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Cost is the Big Item in the Value Equation of Health Care and Here's Why

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The main tension about healthcare centers around medical need, quality, access and cost-efficiency, i.e., value, especially affordability.  To increase "value," one must raise quality, improve access and/or lower the cost of care. The latter, however, is an elusive goal; it is the elephant in the room. 

The unrelenting rise in medical expenditures has nearly broken the back of so many consumers, "outstripping any growth in worker's wages" and net buying power.  (See "Health Insurers Push Premiums Sharply Higher," NY Times pub. Sept. 27, 2011., esp. the graph,; It is this increasing disparity that has made the U.S. less competitive in the world market.  

Why has it been so difficult to improve the value of care?  The short answer is that the incentives are not well aligned in health care to affect quality, cost and access, simultaneously.

These factors are critically linked in both theory and in reality.  The Value Equation shows how they relate to each other and to you.

For instance, if doctors are paid fee for service, we're paying for piecework and the economic incentive in piecework is to generate pieces.  If doctors are paid prospectively (e.g., capitation or for a defined episocde of care), they may discourage services that, so to speak, they perceive comes out of their pocket.  If patients have to pay out of their pocket and they have limited cash flow, they may make compromises - delay care, get the cheaper drug or not get that drug at all.

Make patients informed consumers? It doesn't work even for doctors who are patients.  In one's hour of need, will you be sifting through comparative statistics to decide which test, doctor or emergency room to use?

Costly Care and a Dearth of Meaningful Information

Even the health care manager is disadvantaged by not having good information, especially at the point of contact with the patient.  Who has access to specific outcomes data when they need it?  Even if they had it, are those data acuity-adjusted? Controlled for socio-economic differences?  Who really knows what works and what does not, which doctor or team gets the best outcomes, which insurer provides the best coverage with the least hassle?  The fundamental and most practical way to change the way practitioners inflate the cost of are is simply to identify in as close to real time as possible, that which works in health care and promote this salutary efforts; the obverse is also fundamental to controlling costs, and, not incidentally reducing unwarranted variation and aligning incentives is to stop rewarding unnecessary or inappropriate care by looking at patterns, exceptions, episodes of care and forecasting (and tort reform without which I surely order too many tests). Please do a "cost of care" search this site,

And, to clarify what I mean by "disadvantaged," most everyone is familiar with the balloon analogy--When you squeeze the healthcare balloon in one area of interest, it pops out elsewhere.

Cost-shifting and cost-sharing?  Hardly the answer here.

I'm worried.  What is the cost of care doing our fragile economy--Health care as an industry is propering and we are getting less from it. (Compare our mortality statistics to any other industrialized country.)

It's not "good news when you look into what type of health jobs propelled this strong growth. Most of it, the study authors conclude, came from an increase in administrative positions, jobs like billing specialists and office support staff. It’s quite likely that more people with health insurance mean more resources necessary to bill insurance companies and administer the business of health care.

An increase in those kind of jobs is great for employment. But it’s not so great for health care costs. It’s part of the reason that American doctors have administrative costs four times higher than their Canadian counterparts. It likely contributes to growing health care costs that have eaten up nearly a decade worth of increased earnings. And it’s why, at the same time that health care jobs increase, we also have graphs like this:

Ref. Sarah Kliff, writing at Ezra Klein’s blog


Outrageously Overpriced

It's old news, importantly repackaged by the Commonwealth Fund —We spend more on health care than 12 comparable, industrialized countries but, we seem to get less for it, i.e., our per capita cost is $8 grand compared with, for example, "Norway and Switzerland, spending a little more than $5 grand.  Our charges are rediculous and the variation in sharges unexplainable and, comparent with elsewhere, intolerably high.  We, however, provide less doctor consultations; we have less hospital beds, shorter hospital stays, variable quality and our results, are not outstanding, if better at all.  OTOH, we pay dearly for medication and medical services, and our love affair with expensive technology—'Forget about it'—it has no bounds. The prevalence of obesity in our country is ponderous, while our population is clearly more sedentary.

D. A. Squires. "The U.S. Health System in Perspective: A Comparison of Twelve Industrialized Nations," The Commonwealth Fund, July 2011.

R. Zimlich. "U.S. Outspends Other Industrialized Nations on Healthcare With Mixed Results." Medical Economics  May 23, 2012

I asked a colleague on a mutual advocacy group, to please elaborate on the fact that our pricing is out of wack and unsupportable and then there's the technological Imperative.  And, our outcomes are no better, sometimes worse than othe countires with more affordable health care....,

The marketplace is where these obscene price disparities will be brought to light. Do you get optimal care? Is it cost-effective? Does it benefit?

The ACA has provisions for pay for performance, but little in the way of performance measurement and certainly nothing in terms of feedback in real time (specifically, at the point of contact with the patient in ALL settings).  

I am always "HARPing" (with reference to a Board I am on, on 'measurement and management,' incentive realignment and giving a hand up to primary care.  Is it happening somewhere; maybe I missed something?  Without these management techniques and the way we pay docs and systems of care, reform's merely a shell game !


And here's an update:

At a food poisoning outbreak in Upstate New York, a NY Times columnist uncovered that some patients were being charged as much as 200 times the manufacturer's 44¢ to $1 retail price per pint of saline + another change for an "IV."  That's, $546 for 6 liters of water and 54 grams of salt!

 Nina Bernstein, "How to Charge $546 for Six Liters of Saltwater." NY Times,  Published: August 25, 2013 [subscription required}

OTOH, there's hope:

See: "Study: Pateint-Centered Medical Home quality, costs linked." Modern Medicine  6/26/2012 [Care is evaluated in 6 subscales]

  1. access/communication,
  2. care management,
  3. external coordination,
  4. patient tracking,
  5. test/referral tracking, and
  6. quality improvement.

Quoting the venerable Dr. Arnold S. Relman of the New England Journal of Medicine fame, "This problem [the lack of 'practical suggestions'] is a direct result of "the inappropriate organization and perverse economic incentives of a health care Top Ten delivery system that motivates physicians and medical institutions to maximize their income rather than focus on optimal patient care.”


In a TED talk, Stefan Larsson rhetorically asks, "Can healthcare get better, and cheaper, if doctors learn from each other in a continuous feedback loop?  Listen to Ted Talks: "What Doctors Can Learn From Each Other."

Note: Larrson refers to Michael Porter and Elizabeth Teisberg's book, Redefining Health Care, where they introduce the notion of a "value agenda"–the critical factors of cost, quality and access are noted to have reached distorted proportions, and this calls for a value-based, competitive approach.  "Value" Larsson defines as outcomes that matter to patients over cost per patient.  Incidentally, "cost" can mean lowest cost, optimal spending, necessary or unnecessary services, and he even mentions avoidable suffering at the hands of surgeons!

Affordability/Benefit: Top 10 Challenges to Managing Cost, Quality, Access

  1. Value: to enhance it, practitioners must be aligned to minimize Cost while maximizing Quality and Access.
  2. Pay for what works well. Money's the main stimulus: management suffers from always having inadequate provider incentives
  3. Information technology (IT) It has limitations—live with it! And, don't expect it will save money; in fact it may do the opposite.   Regardless, understand the difference between data and information because information may improve the cost and quality of care, applied well, but data that's not imnformation -- all you may see from data is its use in upcoding and as justification for charges.*
  4. Measure and manage; this is the essence of managing care and improving care management; it requires that data be translated into information (If there's no EHR data, use claims data).  Use it to build—
  5. Episodes of carea fundamental of health care statistical analysis; it is a grouper technique that shows all care over time, regardless of setting and it is case-mix or acuity-adjusted
  6. Outcomesthe key parameter of what we want to reward; clinical results, strangely, are neither tracked nor optimized in most health care practices
  7. Case or disease management
  8. Guidelines/pathways—medical and surgical
  9. Lack of patient loyalty or engagement—Not knowing who's in your panel or health plan, patient attribution is one of the main stumbling blocks of today's version of managed care--Accountable Care Organizstions and Medical Homes. Other obstacles are  job-lock, denying coverage for 'pre-existing conditions,' waiting periods, barriers to access such as heavy co-pays and deductibles, employer-based insurance in general and state border restrictions--what nonsense)
  10. Defensive medicine is a distraction and it is insidiously costly, despite claims to the contrary

* See "In 2nd Look, Few Savings from Digital Health Records," by Reed Ableson and Julie Oreswell, NY Times, Jan. 10 2013; it speaks to a RAND Corporation study, the "2005 Report"  that grossly overstated expected savings.

The above "Ten challenges"all speak to the critical management issue of incentive alignment.  To elaborate....The commonality of various payment methods such as pay-for-performance (P4P), capitation, bundled payments, withholds/risk pools, and shared savings is that there's to be some degree of financial accountability for medical expenditures.

"To be successful under budget-based payment models, physician practices must be able to accurately predict the future utilization of services by their patient populations and how much it will cost their practices to deliver medical services. Then the key is managing patient care in a way that sticks to the budget."

"Some mix FFS payments with an opportunity to earn additional money if quality and cost metrics are met (shared savings and pay-for-performance [PFP]), others offer only set flat rates for either a package of services (bundled payments), pay a fee each month on a per-member basis (capitation), or set aside some portion of contractual payments, which are paid only if providers meet pre-established goals (withholds and risk pools)."

Lisa Zamosky. "Fractured Income; Emerging reimbursement models pose new risks." Medical Economics. Jun 10, 2012 [Last accessed 12/24/2012]


Artificial Intelligence and Patient Engagement

"A recent article in The Commonwealth Fund blog, 'Envisioning a Digital Health Advisor,' raises the question of being able to use smartphone apps to get real-time, accurate and personalized guidance for health concerns. While one can envision the convenience, affordability and peace of mind that would result from their use, such services face a number of hurdles before they become reality. As a result, the 'digital revolution' has not yet greatly affected most people’s interactions with the health care system.

These challenges fall into two main categories: fiscal/policy and technology....

"A new generation of apps can be built to make these AI-derived recommendations useful. They need to be easy-to-use, consumer-grade apps that can connect to the aggregated data store and the AI analytics engines that sit on top of that. They can empower consumers / patients, and reduce the demand burden on clinicians. Will they replace clinicians? No, of course not. But they will help filter the demand to those who truly need to be seen, while empowering patients with real-time, believable and personalized guidance for the more common things in day-to-day life."

Rowley R. "How can Artificial Intelligence in healthcare help patient engagement?" June 22, 2016