, and C have the highest level of efficiency, while hospitals H, I, and J have the lowest. Comparing hospital A and J (the lowest cost and highest cost), each were rated highly on four of seven quality measures reported in national quality ratings (4).

The implications for both health plan sponsors and consumers are significant. By placing these cases on an equivalent scale, it is possible to identify which hospitals are delivering cost-efficient care, independent of severity of illness. By removing the argument that patients admitted at expensive hospitals are “sicker,” employers can focus on other causes of variation.

This is important not just because there is a chance to avoid unnecessary cost, but because patients have a better chance of avoiding risk, injury, pain, and suffering. For health plan sponsors, the potential for saving costs on inpatient care appears dramatic, which creates opportunity to contract preferentially with more efficient facilities and encourage consumers to choose equally high-quality, but lower-cost hospitals. An increasing number of employers are providing information about price, cost, and safety to their employees.  Beyond basic consumer-directed strategies, some companies now share financial savings with employees who choose high-quality, lower-cost care; awarding 50% of the difference in cost is one example (5).

When preparing for medical procedures or planning how best to respond to serious events, consumers should be aware of both medical quality and cost. In this population, none of the hospitals scored highly on all quality indicators; few do. However, most would be surprised to learn that some of the lower-cost, less-recognized hospitals in the area have equal if not higher quality ratings than the more recognized, highly-regarded establishments. The combination of timely, useable information and financial incentives may be the just the combination employers and employees need to rein-in costs and improve care.

For those interested in more technical aspects of this analysis, see below.

Measuring level of illness

Analyses such as these always bring up questions about how we know if some patient populations are sicker than others. It’s not a straightforward process when you are looking at data rather than examining a patient. Over the past several years, the HCMS Data Analytics Team developed a comprehensive Health and Utilization Index (HUI) based on the experiences of 3 million people in their Research Reference Database (RRDb). 

The HUI score is an indicator of burden of illnesses, absence and injury relative to an average population, normalized to an average score of one. A person or a population , with an average score of 2.0 would have double the average burden of illness, medications, absence and injury incidence. The index measures illness level (both number and severity) on actual claims and diagnoses data, weighted according to the expected contribution to total medical and benefits costs.

HUI is based on the expected contribution of every illness and type of medication to the total cost burden of a population. Each illness and medication class contributes an expected, specific amount to the total score, according to the population average. HUI also assesses the expected level of benefit utilization across the population, such as disability and workers’ compensation. A person’s HUI score is attributable to the sum of an individual’s illness, medication, and benefits utilization. A person with more illnesses, more medications, and more disability payments will accumulate a higher score—unrelated to his or her actual amount paid for treatments. Additionally, a person with a more severe illness will have a higher score than someone with the same number of less serious illnesses. For example, uncomplicated high blood pressure contributes 0.07 to HUI, while lung cancer contributes over 4.5. Based on the overall database population, the added HUI equivalent for uncomplicated high blood pressure would add an expected amount of $208, while the value of lung cancer would be an additional $14,500.

Because each sub-score is based on expected population averages, the totals provide a clean comparison of similar levels of illness burden. Also, by linking illness level to overall cost in the past (over 3 million people), we would expect similar costs for similar levels of HUI. Hospitals seeing patients with higher HUI scores should have costs proportionately higher than hospitals seeing patients with lower HUI scores. As we saw in the first graphic, most hospitals show a consistent level of cost increase per each unit of HUI. However, as we also saw, there are significant variations from that expected trend as well.

References

1.Jha AK, Orav EJ, Epstein AM: Low-quality, high-cost hospitals, mainly in South, care for sharply higher shares of elderly black, Hispanic, and medicaid patients.  Health Aff (Millwood) 2011;30:1904-11.21976334

2. Fisher, E. S.; Wennberg, D. E.; Stukel, T. A.; Gottlieb, D. J.; Lucas, F. L., and Pinder, E. L. (Center for the Evaluative Clinical Sciences, Dartmouth Medical School, Hanover, New Hampshire 03755, USA. elliott.s.fisher@dartmouth.edu). The implications of regional variations in medicare spending. Part 1: the content, quality, and accessibility of care. Ann Intern Med. 2003 Feb 18; 138(4):273-87.

3.Fisher, E. S.; Wennberg, D. E.; Stukel, T. A.; Gottlieb, D. J.; Lucas, F. L., and Pinder, E. L. (Center for Evaluative Clinical Sciences, Dartmouth Medical School, Hanover, New Hampshire 03755, USA. elliott.s.fisher@dartmouth.edu). The implications of regional variations in medicare spending. Part 2: health outcomes and satisfaction with care. Ann Intern Med. 2003 Feb 18; 138(4):288-98.

4.The Leapfrog Group. 2011;(accessed Dec 20, 2011).

5.Torinus JJr: The Company That Solved Health Care: How Serigraph Dramatically Reduced Skyrocketing Costs While Providing Better Care, and How Every Company Can Do the Same, Dallas, TX: BenBella Books; 2010.

+ The technical details of our analysis are below in the “Measuring level of illness” section.

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Paying patients to take drugs, or helping them make informed choices?

Written on November 29, 2011 by in HCMS Blog

It’s hard to imagine something scarier than a heart attack: crushing pain, combined with the realization that the organ you rely on to beat every second of every day is in trouble. Suddenly, you are mortal.

Many patients who experience a heart attack consider it a wake-up call, and a reason to take better care of themselves: “Maybe I should walk more and lose a few pounds.”  Certainly, for heart-attack victims who are prescribed a medicine to drastically reduce the chances of another heart attack, there is a strong motivation to take it.

But here’s the surprising part: often they don’t. In the year after a heart attack, only about 40% of patients take medications as prescribed (1).

Nudging people toward making good choices

In the past few years, there has been great interest in efforts to improve compliance with recommended healthcare guidelines through value-based insurance (VBI) designs (2). These strategies assign lower pricing to treatments deemed to be beneficial from a cost or outcomes perspective. It is a coordinated system of price nudges toward particular choices of treatment.

The value-based movement evolved partly in response to disappointingly low adherence to beneficial treatments, and partly in response to concerns that consumer-directed plans (where consumers pay directly for many services from their own accounts) might discourage patients from seeking necessary care. This is the logic: If we remove the financial barrier, more people will refill their important prescriptions and stay up-to-date on recommended screenings and exams. So, let’s make “good” options less expensive—or maybe even free.

So, does ‘free’ make a difference?   Not really.

Results released this month from a large study found that when a group of patients was offered free heart medication, only 4-6% more of them took it compared to the people who were charged $50 per month for the same medication (3). Even more discouraging, the overall rate of adherence was under 50%. In their discussion, the authors focused mostly on the benefit for those few additional pill-takers, but the real news was expressed by one author: “My God, we gave these people the medicines for free, and only half took it” (4).  It’s hard not to share his surprise. The economic “law of demand” tells us that as costs get lower, consumption goes up.

The more we look at this situation, the more complicated it becomes . While there is certainly evidence that cost influences a person’s likelihood of refilling medications, price is only one of many factors. For starters, we cannot look at any one treatment in isolation from other health issues. A study earlier this year showed that the typical heart-disease patient will fill 11.4 medications from six different drug classes every 90 days (1)! More striking, in the same time frame, 10% of patients will fill 12 or more unique medications, from 11 or more different drug classes, written by four or more prescribers, and fill them at two or more pharmacies, requiring 11 or more visits to a pharmacy. Not surprisingly, the more complex the regimen, the less likely people are to adhere to it.  

In the context of managing handfuls of different medicines at different times from different doctors and pharmacies, it’s easier to understand why so many people fall short of doing what we ‘want’ them to do. It’s not a single conscious choice between taking a pill or not; it is ongoing management of a complex array of daily and weekly activities. 

Going farther than free

After discovering that providing medications at no cost did not make a large difference in adherence, the researchers announced their next approach (5). No, it does not involve better communication or coordination among medical providers, and it does not suggest better-educating patients about the medications and treatments being prescribed. Instead, they intend to make the medications cost even LESS than free, by paying people to take their medications, calling it “value-based 2.0.” They propose to calculate the economic value of lower costs that result from adherence and give it back to patients as an incentive. 

While going even further down the path of incentives is a natural extension of value-based insurance, one has to wonder: if “free” is not powerful enough to change behavior, is ‘more free’ where we need to go?  Further, should we really be picking specific treatments that we will reward rather than supporting a greater involvement in one’s care? 

What if a patient doesn’t take this particular medicine, but instead he loses weight, starts a walking program, and avoids a heart attack that way? Will he not get paid?  What if a patient stays healthy in the first place and never needs the medication at all? Will he never have the opportunity to earn incentives because he is never at risk for needing to take medications?  What if that specific medication cannot be combined with another treatment a patient is taking for another illness? Will he be ineligible for incentives despite doing the right thing to avoid a dangerous drug combination? What if the patient doesn’t really need that drug anymore, but likes getting the incentive? And the question I hope public policy folks are asking: is it a good idea to pay people to take prescription drugs?  

How can a value-based system decide the right financial incentive in every circumstance?  The truth: it can’t. Believing that we can preferentially price specific treatments to nudge people toward “good” choices appears to be less effective than hoped. Trying to do it decision by decision is impossible. 

Directional goals rather than tactical manipulation

Creating financial incentives for specific treatment choices, one by one, is a little like giving a preschooler a quarter for eating her peas. She is likely to eat her peas while you are watching in order to get the quarter. But does it promote what you really want: for her to gain an appreciation for all healthy food instead of candy, not eat peas for the sake of quarters.  

If cost isn’t the barrier, what keeps 60% of heart-attack survivors from taking life-saving medications? Is it the complexity of combined treatments, disbelief about the value of such treatments, or could it be transportation barriers getting to the pharmacy? Does the medication cause side-effects that are worse than fear of another event?  We really don’t know; but it isn’t likely to be a simple reason.  

Are we putting as much energy into helping patients become active managers of their health as we are into pushing them toward specific choices that may or may not make the most sense for them?  

Aligning incentives does not mean creating a series of small bribes in hopes of correcting perceived medical misbehaviors. It means designing an entire system where people own their own choices and benefit from better health and prudent spending, both because they save money and improve quality of life. What we need is a coherent dialog with individual patients to understand their concerns and support their efforts to achieve individual goals. 

Why this matters:  An interest in encouraging the “right” behaviors has led to narrowly-focused incentives for specific treatments. The recent discovery that offering free medication does not improve patient adherence substantially should make us rethink such piecemeal approaches and consider a broader context.

References

1.    Choudhry NK, Fischer MA, Avorn J, et al: The Implications of Therapeutic Complexity on Adherence to Cardiovascular Medications.  Arch Intern Med 2011;171:814-22.

2.    Chernew ME, Rosen AB, Fendrick AM: Value-based insurance design.  Health Aff (Millwood) 2007;26:w195-203.(accessed November 28, 2011).

3.    Choudhry NK, Avorn J, Glynn RJ, et al: Full Coverage for Preventive Medications after Myocardial Infarction.  N Engl J Med 2011;(accessed November 28, 2011).

4.    Marchione, M. Patients not taking heart meds — even if they’re free. The Arizona Republic, Nov 15, 2011; (accessed Nov 28, 2011).

5.    Wendling, P. Free Meds Boost Post-MI Outcomes, Rx Adherence. Family Practice News Digital Network, Nov 15, 2011; (accessed Nov 28, 2011).

 

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Your Anger is Understandable; Now Do Something With It

Written on October 19, 2011 by in HHCF Blog

While virtually every other sector of the economy stays flat, healthcare costs will climb once again in 2012.  The average cost of healthcare coverage for US employees will exceed $10,000 (1). Already squeezed to balance budgets, employers are looking for any cost savings they can find.  Given their track record for reducing costs, it is not surprising that over 70% of employers offering insurance will provide a consumer-directed health plan (CDHP) in 2012, and one-in-five will ONLY offer a CDHP (2).  But to many employees, the change isn’t a welcome one.  Typical reactions:

This new plan is disappointing and frightening. It’s not right that you are adding both more cost and more risk to what I have already. What if something serious happens to me or my children? How will I afford a bigger out-of-pocket cost? This is not what I signed up for. I’m switching to my husband’s plan.

It is clear this has nothing to do with “consumers”, and everything to do with shifting costs onto the backs of workers.  Shame on you.

What they really mean: “I’m mad because you are taking something away. I want health care costs completely covered like the old days and I don’t want to be asked to take a greater role in paying or assuming risk. I’m angry because you (employer, HR) inflicted this change on me.”

Witnessing such responses to a company’s recent announcement that it will convert all of its healthcare offerings to CDHPs, I was reminded how sheltered employees remain from the business difficulty of balancing revenue and expenses in the face of rising benefit costs.  Because I’ve run my own firm and used a health savings account and a high-deductible plan for many years, since 2005, I confess to being surprised by the anger and fear directed at managers and leaders.  Complaints were not limited to lower-paid or under-educated workers.  Regardless of socioeconomic status, none of us likes to have something such as money or security taken away. 

But in this case, worker reactions also reveal a lack of awareness about where health benefit funding comes from: total compensation (3). The continued growth in healthcare costs comes directly out of take-home pay (4, 5).  Workers have been paying more for healthcare for a long time, but the real cost has been largely hidden inside raises or bonuses that never happened.  Thus, workers should have been angry about healthcare long ago, angry that an increasing portion of compensation has been diverted to cover fewer and fewer services.  Benefits expenditures are not something extra that “the company pays for;” they are dollars not available for pay, training, new equipment or other things.  And the higher healthcare costs get, the less competitive a company will be.

On the one hand, I cringe and empathize with human resources professionals who bear the brunt of incoming complaints.  For them, I wish employees would exhibit rational understanding and an appreciation that cutting back healthcare benefits is sometimes the only way to avoid cutting jobs!  If only more workers would acknowledge that their companies are grappling with difficult circumstances and not assume such cuts are an intentional wrong-doing.

Anger has its value, when directed where warranted.

On the other hand, I welcome the public outcry with, “It’s about time!” Consumers (even those who don’t perceive themselves as such) should be angry; healthcare prices have been irrational for a long time.  Now that workers are no longer sheltered from actual price, they are justifiably upset by what they find.  Medical providers cannot, or will not, tell them how much a service will cost, after-the-fact bills are difficult to understand and often incorrect, and prices are disconnected from quality or effectiveness.  Spending more doesn’t get you better care. Plus, in a world where we can share every other kind of information and shop on mobile apps, health care lags decades behind.  Consumers should be upset, but not with their employers.

Wendy’s Dream: Healthcare consumers armed with information, voting with their wallets.

Had consumers been paying the bill directly, we would have heard outrage long ago.  Plus, we would have seen lower-cost innovations alongside all of the high-cost technologies that predominate in the medical field today. What a great opportunity we have to harness consumer discontent and direct it in useful ways.  Imagine the power of millions of disgruntled new purchasers.

Imagine doctors and hospitals hearing every day, all day: “Why does this cost so much?  Is there another alternative?” Imagine patient after patient, armed with information about the range of local prices, asking a provider how his service quality or outcomes justify higher fees compared to others.  Imagine consumers questioning whether they need an MRI when an X-ray will do. 

Imagine medical-clinic office managers hearing that patients are leaving their practice because another nearby clinic is offering a 20% discount—with better quality—prompting them to think about service delivery.  Imagine investigative news reporters doing consumer segments finding the best-quality and lowest-price alternatives, instead of stories highlighting extreme cases where consumers were denied multi-million dollar procedures with questionable effectiveness. Imagine an exposé on how much medical service is delivered without ever being needed or clinically justified.  

Imagine a shift in public opinion that recognizes medicine as an industry, which it is, and demands full transparency from those delivering services.  Imagine citizens being appalled by providers who don’t reveal their practice records and prices, or facilities that don’t report their safety ratings. 

Realizing that these subtle, but significant, changes in perspective don’t happen overnight doesn’t stop me from day-dreaming.  If making workers angry can make it happen sooner, perhaps we should have done it a long time ago.

Why this matters:  No one likes change, especially when it means more risk and potentially more cost.  When workers get angry about being asked to take more responsibility for healthcare costs through consumer-directed health plans, it is a natural reaction to a perceived negative change.  While painful, if employees can redirect that anger toward behaviors that demand transparency and market pressure, maybe it’s the only way to bring about a positive change.   

___________________________

References

1.     Average cost of U.S. health coverage per employee is expected to cross the $10,000. The Institute for HealthCare Consumerism, Oct 3, 2011; http://www.theihcc.com/SITEFORUM?&t=/Default/gateway&i=1188405849871&b=1188405849871&e=UTF-8&application=story&elementID=1318255528846  (accessed Oct 17, 2011).

2.    Emerman, E. Majority of Large Employers Revamping Health Benefit Programs for 2012, National Business Group on Health Survey Finds. National Business Group on Health, Aug 18, 2011; http://www.businessgrouphealth.org/pressrelease.cfm?ID=179  (accessed Oct 17, 2011).

3.    Levy H, Feldman R: Does the incidence of group health insurance fall on individual workers?  Int J Health Care Finance Econ 2001;1:227-47.

4.    Miller RD Jr: Estimating the compensating differential for employer-provided health insurance.  Int J Health Care Finance Econ 2004;4:27-41.

5.    Baicker K, Chandra A: The Consequences of the Growth of Health Insurance Premiums.  American Economic Review 2005;95:214-18.http://www.hks.harvard.edu/fs/achandr/AER_BaickerChandra_PremiumsLaborMkts.pdf (accessed October 17, 2011).

 

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One Size WON’T Fit All

Written on October 17, 2011 by in Hank Gardner Blog, Healthcare Reform

Successful Companies Will Be the Ones that Design their Own Health Care Reform Model

With the federal government preparing to mandate an Essential Health Benefits (EHB) package, companies are going to have to get creative. If they fall prey to EHBs, costs will continue to rise. The successful companies will be the ones that wrangle the problem by implementing their own customized design for health benefits, just like they do wages, that de facto becomes their own version of Health Care Reform.

Despite what appears to be incentives to drop their plans and send their employees into the state-run exchanges when they start up in 2014, companies will have a vested interest in continuing to provide a health benefit package to their employees for 2 main reasons:

  • Health benefits are a major component of total employee compensation needed to recruit and retain workers.
  • Losing control of the cost and design of an important component of rewarding and retaining employees can jeopardize business success. See our book, Who Survives? How Benefit Costs are Killing Your Company.

Labor costs vary dramatically from industry to industry, so applying a one-size-fits-all approach with EHBs will wreak havoc with many, and particularly smaller businesses.  This is especially true for low-margin and low-wage industries. The cost of EHBs will take resources away from wages to pay benefits. Plus it won’t provide the incentives that align employee behaviors with business goals. What company can afford that?

The obvious next question is how do companies get control of rising health benefit costs? We’re informing our clients how to implement their own version of Health Care Reform. This includes a total compensation package (including benefits) that fits their business and improves the rewards and responsibilities incentives shared by workers and the company.  Such an approach can improve health while reducing health benefit costs.

 

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Note to consumers: the rules in healthcare are a little different

Written on September 28, 2011 by in HHCF Blog

Let’s say you’ve invented a new product. Before you can sell it, you need to figure out its price such that you maximize revenue without pricing it higher than your customers will pay.  If it costs more than similar products, you’ll need to figure out how to convince people to pay more for your product than they might elsewhere.  This is how healthy, rational consumer markets work, promoting innovation that balances cost and quality. To contrast, now imagine you’ve invented a new product in healthcare. Guess what?  You get to set the price without worrying what cost consumers will tolerate because they won’t be paying for it directly, and it doesn’t need to reflect how well the product works!

Because consumers don’t realize that the price of healthcare products and services is set very differently than prices in other markets, it leads to perceptions and behaviors that can be expensive and even dangerous.  Here is a personal example:

An older relative of mine, Gladys, came to visit last year.  While here, she became ill and I took her to my family physician.  Among other outcomes of the appointment was a prescription refill, which she took to the pharmacy.  Upon returning to my house, Gladys was clearly upset:  “Why did your doctor give me a cheap medicine?” “I’m sorry, Gladys, what do you mean?” “My doctor gives me the good medicine, the $60 one.” “Gladys, I think she gave you the generic; it’s the same medicine, it just costs less.” “If it was as good as my medicine it wouldn’t be so cheap,” she grumbled.

Gladys kept the medicine during her visit, but told me a few weeks later that the ‘cheap’ medicine didn’t work so she went back to her own doctor to get the “good medicine.”

Gladys is a strong believer in the axiom: ‘you get what you pay for.’  And in most other industries, Gladys would be right. In a consumer market, price reflects what purchasers are willing to pay, and tends to be higher for something people believe is higher-quality (nicer, faster, sturdier).  When older models drop in popularity, price usually drops too.  We’re used to seeing end-of-season close-out sales where sellers dump their inventory to make room for newer, higher-priced products. Rather than seeing this as an opportunity to save a little of her fixed-income, in Gladys’ mind, my doctor had reached into the 75%-off-everything-must-go bin and handed her last-year’s pills.

Misconceptions abound in healthcare, mostly because some people THINK price reflects effectiveness and they THINK medical practice has a much stronger scientific foundation and oversight than is actually the case.  Most of us grew up thinking that advanced medicine, which translates into technical, expensive procedures, is better than basic tried-and-true treatments and that doctors have a very high degree of accuracy in both their diagnoses as well as determination of appropriate treatments.  Consumers don’t realize that medicine is a 50-50 proposition: fewer than half of treatment choices are scientifically proven, and physicians will disagree about appropriate choices of treatment half the time (1).  Yet society’s general beliefs about medical rigor have produced a population of predominantly non-questioning, procedure-favoring patients. 

If I were to imagine a primer for healthcare users, with key points that might help them choose optimal care, the following would be at the top of the list:

1.      Newer medical treatments and medicines are not always more effective or safer, but will likely be more expensive than those that are already available.  While many consumers believe that the FDA only approves drugs that are “extremely effective” and have few serious side-effects, the reality is that the bar is much lower; a new treatment must only be shown to do more good than harm (2).  Newer treatments do not have to be significantly better or more effective than existing options. Remember, newer treatments have a shorter track record, so potential problems haven’t yet been documented.  Despite these facts, over 75% of newly-approved treatments are priced higher than existing ones (3).

2.      Prices for medical services do not reflect effectiveness or likelihood to improve health. In many cases, it may be the reverse.  Many types of back pain, for example, improve just as much from physical therapy and mild exercise as they do from complex surgery.  Some end-stage cancer treatments cost tens to hundreds of thousands of dollars, but only extend life by a few days or weeks on average.  Why is the price so disconnected from the health outcome?  Because healthcare prices are based on the technical sophistication of the procedure, the training of the professional, and the malpractice risk involved—not whether or not the procedure works. This is what happens when an industry sets it own prices, rather than having consumers pay for what they value.  This is why Gladys was misled by her interpretation of price.

 3.      Which type of doctor you see will influence what treatment recommendation you get.  If you go to an orthopedic surgeon about your back pain, he or she will likely have a different suggestion than if you go to a family doctor or a physical therapist.  Not surprisingly, surgeons tend to recommend surgery.  Doctors will more often choose the tools and methods they were trained to provide, and more often recommend procedures involving equipment that they own, like MRI machines. The more specialized their training, the more expensive their advice will be.  Plus, when it comes to medicines, pharmaceutical representatives encourage doctors to prescribe newer medications by leaving free samples to give to patients to try. 

4.      Life expectancy has improved mostly to low-tech discoveries, not because we have access to amazing, new medical technologies.  We can credit the vast majority of our increased length of life in the past 50 years to sanitation, nutrition, vaccinations, antibiotics and a few other public health efforts (4).  Even in heart disease, survival has increased due to use of such things as aspirin and other medications, much more than bypass surgery or angioplasty (5).  If you have a choice of treatments, go for lifestyle first, then (proven) medicine, then—as a last resort—invasive surgery.

5.      Don’t underestimate the risks in healthcare.  Just because it is possible to take a pill instead of eating right, or because a health plan will pay for a procedure, doesn’t mean it is the best option.  Every treatment has potential risks or side-effects.  Consumers underestimate the risk of being harmed in the hospital (one in three patients) (6), or from a treatment or medicine.  For many ills, we have a great capacity to heal ourselves without medical intervention.  When we do need medicine, we can improve its effectiveness by taking it appropriately and understanding our role in recovery.  

6.      List but not least: healthcare is a business.  It may include millions of caring providers, but this $2.4 trillion (7) industry is no less interested in making a profit than any other.  It earns revenue by filling hospital beds, performing surgeries, prescribing medicines and seeing patients.  Your misfortune translates into earnings for someone in the supply chain.  When you receive unnecessary care, it not only costs you, it also affects everyone in future higher premiums, higher taxes, and lower wages. 

Why this matters:  As healthcare spending approaches 20% of GDP (8), the consumer’s role in managing utilization and protecting themselves from unnecessary risk and harm has never been more critical. If we want higher quality at a lower price, knowing how the system works is a good place to start.

References

1.    Kumar, S. and Nash, D. B. Health Care Myth Busters: Is There a High Degree of Scientific Certainty in Modern Medicine? Scientific American, Mar 25, 2011; Health Care Myth Busters: Is There a High Degree of Scientific Certainty in Modern Medicine?  (accessed Sep 26, 2011).

2.    Pittman, G. Misunderstanding of drug approval common: study. Reuters Health, Sep 12, 2011;  (accessed Sep 26, 2011).

3.    Nelson AL, Cohen JT, Greenberg D, Kent DM: Much cheaper, almost as good: decrementally cost-effective medical innovation.  Ann Intern Med 2009;151:662-7.(accessed September 26, 2011).

4.    Centers for Disease Control and Prevention (CDC): Control of infectious diseases.  MMWR Morb Mortal Wkly Rep 1999;48:621-9.(accessed September 26, 2011).

5.    Baicker, K. and Chandra, A. Aspirin, angioplasty, and proton beam therapy: the economics of smarter health care spending. Prepared for Jackson Hole Economic Policy Symposium, Sep 9, 2011; (accessed Sep 26, 2011).

6.    Ricciardelli, M. Last Year’s Health Care Bill Equaled $2.4 Trillion. Health Reform Watch: A Web Log of the Seton Hall University School of Law, Health Law & Policy Program, Aug 13, 2009;  (accessed Sep 26, 2011).

7.    Reuters. Hospital errors 10 times higher than thought. msnbc.com, Apr 7, 2011;   (accessed Sep 26, 2011).

8.    U.S. Health Spending Will Continue to Rise, Reaching 20% of GDP by 2015, Report Says. Medical News Today, Feb 24, 2006; (accessed Sep 26, 2011).

 

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The similarity between financial markets and healthcare: uncertainty

Written on August 18, 2011 by in HHCF Blog

A question: Does uncertainty in medicine mean consumers should be more or less involved in choices?

As the country watched wild swings in the stock market these past weeks, every investor faced unfortunate hindsight: if only I had cashed out at 12,500! Combined with the pain of continued uncertainty, many investors decided to remove their (remaining) funds simply to stop the discomfort of an unknown future.

While we all dread the anguish of downward market fluctuations and wonder daily what it is store for our dwindling nest eggs, no one can change the fundamental truths of investing: risk and uncertainty.  Yes, experts can advise us and help us assess varying degrees of risk among options, but no one can guarantee the success of our investment decisions, no matter how well informed.

If the world of financial markets is this uncertain, should investors be less involved in the decisions about where they place their money and how much risk they assume?   One could easily argue that the average investor is not capable of making good decisions.  So, should we all find a seasoned stock broker to make decisions for us, independent of our personal circumstances and preferences? After all, they are the experts—right?

What about letting someone else make decisions about our health?

There is more of a parallel between managing financial assets and health assets than most of us would like to believe. Would it surprise you to know that of more than 1,100  medical studies conducted on new treatments or therapies between 2006 and 2010, 92%  were labeled unreliable (1)?  Or that 75% of new treatments in the past 20 years provided no clinical improvement (safety, efficacy or compliance) over existing treatment (2)? Or that scientists conducting medical trials admit being pressured or influenced by the sponsors or manufacturers funding the research (3)? Or that the popular press (or researchers themselves) often exaggerates research findings to make the study results more compelling (4)?

And this is just the part of standard medical practice that has been studied; a large part has never been investigated carefully at all.  By some estimates, over half of what is accepted as the “right” course of treatment has no scientific basis; rather, they’ve simply became customary based on anecdotes and traditions passed on over time (5). Almost every week we hear of a study that disputes, updates, or flat-out reverses a medical “fact” proving that a standard practice has no proven basis (6).

To be fair, the presence of uncertainty does not imply a failure of medical science, but instead reveals our societal desire to minimize risk and guarantee answers, even when neither is completely possible.  It is more comforting to believe that certain treatments and cures are absolute.   Like watching stock prices rise and fall, there is anxiety in the unknown.

In a wonderful description of how uncertainty affects doctors and patients, physician Richard Hayward (7) writes that:

“Nowhere is the equation, condition A, if followed by treatment B, will produce result C, less certain than in the practice of clinical medicine.” Yet, “Such uncertainty can be as dispiriting for doctors as it is for patients, often leading to denial (by both parties) that such uncertainty even exists.”

As somewhat of an “insider” to healthcare and knowledgeable about the challenges of rigorous research, I still find myself startled by the degree of uncertainty in clinical treatment.   If my reaction is one of mild surprise, I have to assume that scores of “outsiders” have misplaced enormous faith in the credibility and dependability of medical science.

So does inherent uncertainty make patient choice more or less critical?

Back to my earlier question, rephrased: If the world of healthcare and medicine is this uncertain, should patients be less involved in the decisions about their personal health and how much risk they assume?   Should we all find seasoned physicians and allow those people to make decisions independent of our personal circumstances and preferences? After all, they are the experts—right?

Because I often write and speak about patient decision-making, I commonly hear concern that medicine is too complex for the average person to understand, suggesting that only physicians are capable of choosing the right course of treatment.  I’ve been pulled aside many times to hear someone confide, “All this work to inform consumers is fine, but in the end, few patients will go against their doctor’s advice.” What does this say about our system if we believe doctors and patients are on opposing sides of a treatment decision? More importantly, how can doctors make appropriate decisions without knowing a patient’s preferences?

If patients believe that medicine is much safer and more effective than it actually is, what is healthcare’s responsibility to inform and educate patients and consumers?  Does this suggest we should be more or less transparent about uncertainty?  And given the degree of risk, should we be more or less inclusive of patient preferences?  Doesn’t the person who will experience the consequences deserve to have the final decision about risk versus reward?

For me there is no question.  Just as investors need to understand the balance of risk and opportunity, so too do patients require frank, open information about what is and IS NOT known.  The higher the risk of loss, the more the investor (or patient) needs to make the decision.  In business, leading an investor to believe that a particular return is almost certain—without informing him of potential risk—constitutes fraud.  A talented investment manager educates clients in ways that they maximize gains, while minimizing risk to the levels they choose to tolerate.  A responsible medical provider must do the same.

Why this matters: Financial and physical health are tightly connected.  Protecting our health is vital to a productive work life, and protecting our finances provides us more options for managing our health.  Responsibility for neither can be assigned to someone else.

Every time you seek healthcare, remember that more than half of what a doctor suggests is based on opinion and tradition rather than science.  Then, ask yourself if you’re better off blindly taking that suggestion, or if you might benefit from additional information about what is known and unknown, and what other options might be available.  If you wouldn’t give someone else complete and independent control over your financial assets, don’t your personal health decisions deserve the same level of care?

References

1.    Socha, T. Assessing New Medications Using Evidence-Based Value. First Report Managed Care, Nov 19, 2010; http://www.firstreportnow.com/articles/assessing-new-medications-using-evidence-based-value?page=0,0 (accessed Aug 17, 2011).

2.    The National Institute for Health Care Management, Research and Educational Foundation. Changing Patterns of Pharmaceutical Innovation. NIHCM Foundation, May, 2002; http://www.nihcm.org/pdf/innovations.pdf (accessed August 17, 2011).  (accessed Aug 17, 2011).

3.    Fairman KA , Curtiss FR: Rethinking the “Whodunnit” Approach to Assessing the Quality of Health Care Research – A Call to Focus on the Evidence in Evidence-Based Practice.  J Managed Care Pharmacy 2008;14:661-74.(accessed August 17, 2011).

4.    Fairman KA , Curtiss FR: Making the world safe for evidence-based policy: let’s slay the biases in research on value-based insurance design.  J Manag Care Pharm 2008 ;14:198-204.

5.    Joelving, F. Medical “best practice” often no more than opinion. Reuters, Jan 10, 2011;   (accessed Aug 17, 2011).

6.    Krumholz, H. Medicine’s Drip of Uncertainty. Forbes, Mar 2, 2011;  (accessed Aug 17, 2011).

7.    Hayward R: Balancing certainty and uncertainty in clinical medicine.  Dev Med Child Neurol 2006; 48:74-7. (accessed August 17, 2011).

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The power of consumer ratings: How Yelp! and Amazon will promote healthcare quality

Written on July 20, 2011 by in HHCF Blog

Online consumer ratings of healthcare services are a reality.  On sites like Yelp!, Angie’s List, and RateMDs, a growing number of patients can (and do) rate their physicians and hospitals on a variety of factors related to service and treatment. Other patients place a very high value on individually-reported experiences, so much so that researchers found that a single, emailed anecdote from a relative held as much weight as ten quality ratings graphs from the validated quality tool, HCAHPS (1).

What influence will online ratings have on healthcare?  At this early stage, there is both great enthusiasm for and great resistance to their use in decision making.

Not all providers welcome consumer ratings.

It seems a significant subset of physicians believe that patients are incapable of assessing the quality of their healthcare services.  Some doctors have even tried to prevent their patients from doing so by requiring patients to sign a “no negative review” agreement – restricting online reviews (2).   One company actually specializes in creating contract language allowing physicians to legally remove any patient reviews from websites, preventing a forum for what some might call honest feedback (3).

What does it mean when an industry tries to block efforts to gather consumer input about services?  Would we understand if airlines claimed that travelers should not be allowed to rate their travel experience because the average consumer cannot understand the complexity of aviation?  Or if cell phone providers claimed that consumers are not qualified to judge technology because telecommunications is beyond their comprehension?  Doubtful.

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In healthcare, why it is best that we choose for ourselves.

Written on June 23, 2011 by in HHCF Blog

Faced with a difficult medical situation, it is not uncommon for patients to ask doctors for advice.  But asking, “Doctor, what should I do?” is a very different question than, “Doctor, can you help me understand and weigh my options?” It may sound like semantics, but your involvement and participation in making personal health decisions can make a difference in your recovery.

A recent study showed that patients who make their own choices report better recovery than those for whom choices were made by doctors (1).  Regardless of WHAT choice was made, the patients who did their own choosing reported better physical and psychological outcomes; active choice-making had its own healing power.  It may also protect us from unwanted consequences.

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Unless consumers demand innovation, there’s no end to the rising cost of healthcare.

Written on May 27, 2011 by in HHCF Blog

In 1992, I worked for a data analysis firm that had to spend a considerable portion of its revenue to purchase data storage.   I recall that a computer storing 10 gigabytes of data cost over $60,000 and measured several feet across. Today, the same capacity (at one hundred times the speed, in the palm of your hand) goes for under $60.

Technology advancements hold amazing promise for virtually every aspect of our lives. In the case above, information technology now provides exponentially more function, yet sells for 1/1000th the price! We all own communication and computing devices that are almost obsolete within months, while prices continually drop.  Affordable cars are more powerful, while at the same time more fuel-efficient and safer.  In other industries our gains have been in the form of convenience and flexibility.  In a single generation, consumers have completely changed how they manage services like banking and travel, receive information through online sites, meet and connect through text, tweets, and social sites, and purchase billions of products and services every year through eBay, Amazon and Groupon.

Then there’s healthcare, where prices only go one direction: up.

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Imagine a football team without a front line. That’s medicine when (if) primary care declares independence.

Written on April 25, 2011 by in HHCF Blog

Behind closed doors trouble is brewing, and maybe it’s about time.

The situation has all the elements of a daytime drama: an exclusive cartel dictating price; a powerful committee with secret members and closed-door meetings trying to avoid exposure; members threatening mutiny; and media “spin” making it hard for the public to tell good guys from bad guys.

No, I am not referring to the NFL dispute between owners and players.  This is medicine.

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Incentives Matter – Ask Primary Care Physicians

Written on April 25, 2011 by in Hank Gardner Blog, Healthcare Reform

The article “A Family Doctor Looks to Retire, but Finds No One to Take Over” strikes at the root of our current healthcare access, quality and cost problem on two fronts.  One of our five economic truths about healthcare is “what gets paid for get’s done” and insurance reimbursement for preventive and cognitive care makes it virtually impossible for primary care physicians to make a living.  In Wyoming (not unlike much of small-town  USA…and many urban areas as well) less that 10% of public and private insurance is for preventive and cognitive care (medical providers talking to patients).  Yet everyone needs access to that kind of care, and without it, the funnel to highly technical specialty care (including high cost testing) is widened and reimbursement from third parties is much higher.  Getting these incentives right for both providers and patients is a central focus in the new health plan being implemented in the State of Wyoming for the uninsured.

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Announcing our new book: Who Survives? How Benefit Costs are Killing Your Company. Entry 2 – 2011

Written on March 23, 2011 by in HHCF Blog, Promotion

Which companies will survive the current economic climate?  Every day brings new headlines: city and state governments facing deficits and cutbacks; politicians fighting unions; companies cutting benefits. Must businesses and workers operate as adversaries, or can they succeed together? Our evidence tells us they can.

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Yes, Healthcare Reform is About Jobs!

Written on March 12, 2011 by in Hank Gardner Blog, Healthcare Reform, Promotion

Last week, Wyoming governor Matt Mead signed into law new legislation that moved the Wyoming Healthcare Reform model into Phase 2.   We had a significant role in the design of the new model, which connects access to health insurance with jobs and carries a premium that is roughly 30% less than the current Medicaid premium cost the state pays.

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Americans use fewer healthcare services in 2010: What will we learn from this? Entry 1, 2011

Written on January 19, 2011 by in HHCF Blog

There were fewer visits to the doctor in 2010 compared to the year before. What does this mean? It depends on whose opinion one reads.

online.wsj.com

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I have a Holiday wish: that we muster the courage to reign in national spending. Entry 13 – 2010

Written on December 14, 2010 by in HHCF Blog

‘Tis the season to wonder how to work off the extra pumpkin pie calories and pay off those Black Friday purchases! We know that a dollop of reality isn’t anyone’s holiday favorite,, but it may be timely for all of us to acknowledge the belt-tightening our country must face as we approach the New Year. If social spending cuts in England, Greece, Spain, Germany and other countries are any prediction (1, 2), some would argue that we are late in taking action. Is there hope that we’ll wake up and realize that now is the time to start trimming our national spending—even as we trim our tree—by making tough, necessary choices?

Consider some sobering facts. In the year 2015 (3):

  • Government spending (federal, state, and local) per capita will be over $25,000 per year.
  • Healthcare will become the single largest component of spending (besides interest on debt).
  • Spending will far exceed revenue leaving us with over $20 trillion in debt.

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When it comes to health, what numbers do most of us REALLY need to know? Entry 12 – 2010

Written on November 12, 2010 by in HHCF Blog

In a 2009 study of a heart disease risk, low-income women were screened at baseline for hypertension, high cholesterol, and diabetes (1). Participants were given their biometric “numbers” by their physicians at the time of screening. One year later, researchers asked the women about their risk status. A majority of high-risk women reported that they had never been told they were at risk!

  • 66% of those with hypertension reported never having been told they were hypertensive.
  • 54% of those with high blood glucose reported never having been told they had high blood sugar.
  • 45% of those with high cholesterol reported never having been told it was high.

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One minute left in the game. Score: Patient Education 100, Patient Accountability 0. Entry 11 – 2010

Written on October 5, 2010 by in HHCF Blog

There is a sad irony in new healthcare reform provisions released last week. It rewards (or at least relieves financial pressure on) health plans for virtually every bit of educating, assessing, coaching and reminding it does with patients. Then, it penalizes them for trying to give consumers purchasing power.

The issue: the definition of MLR.
Medical Loss Ratio (MLR) is a term used to describe the portion of the total healthcare premium spent on “medical services” as opposed to other expenses usually referred to as administrative services. MLR is actually expressed as a fraction or percentage indicating what portion of premiums is spent on supposedly REAL value delivered to covered members, compared to operational costs, profits, or inefficiencies.

In national healthcare reform (now referred to most commonly as ACA, the Affordable Care Act), legislators decided to mandate a minimum MLR: 80% (or 85% depending on the size of the group being insured). A plan achieving a lower MLR will incur a penalty, to be paid to members in the form of rebates.

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Mandated insurance coverage means mandated cost. What do we really want to pay for? Entry 10 – 2010

Written on September 8, 2010 by in HHCF Blog

Have you ever tried to purchase cable television with just the channels you want to watch, and been told that you need to buy the ‘whole package’ to get service? Sound like your cell phone plan?

We often see private companies ‘bundle’ services to boost revenue or maximize their profit margins, and as consumers, we have to decide if we’re willing to purchase these sorts of arrangements. But what would happen if the government were to require the public to purchase a service, and then mandate a very expensive bundle of services without giving consumers a choice about what’s included? Welcome to healthcare.

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No child left (with a small) behind. America’s future workforce unfit for duty. Entry 9 -2010

Written on August 2, 2010 by in HHCF Blog

Obesity is now a top reason that recruits cannot qualify to serve in the military (1), along with failure to finish high school and having a criminal record. Nine million young people are too overweight to serve and each year 1200 recruits are dismissed because of persistent weight issues. One former surgeon general describes obesity as moving beyond an epidemic to a “state of emergency” (1).

What will workers look like in ten or twenty years? Are we building a capable, healthy workforce? By many indications, no. Employers in Maine estimate that the rate of obesity (defined as a Body Mass Index of 30 or more) in their state workforce could reach as high as 80% within ten years (2).

Consider these statistics:

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