The Cost Conundrum Re-visited in Health Care
A pediatric pulmonologist at a prominent Midwestern children’s hospital told me a story about a conversation he had in Iowa City. When he was in training, a faculty member bragged about how he had the best asthma outcomes in the nation. He felt like the medical school, support staff, and community were doing better than anyone else. A visiting pediatrician from Georgia laughed, “Guys! You are in I-O-W-A. I am in Atlanta. Of course, you have the best results. It’s completely different here.”
Anyone who has been to Iowa and Atlanta would easily notice the difference. I have not been to either, but I have practiced medicine in three different states in many different clinics and hospitals. It is very obvious that geography, poverty, economics, and insurance plans matter more than what the physician or hospital does for any given outcome.
This basic truism is not remarkable except when you realize that the entire health care debate of the Obama era consisted of ignoring these basic facts. If you follow the elite popularizers of health policy amongst the neoliberal press, you may believe that the United States faces an epidemic of unnecessary care by greedy physicians. This creates some regions with high spending and poor health, some regions with low spending and great health, or a mixed picture. Why would that be true?
Dr. Atul Gawande’s famous 2009 article about excessive Medicare spending in McAllen, Texas in the New Yorker revolutionized the conversation. He argued that the very high Medicare spending in McAllen must be due to greedy hospitals and physicians bilking insurance for more services (hospital days, office visits, scans, procedures, and prescriptions) than anywhere else in the United States. The volume of patient services must not be justifiable.
President Obama recommended his Cabinet to read it. According to Gawande, 30% of health care spending in the United States was “of no obvious clinical benefit” (aka waste). Peter Orszag, Obama’s budget director, evangelized these results to Congress and the media. To make the Affordable Care Act affordable, federal health policy should begin to equalize spending between high and low spending regions while maintaining quality.
Based on a once obscure dataset called the Dartmouth Atlas, federal health policy shifted towards justifying and measuring “quality” to prove effective care throughout the nation. Accountable Care Organizations, Big Data, and integrated care delivered via electronic medical records became the mechanisms to do this. Medicare introduced free market correctives such as non-payment for medical errors and “excessive” readmissions and rewards for patient satisfaction and electronic medical records.
The problem is the diagnosis is wrong; therefore, the carrot and stick solutions will fail too. American health spending is high not primarily due to waste or widely different practice patterns that can be easily quantified and equalized. It is a lie on the level of Bush’s missing weapons of mass destruction but with more annual American (not Iraqi) casualties and financial havoc on the lives of physicians and patients. Just as members of the congressional committee on intelligence did not know the difference between Sunni and Shi’ite groups in the Middle East, the federal bureaucracy cannot spot the difference between low spending Utah and Dubuque, Iowa and high spending Miami and Los Angeles.
These lies need to be exposed and fought the way CNN’s Jake Tapper’s misleading comments about Medicare for All were. Here is a short rebuttal of the Quality Industrial Complex’s insistence that American spending is high because of unnecessary health care usage.
Costs = Prices x Volume
Revenue in any business or organization is equal to price multiplied by volume of units sold or used. Businesses can have large revenues selling many items cheaply (Wal-Mart) or few units expensively (Luis Vuitton). Which company is the U.S. health system?
Well, neither. It’s more like a Marc’s or Ohio Discount Drug Mart with Luis Vuitton prices. The late Princeton economist Uwe Reinhardt analyzed prices and volumes throughout developed nations and concluded in 2003, “It’s the Prices Stupid.” The United States had astoundingly high prices but average volumes compared to other OECD nations. A complex analysis performed in the March 13, 2018 issue of the Journal of the American Medical Association concluded again that the United States had very high prices and quadruple the administration costs but normal to below average volumes in most services: hospital visits, office visits, and drug prescriptions.
The United States stands out with its fragmented health financing, health spending, complicated tax breaks, and multiple public and private insurers. But one factor that stands out above all is the lack of standardized prices for hospital stays, office visits, surgeries, and prescription drugs. Not using monopsony power (purchasing monopoly via negotiations) to counteract physician, hospital, and drug monopolies, higher prices prevail.
Indeed, since the Affordable Care Act was signed and Trump’s inauguration, the biggest scandals have all been price related. There have been outrageous increases in antibiotic prices, murderous raises in EpiPen prices, large deductible and premium hikes, and ludicrous shortages of generic medications, and even IV fluids. The government has been powerless to do anything as there are no price controls in the Affordable Care Act.
High Volumes, High Poverty
What about high spending regions that have worse outcomes? Is that all a myth? No, not exactly. But it only puzzles someone who ignores another American exceptionalism: poverty. No other developed nation has such high levels of income inequality, concentrated poverty, residential segregation, and a meager welfare state, particularly for children and mothers.
Why would Miami, Los Angeles, McAllen, or New York have high health spending while Iowa and Utah and Grand Teton, Colorado have “low” spending? It’s obvious: the former have many neighborhoods of concentrated poverty, low education, and high income inequality while the latter do not. The late Dr. Richard Cooper, an oncologist and Wisconsinite, emphasized this difference in his posthumous book Poverty and the Myths of Health Care Reform. And since prices are high throughout the U.S., only volume can explain the differences in health spending.
Surprised to see his hometown of Milwaukee spending 35% more than the rest of Wisconsin, he performed ZIP code level analysis of the region and found that high utilization was occurring in a specific high poverty corridor. Indeed, Milwaukee is the most segregated city in the United States. Excluding the high poverty corridor showed usage in the Milwaukee region to be no different than the rest of Wisconsin, a state with less inequality and more education than the rest of the United States. He performed the same analysis and found the same results in New York City and Los Angeles. In one memorable chapter titled “Riding the A Train”, he demonstrated how life expectancies increased as one went from Harlem to lower Manhattan then went down again after entering Brooklyn.
This fact should not be surprising at all, as it is known to occur in all nations. Poor people are less healthy than middle income people who are less healthy than high income people. Michael Marmot demonstrated this with his famous Whitehall Study on the social determinants of health of civil service workers in Britain. Many mental and physical health problems have been shown to be affected by one’s job rank, education, and even type of contract (temporary or long term) internationally.
Ironically, the one American population that consistently gets medical and social welfare spending is the elderly. And the American health system, shockingly, has the highest life expectancy for those who make it to 65 in the OECD. If we had a similar investment in child and parental welfare, we might see the same results in infant and maternal mortality.
This insight makes the strategy of ignoring prices and poverty and focusing on patient volumes even more dangerous.
Perils of a Volume First Strategy
A volume first strategy focuses on the appropriate utilization of care in hospitals, clinics, and operating rooms. This would involve “integration,” “accountable care,” or “clinical coordination.” In actual practice, it just means mergers.
Solo physicians who made partnerships and then large physician groups are now selling these groups to hospitals. Community hospitals have become part of larger hospital chains. The point of the mergers is to increase negotiating power with insurance companies, to force them to pay the highest rates. Physicians’ practices (now under hospital ownership) become much more expensive, with the same visit being billed with more expensive codes and with “facility fees”. While the doctors and procedure haven’t moved an inch, the charges have increased dramatically.
Typically, the largest of chain hospitals in any given region introduce their own insurance products, which restrict a customer’s ability to use any facility or physician that they do not control. Networks of “preferred providers” create confusing and costly “in network” and “out of network” charges for patients. Patient satisfaction scores, unwieldy EMRs, and clinical documentation initiatives have created a new tier of administrative employees to manage and monitor physicians’ behaviors.
The quality industrial complex has attacked physician’s autonomy and done nothing to reduce the unquestionably unusual part of the American health system by international standards– high prices and high overhead costs. The “P” of Prices is only getting worse. Instead of a few simple macro-regulations of price setting and global budgeting, hundreds of micro-regulations have been unleashed to control physician behavior and patient utilization. The following is a dramatic example.
Many people know about how patient satisfaction scores may have fueled the opiate crisis (leading to the deaths of thousands annually), but few may know about the Hospital Readmissions Reduction Program (HRRP). Heart failure patients are infamous for returning to the hospital soon after being treated for heart failure exacerbations. Medicare thought that reducing readmissions would save the health care system money. This program to reduce heart failure readmissions (volume control) at 30 days and 1 year was successful. The problem? Patients were not being readmitted because they were dying at home. This volume control program potentially killed 5,000 to 10,000 people as volumes decreased and mortality rates increased over 8 years.
The myth that a third of health care spending is wasted due to unnecessary usage as opposed to high prices, high administration costs and high poverty rates in the United States is probably just that, a political myth. The Darmouth-Orszag-Gawande gang have committed malpractice by perpetuating this fable across the political media. It is a fable popular in a Washington eager to justify spending cuts, attacks on clinical autonomy, and ignoring the real work of bringing hospitals, insurers, and pharmaceutical companies to heel.
*St. Luke’s medical building in the Texas Medical Center. CC Image courtesy of Tom Haymes