What Does the Dartmouth Atlas Have to Say About the Politics of...

What Does the Dartmouth Atlas Have to Say About the Politics of the ACA?

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Healthcare reform was a frontline topic during the recent presidential elections. The political warfare and misleading information around the Patient Protection and Affordable Care Act (PPACA), also known as Obamacare, has prevented the public from understanding its intended purpose, and has left many skeptical about its benefits. It is safe to say the general public has little to no idea about the quality of healthcare delivery in their respective regions.

In fact, it is not a far cry to claim that even healthcare professionals might not truly understand the issues facing American healthcare. Thus, most of the public is generally uninformed or misinformed about the population level problems facing the healthcare system. Therefore, it is quite simple for political parties to misguide the public and capitalize on their uninformed perceptions. If the public knew more about the flaws present in the healthcare system, perhaps they would better realize the PPACA is a reasonable start at addressing the failings of our system.

The Dartmouth Atlas Project is an online database which collects Medicare spending and utilization data from around the country. Information gathered from the database has shown immense variation in the way medical resources are utilized by even similar regions, communities, and health care organization. Evidence has repeatedly shown that, from a population perspective, areas that spend more on medical care do not consistently benefit from increased quality of care or patient wellbeing. Variation in the type of care delivered can be attributed to diverse incidence and prevalence of disease severity or the type of care a well- informed patient chooses. Variation in health care delivery is thus omnipresent and expected, because every patient is unique and medical innovation presents a growing number of care options to choose from.

However, much of the variation in healthcare practice is “unwarranted” because it cannot be explained by the degree of illness or patient preference. In fact, the two main drivers of unwarranted variation are the capacity of the local health care system to provide growing number of expensive services that must be utilized, and the physician’s practice habits that may not be evidenced based or patient preferred. The current healthcare reimbursement model propagates variation in care delivery due to the financial incentive of providing more service even when little benefit exists for the patient.

Analyzing Medicare data in a political context, the table below displays spending and service utilization data for the top ten Republican and Democratic states, based on the elections polls that tracked the popularity of each presidential candidate during the race (election polls).

These data tells a clear and simple story. The top ten Republican states have higher Medicare spending than the top ten Democratic states. The rate of hospitalization and surgical procedures are also higher for Republican states. If we investigate a procedure like percutaneous coronary interventions (PCI), the Republican states are performing more PCI procedures with equal mortality benefit compared to Democratic states. The evidence of variation in cost and utilization is a strong indication of inconsistency and inefficiency in the care delivery process. Are the Republican states providing better care by providing more care? We cannot find evidence of for such an assertion. Nor do we find evidence of harm occurring from a lack of utilization to individuals residing in democratic states.

Six of the ten Republican states sued the federal government over the individual mandate and Medicaid expansion earlier this year (Utah, Alabama, Louisiana, Texas, Georgia, and Nebraska), compared to only one democratic majority state (Maine). Yet the Republican states have a higher average of uninsured people, thus inhibiting a greater percentage of their citizens from accessing preventive healthcare. It is possible to draw many conclusions from these data, however it is intriguing that the states that have higher spending and resource utilization supported a Republican candidate who was not a supporter of the PPACA. The intrinsic values of the reform act are to cut down on waste, ensure access to preventive care, pay providers for quality rather than quantity, and reduce unwarranted practice variation and disparities by promoting accountable models of care delivery. Regardless of political stance, minimizing unwarranted variation is an ethical priority and a solution to decelerating the growing of healthcare spending in the United States. Hopefully, the continuing implementation of Obamacare over the next four years will prove to be beneficial.

Dr. Anubhav Kaul is a recent medical graduate from Ross University School of Medicine, and he is pursuing a Masters in Public Health at The Dartmouth Institute of Health Policy and Clinical Practice. Thom earned his PhD from The Dartmouth Institute for Health Policy and Clinical Practice where his dissertation focused on understanding variation in the costs and utilization of care within and between hospitals.

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60 Comments on "What Does the Dartmouth Atlas Have to Say About the Politics of the ACA?"


Guest
Joseph Landers author of Intravenous
Jan 27, 2013

Healthcare reform is good for some people, however I see the implementation of these policies leading to some smaller hospitals going out of business. They too have patients that are uninsured and don’t have the volume of patients that larger hospital do so they have to rely on charging more for their services to recoup the money lost while taking care of those patients. If you happen to have an uninsured patient that needs to be admitted to a nursing home, it could take several weeks to months before anyone will accept the burden of giving free care and the hospital eats the cost.

Guest
Barry Carol
Dec 31, 2012

Bob –

I agree with you on point A regarding the financing of academic medical centers.

On point B, I’m not sure what the best answer or approach is to bring about price and quality transparency. I suspect that it might be easier to find one or two states willing to at least experiment with this. Perhaps it could start with disclosing contract rates for the 20 or 25 most common procedures or, maybe, all outpatient procedures and see how it works. Of course, hospitals are likely to have numerous contract rates with different insurers including more than one for a given test or procedure from the same insurer.

In Massachusetts, an investigation by the AG found large differences in prices paid to various hospitals based mainly on market power and not care quality. The state’s Health Care Quality and Cost Council has collected lots of data on provider contract rates and even has the authority to release it as I understand it. So far, unfortunately, it has declined to do so. If we’re serious about ever being able to bend the medical cost growth curve, somebody has to show some leadership here.

Guest
Dec 31, 2012

Good points Barry. A lot of good points in fact.

Let me add two items as my time is short this AM.

a. Academic centers should get the extra monies they need from general tax revenue, not by overcharging their patients.

As Robert Evans and Joseph White have been saying for many years, tax the total populace rather than taxing the sick.

b. Who in national politics can we ‘enlist’ to promote price transparency?
This will be one tough set of consumer laws to get through Congress.
I am open to suggestions!

Guest
Barry Carol
Dec 30, 2012

Bob –

I think the U.S. is far too big and too diverse for a national fee schedule to work.

I remember reading a number of years back, for example, how much a typical house suitable for a middle management corporate type would cost in various parts of the country. A roughly similar house cost seven times more in suburban NYC, LA or SF than in Lake Charles, LA. Combined state and local income, sales, and property taxes also vary a lot from one state or even region within a state to another.

CMS in its calculation of what a relative value unit is worth attempts to account for regional differences in medical input costs for wages, real estate, utilities, insurance, etc. The relative value number itself is broken into three parts as follows: 52% is attributable to the physician’s technical skill and effort, 44% is intended to cover practice overhead, and the remaining 4% is for the cost of malpractice insurance though there may be special accommodations for high risk specialties like OBGYN, orthopedic surgery and neurosurgery.

Finally, academic medical centers have legitimately higher costs than community hospitals primarily related to educating the next generation of doctors and taking on the most complex cases. They may also see more Medicaid and uninsured patients as well. Rural hospitals often have high costs due to persistently low occupancy rates even if they are the only hospital in their area for many miles around.

Some famous hospitals like the Cleveland Clinic have offered very competitive bundled prices for employees of certain large companies who need heart surgery and the fee includes hotel and living expenses for a spouse or companion and transportation for both the patient and the companion. This sort of intra-U.S. medical tourism has lots of potential to expand.

In sum, I think a combination of price and quality transparency to allow price discovery before services are rendered and tiered insurance networks that require patients to pay more in coinsurance if they want to go to a more expensive provider whose quality is no better would be sufficient to create a much more competitive medical marketplace than we have today or had in the past.

By the way, insurers in Switzerland negotiate as a group and all pay the same reimbursement rate within a canton. There are 26 cantons in Switzerland. Health insurance in the most expensive canton costs about twice as much for the same policy as it does in the least expensive canton. Switzerland is a small country with only about 7 million people and even if has significant regional price variance.

Guest
Dec 30, 2012

Not every city would have competition, I understand.

But would a person drive even 100 miles to save $210 on a test?

In rural areas, people drive $75 miles to a Walmart to save $200 on a lawnmover, they do so 7 days a week.

I envision health courts as a new set of panels, with new rules. Judges would have the right to redue medical bills in cases of price gouging.
It would not be win or lose….. the judge could set a price in the middle.

The patient would not need a lawyer. We would want responsible doctors to be on the panels.

This is less desirable than a national fee schedule, which almost every other industrial nation has had for years. But it is something we can do right now.
Actually I hope that hospitals would be scared enough to agree to a national fee schedule.

Guest
Barry Carol
Dec 30, 2012

On the healthcare pricing issue, I’ve long suggested that we need disclosure of actual contract reimbursement rates so price discovery is possible for both patients and referring doctors before services are rendered. It seems that either state legislators or insurance regulators or both could require this if they had the courage to stand up to both insurers and providers. Such disclosure is currently precluded by confidentiality agreements between insurers and providers.

Insurers claim that such disclosure could actually drive reimbursement rates even higher as providers who are paid less will try to close or eliminate the gap between them and those who are paid more while the well paid providers will resist lowering their rates. The dominant insurers, which presumably have more favorable contract terms than their smaller competitors, also want to keep reimbursement rates private for competitive reasons.

Policymakers can’t expect either patients or referring doctors to identify the most cost-effective high quality providers without the ability to ascertain contract reimbursement rates ahead of time. We don’t need small claims courts here; we need price and quality transparency.

For the umpteenth time, I also reiterate my suggestion that there needs to be regulatory limits on how much hospitals can charge for care delivered under emergency conditions as well.

As for hospitals buying up imaging centers and physician practices, CMS needs to stop paying them a “facility fee” for routine care that can be easily delivered safely outside of a hospital setting. The much higher prices per service, test or procedure as compared to other developed countries is most egregious in the hospital sector.

There is a lot of room to lower prescription drug prices as well but CMS would not be able to do that successfully unless it is willing to establish tiered formularies. The VA, which a lot of people cite as a potential model, has a highly restrictive formulary which many patients, especially the elderly who are disproportionately large consumers of prescription drugs, may resist. That said every Medicare Part D plan that I’m aware of uses a tiered formulary.

Guest
Dec 30, 2012

To Peter1:

In my reform proposals, any patient who buys discretionary care such as imaging could request a cost comparison from all providers in their city.

If a local non-hospital was charging $40 and a hospital outpatient center was charging $250, the outpatient center would be broke in 6 months.

I also advocate health courts, where anyone who was charged $250 could take the outpatient center to a free small claims court and get a refund.

This would bend the cost curve, all right,

Contact me at bob.hertz@frontiernet.net for a summary of my proposed new laws.

thanks

Guest
Peter1
Dec 30, 2012

“If a local non-hospital was charging $40 and a hospital outpatient center was charging $250, the outpatient center would be broke in 6 months.”

bob, there aren’t any left to get lower quotes from. Either Duke or UNC or Alamance Regional have bought or established their own. One choice left for $40 imaging, and some drive from me. Wonder when that will be bought out as well.

As for Small Claims, that’s not easy in this state as the lawyers have locked up even that limited recourse for ordinary citizens. Small claims is only free if you win AND COLLECT. What law would you enact that judges could rule on?

Guest
Dec 30, 2012

…and one more thing. Since this thread is about variations in services, I don’t think that replacing random variations with institutionalized variations by patient ability to pay is the right answer.

Guest
Dec 30, 2012

Barry, if a hospital system wishes to pay its executives millions of dollars, and build posh spas and weight-loss palaces, or gourmet restaurants, then so be it. But in this case they ought to pay taxes first.
The real charity care these systems provide is nowhere near what they would have paid in taxes and it should theoretically diminish under the ACA.
And yes, I know this is a drop in the bucket, just like everything else that is inconvenient for corporations and wealthy folks, but so is one meal-on-wheels for an elderly poor person, and we seem only too eager to cut those drops in the bucket.

Guest
Barry Carol
Dec 30, 2012

Peter1 –

I don’t think the hospital CEO is trying to impress the Board. Instead, he/she is probably trying to impress patients and potential patients, especially those with good commercial insurance and, in the case of the latest equipment and technology, the doctors with practice privileges at the hospital that it wants to keep so they continue to refer their patients to that hospital.

From a patient’s perspective, if they can get a procedure done equally well at the equivalent of a Four Seasons or Ritz Carlton hotel vs. a Days Inn or Motel 6 and the co-pay is the same either way, most will opt for the fancier hospital with the latest equipment and technology even if its outcomes record is no better than the more spartan facility.

This is another area where tiered insurance networks can help to steer patients to the most cost-effective providers. For patients with standard FFS Medicare, though, their co-pay for a hospitalization will be the same no matter which hospital they go to. For Medicare Advantage patients, the fancier hospital may or may not be in the plan’s network.

Guest
Peter1
Dec 30, 2012

“I don’t think the hospital CEO is trying to impress the Board.”

Maybe yes and no. Board sets a direction and looks for candidate to fulfill. Seems everyone is working toward Taj Mahal facility – which sets expectations for patients as well.

Guest
Tim Tanparent, PhD
Dec 30, 2012

Bloated compensation of hospital executives is one facet of the greed at these tertiary fiefdoms. They pressure their doctors to order what is best for the hospital (and the bottom line) and not for the patient. The AMA just issued a warning to doctors in this regard, for whatever that is worth.

Keep the beds churning and the scanners humming and the operating rooms full and the chemo pumping is the corner suite mantra.

Guest
Peter1
Dec 30, 2012

Hospitals also infect the community outside their own walls. Here in the NC, UNC Hospital, our glorious state non-profit, sets up outlier clinics that utilize their empire mentality.

They bought a local imaging center that was charging $40 per shot then upped the price to $250 per shot – cash pay.

Guest
Dec 30, 2012

Barry does have a point, in that even if hospital CEO’s worked for miinimum wage out of community spirit, hospital costs would still be very high.
Most American hospitals are overbuilt, over-equipped, and overstaffed regardless of what their CEO is paid.

Ironically, Medicare has had a lot to do with this cost explosion. The cost of hospital expansion was literally built into Medicare reimbursements until the 1980’s, and it is still reflected in payments for outpatient care.
Incentives matter. No hospital goes broke by charging more, in fact the opposite is still the case.

As Jeff Goldsmith pointed in this blog some months ago, hospitals have been living in an alternate economic universe from the rest of American industry for some time. They keep building new wings and hiring new staff, even while the public which eventually has to pay them is tightening its collective belt.

The upshot is that hospitals may have to learn how to survive on Medicare level payments. In terms of sheer IQ, the doctors and administrators who run our hospitals are among the smartest people in America. This is not an impossible task, just a paintul one.

Guest
Peter1
Dec 30, 2012

“Barry does have a point, in that even if hospital CEO’s worked for miinimum wage out of community spirit, hospital costs would still be very high.
Most American hospitals are overbuilt, over-equipped, and overstaffed regardless of what their CEO is paid.”

Bob, this has more to it than the CEO compensation/cost ratio. Hospital CEOs need to justify their compensation. What better way than to impress boards with empire building – more buildings, more high tech equipment, more billings, more high paid specialists etc.

Guest
Dec 29, 2012

Anubhav
While more difficult to obtain, a comparison between <65 commercially insured population in red vs blue domains will assist in uncovering associations. I too, am skeptical of confounding, but if utilization trends similarly in both groups, 65, political geography remains a variable of potential import, albeit one of many. I see your post as provocative and engaging, but a tad simplistic. Keep digging however.
Brad

Guest
Barry Carol
Dec 29, 2012

Peter1 –

The compensation of BCBS executives, hospital CEO’s and bank CEO’s is what it is. It’s determined by a market mechanism. How you or I think the system should work is largely irrelevant.

As for credit unions, they are very simple businesses that take deposits from members and make loans to members. For what it’s worth, the banks that still owe money to TARP are all relatively small banks. The big banks long since paid their loans back with interest and taxpayers actually made money on them. At one time, savings and loans were also a relatively simple business with low paid executives but they all blew up in the late 1980’s and had to be rescued by taxpayers as well. Banking by its nature is vulnerable to external shocks which can severely erode or even wipe out capital in a compressed time period. Investors in companies including AIG, Lehman Brothers, Citigroup, and Bank of America among numerous others paid a very high price as a result of the financial crisis as I can attest from personal experience with Lehman and Bank of America.

Regarding health insurance premiums, I’m quite certain that BCBS and other insurers are doing the best they can to mitigate cost growth but powerful hospital systems can force higher prices in part to make up for inadequate payments from Medicare and, especially, Medicaid. I’m very skeptical that our healthcare system could work if providers had to accept Medicare rates from all comers even if there were no uncompensated care. It works as well as it does mainly because there is still a significant private sector to shift costs to.

Guest
Peter1
Dec 29, 2012

Last comment from me as this is too much off topic.

Taxpayers had to bail out savings & loan because they were deregulated. Compare how many S&L execs went to jail compared to now.

Banks paid the taxpayer back with our own money.

Guest
Barry Carol
Dec 29, 2012

Peter1 –

Believe it or not, I agree with you that the CEO’s of publicly traded corporations are paid far more than need be, at least in theory.

For better or worse, they way it works (and has always worked in modern times) is something like this: The Board of Directors hires a compensation consultant and tells him or her that we want to pay our CEO a compensation package that will put us in the 50th or 75th percentile (pick your number) in our industry. The consultant prepares a presentation outlining the numbers for competitors and for CEO’s in other industries if desired. The Board puts together a package that incorporates the numbers in the presentation with a mix of salary, bonus, stock awards and other benefits that best fits its culture and what it has done in the past. Then the consultant goes to the next company and gives the same presentation and so it goes.

Back in the 1970’s and earlier, CEO’s typically earned a total compensation of around 40 times the average worker’s salary in that company. Today, it’s more like 400 times. In the earlier period, stock options were not a big deal because the Dow Jones Average traded as low as 575 in 1974 and ranged only between the low 500’s and 1,000 between 1960 and 1982. There just wasn’t a lot of money to be made in stocks, at least for the most part. Indeed, the DJIA didn’t even take out its 1929 high of 369 until 1954. It’s now a bit over 13,000 as you know.

When stock options became a bigger piece of compensation in the early to mid-1980’s, Boards never contemplated that stocks would explode in value relative to where they traded for the prior 20 years but the damage was done. Then, in 1993, Congress exacerbated the issue by passing a law that said that corporations could not deduct more than $1 million in compensation as a business expense for an individual executive unless it were performance based. Stock options and, later, restricted stock awards became even more generous after that.

At least in the hospital sector and in higher education, stock based compensation is not an issue for CEO’s and Presidents of those organizations. In both the for profit and the non-profit sectors, however, the compensation of the CEO is simply not a factor in how much is charged for the end product no matter how good a sound bite it makes when liberals rail against it.

Guest
Peter1
Dec 29, 2012

Barry, non-profit hospitals should operated like a credit union, at least my credit union (SECU-NC). They’re in business to serve their depositors and the CEO makes no where near what typical bank CEOs make. Guess how many credit unions were involved in the great bank heist of 2008? Guess how many credit unions needed TARP money?

Shouldn’t BCBS executives be paid according to how much they saved their premium payers instead of how much non profit profit they make?

Everyone “rails” when premiums continue to escalate at compounded rates while those making the health care decisions continue to get fully covered health care.