Healthcare economics work differently than other industries, and those differences have created a real conundrum.
Supply matters. In most industries, having more supply drives prices down, and vice versa. Oranges cost more if Florida orchards are hit with a frost. Here is a headline from last January: “Florida frost fears send orange juice jumping eight percent.” When there is a bumper crop, prices drop. The same is true for cars, clothes and most everything else…except healthcare.
Healthcare doesn’t play by the rules. In healthcare, increasing supply drives costs up. When one hospital acquires a new technology, their competitors are likely to follow suit soon after, resulting in more tests being done. The first practice to offer screening cardiac scans is the harbinger for screening cardiac scans becoming commonplace in a community, even though it has been proven they don’t save lives. New medicines that cost 10 times as much replace ones that worked yesterday—and would still work well today.
Size matters. In many industries, being bigger creates economies of scale and gains in efficiencies that allow prices to become more competitive. Healthcare doesn’t play by this rule either. The 2010 study, Examination of Health Care Cost Trends and Cost Drivers, found that market leverage was the only correlation with higher price—not teaching status, quality or amount of charity care.
The same is true of health plans. According to the 2010 Consumers Union report, How Much is Too Much?:
“Health Care Service Corporation (HCSC), a mutual insurer doing business as Blue Cross Blue Shield of Texas, Illinois, New Mexico and Oklahoma, raised rates in Texas on some individual and family plans multiple times in a year from 2007 to 2010. Some Blue Cross Blue Shield of Texas rate increases exceeded 20 percent. In Illinois, the company raised rates 10.2 percent in 2007, 18 percent in 2008, and 8.4 percent in 2009 for some customers, and in New Mexico, some customers faced annual increases of more than 20 percent since 2007. At the time of these increases, HCSC’s surplus grew from $6.1 billion in 2007 to $6.7 billion in 2009, up from $4.3 billion just four years earlier in 2005. The company’s surplus is five times the amount that regulators consider to be the minimum necessary for solvency protection.”
Bigger is better for providers and health plans. Bigger organizations get paid more, and bigger health plans command deeper discounts from providers. The deepest discounts come from the smallest providers negotiating with the biggest plans. Think solo practice and Blue Cross Blue Shield.
Root Cause: Perverse, Conflicting Incentives
A 10,000-foot view helps explain the paradox. One root cause is the fact that healthcare stakeholders operate independently, and their interests clash.
Hospitals, physicians and other clinicians are “providers,” in healthcare parlance. Providers get paid to provide services. More services mean more money. Pressure to do more is pervasive and insidious. Practices that own a CT scanner have been shown to order seven times as many CT scans as physicians who do not. Physicians who worry about being sued order tests that patients don’t need in order to protect themselves.
Hospitals get paid when their beds are full. They can be slow to implement changes that prevent patients from being rehospitalized. A recent analysis of Medicare data found that 19.6 percent of Medicare beneficiaries—nearly one out of every five—were readmitted within 30 days of being discharged from the hospital. In the future, Medicare plans to stop paying for unnecessary hospital readmissions.
Employers, states and the federal government pay for care that is becoming less affordable each year. Healthcare premiums eat into profits and state and federal budgets. More costs are being borne by employees through higher co-pays and larger premium contributions. Rising Medicaid costs threaten state budgets for education, roads and other important programs. Employers want healthcare costs to come down…NOW!
Health plans process claims and administer healthcare benefits. Self-insured employers pay their plan administrator a percentage of processed claims. Fully insured employers pay a set amount per person. Health plans earn income by enrolling members. Over the long run, higher costs also mean more income, because next year’s rates are based on last year’s experience. Cost increases get passed on to employers as higher premiums. Health plans have a limited set of strategies for reining in costs. Most are expensive and unpleasant, like requiring providers to get permission to order tests, prescribe medicines or admit patients. Some plans hire staff to review claims to determine if services were appropriate and should be paid for; and some, notoriously, search for loopholes in patient histories that allow coverage to be denied under pre-existing condition clauses. Individually, plans aren’t very effective in getting practices to redesign patient care.
Patients get caught in the middle and generally believe that more is better, though studies find the opposite to be true. The parts of our country where patient results are the best actually deliver less care, not more.
Root Cause: Lack of Transparency
Consumers who can see what they are getting and what they are paying invariably drive quality up and costs down. We rely on research to help us shop around for the best value on just about everything but healthcare. Transparency shines a light on cost, quality and service. Dr. Donald Berwick, the administrator of Centers for Medicaid and Medicare Services, coined it the “Triple Aim.” Peoria’s own Dr. John Whittington is a principal author of the original Institute for Healthcare Improvement “Triple Aim” whitepaper.
In 1913, U.S. Supreme Court Justice Louis Brandeis wrote, “Sunlight is said to be the best of disinfectants; electric light the most efficient policeman.” He was referring to the benefits of openness and transparency. Transparency in healthcare pricing and quality is the modern-day equivalent of sunshine. “A few rays of light can generate interesting changes in behavior.”
The most credible and respected organizations operate in an environment of full transparency. Organizations who feel uncomfortable under the bright light of public reporting often have something to hide.
Healthcare is data-rich and information-poor. Health plan claims data can be used for reporting, but health plans are limited to data on their enrollees. Patients within practices have different health plans. Multiple separate reports, each covering a few patients, lack reliability and may report widely differing results. Individual health plan reporting is unhelpful at best and paralyzing at worst. The public needs information about all practices. Health plan data silos are too small to accomplish that.
National public reporting efforts stepped up in 2006 when HHS Secretary Michael Leavitt outlined a four-pronged initiative known as “payer power,” which included a call for insurers and third-party administrators to disclose the cost of the most common medical procedures. “People have no way of knowing what they are going to be charged or who offers the best quality,” he said. “Every consumer should have a reason to look for the best value. None of that is true right now.” That didn’t happen, but the effort laid the seeds for public reporting programs around the country. One of these is Quality Quest for Health of Illinois.
Quality Quest for Health of Illinois is a not-for-profit organization focused on improving the value of healthcare and the health of communities. Quest provides a neutral forum for Illinois stakeholders to come together to tackle tough issues and find win-win solutions. Quest publicly reports 26 different quality scores about practices and hospitals, from affordable medication practices to screening for breast cancer to colonoscopy procedures. Health Alliance Medical Plans, Personal Care, Caterpillar, Methodist and Medicaid remove patient identifiers from their claims data and share it with Quest to create these reports. Other Illinois health plans are not currently participating. Methodist Medical Center, Central Illinois Endoscopy Center, OSF Saint Francis Medical Center, Decatur Memorial Hospital and Decatur Digestive Disease Center each contribute data directly for the colonoscopy reports.
What healthcare is competing on today isn’t making healthcare more affordable or better for patients. This needs to change. Transparency and collaboration are the secret sauce. By working together, Illinois organizations are making healthcare better in our state. We will have a modern healthcare system when consumers have broad access to health pricing and quality data so they can make informed choices.
You can help by asking your employer, your provider and your health plan to join Quest, and by using the public reports at qualityquest.org. Healthcare cannot transform without public data, and transparency takes collaboration. iBi