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 Responses for “What Does the Dartmouth Atlas Have to Say About the Politics of the ACA?”

  1. john says:

    interesting idea.

    would like to see data for all states.

    where does Florida rate? North Carolina? New Jersey? Arizona?

    I’m not sure looking at how a state was leaning during a presidential election is the best metric to use here, although I get why you’re using these numbers. I’d be more interested in knowing the affiliation of the governor (better) or some sort of comprehensive political scoring system (even better) …

    / j

  2. Bill says:

    The reference to the contradiction re states rights is fascinating. “Get the federal government out of our local affairs” gets punted to the federal government by Governors who didn’t like the turnout of the November election.

    One of many contradictory messages in today’s political landscape. “Get the government out of my life” becomes “except in bedrooms.”

  3. bird says:

    “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”

    So which comes first, the poor health and wellbeing causing those locations to spend more or does spending more cause poor health?

  4. SJ Motew, MD says:

    Interesting information. Lots of potential confounding variables, for example what is the correlation to socio-economic status, education, ethnicity? These have all been shown to impact total healthcare spend and also may correlate to political leaning. Without a robust matched cohort and multiple regression analysis, not sure the simple conclusions stated in this post can be supported.

    In addition, the observation:

    <>

    Lacks causality. For example, how do we know that without the higher PCI utilization the mortality would not be higher in GOP states?

    • SJ Motew, MD says:

      Oops..meant to insert the following in between marks :

      “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”

    • Anubhav Kaul says:

      Thank you for the comment. Your point is absolutely valid. However the data does adjust for age, race and sex at the least.
      I would like to clarify that the data is not exact science and the conclusions can only be hypothetical. The main point I would like to get across is that just like how the public knowledge about the ACA is lacking, so is knowledge on how one state utilizes its medical resources compared to another. If we can control this variation, it would answer a lot of problems.
      Idealistically, I would prefer the healthcare debate to not be political, but it just is.

  5. Interesting way to look at things, but why this consistent assumption that nobody other than “experts” understands the issues facing our health care system? Or is it that those who disagree are by definition not understanding?

    The Dartmouth data has all sorts of question marks attached to it and its value has been debated often enough, particularly after Medicare revised its own numbers to pretty much conflict with the policy defining tale of two cities (McAllen & El Paso). We do have variations, but it is not completely clear what those are, and even less clear why we have them, and anybody’s guess whether we should have them.

    Following the Dartmouth philosophy on recommending change, I guess this article should recommend that in order to reduce costs, everybody should vote Democrat….

  6. Whatsen Williams says:

    Based on the NY Times front page report, the computerization attempt to create vanilla care and eliminate variation has backfired, dramatically running up expense without improvement in quality. Dartmouth Atlas has promoted this cost ineffective system of care, going from bad to worser at quicker speeds.

    If the EMRs were any good, outcomes would improve and costs would decline. What do the Atlas folks have to say about that, and about the newly minted safety program for HIT from HHS?

  7. legacyflyer says:

    The Dartmouth data is very interesting data and I think we should look at it carefully to see what kind of conclusions we can draw.

    First, it is clear that the practice of medicine varies from one part of the country to another – and unless our population varies in parallel – someone is not practicing EBM or the “evidence” is not as clear as we might like.

    A simplistic analysis would look at data on; angioplasty, hysterectomy, C-Section, etc. and conclude that places that have high rates are doing too many. Of course the other way to look at it is that places that have low rates are doing too few. And of course nobody would say that regions that have higher immunization rates or better compliance with screening guidelines are doing too much compared to those with lower rates.

    A more sophisticated analysis would look at (for example) angioplasty rates and compare them to mortality from coronary artery disease. Again, if an increased usage didn’t produce any improvement in mortality, one might reasonably say that the increased angioplasty was “unnecessary” or not “evidence based”.

    The problem is that mortality is not the only endpoint. Take the example of differing rates of total knee replacement – let us suppose that they are more commonly performed in the Northeast (generally high usage) than they are in the Upper Midwest (low usage). How do we evaluate who is doing too many and/or who is doing too few? There is no mortality data associated with this (other a small amount of peri-operative mortality), the desired endpoint is mostly symptomatic and subjective. An older patient with bad knees becomes more mobile and is in less pain. So are we doing too many knee replacements on the East Coast or too few in the Upper Midwest? And there are a whole lot of other treatments/diseases that fit in this category.

    The other statistic that might be interesting to look at in parallel to the Dartmouth data (and maybe this has been done – I have been to the Dartmouth website, but I can’t say I know it well) – is how the number of doctors affects the rate at which certain procedures/tests are done. For example, the reason that the upper Midwest may spend more is that there are fewer docs. And when there are fewer docs, maybe they continue to do what really needs to be done, but cut back on elective stuff.

    Finally, analysis of the Medicare data needs to be matched for a variety of factors – some of which are not obvious. I can easily imagine a primary care doc in the Upper Midwest telling a Minnesota farmer that he doesn’t need to go to a specialist or have a fancy test while a primary care doc in New York tries to tell the same thing to an obnoxious New Yorker (who has a lawyer in the family) with much different results.

    Finally, one clear weakness of the post was the relationship between the Dartmouth data and the ACA. Exactly how is the ACA going to correct the problem? Is the magic fairly dust of ACOs going to cure all ills? Tell me more …..

    • Anubhav Kaul says:

      Thank you for such great feedback. I will be the first to admit that our methodology may not be accurate; it could just be one big ecological fallacy. However, as you stated above, there are regional differences, and that has been proven repeatedly. Is the variation in medical practice a contributing cause of the healthcare crisis? One can argue that.
      How can the ACA help? Well that is the million dollar question and a work in progress, but organized models of care, along with payment reform that limits supply sensitive care is a potential strategy. Not to the mention the 30% waste in the system that can be minimized. Dr. Jack Wennberg, the founding editor of the Dartmouth Atlas, who has dedicated his entire career to understanding practice variation aptly talks about possible solutions, in his book “Tracking Medicine”.
      Additional perspective –
      http://www.nejm.org/doi/full/10.1056/NEJMp0910001
      http://www.nejm.org/doi/full/10.1056/NEJMp0909327

      Regarding your comment of supply of doctors/services – One study does come to mind: http://www.ncbi.nlm.nih.gov/pubmed?term=wennberg%20variation%20workforce
      In contrast, a higher supply of primary care physicians is associated with better outcomes in the Medicare population. http://www.ncbi.nlm.nih.gov/pubmed/21610242

      • legacyflyer says:

        Thanks for those references. I will look them up and reply.

        I know that you don’t want to stick your neck out (and get it chopped off) on this blog, but what do you think are the most significant factors influencing the varying usage statistics?

        • Anubhav Kaul says:

          Down below, the discussion is looking at valid possibilities…but conceptually speaking….

          The three main drivers of unwanted variation can be identified as lack of effective care, discord between provider preference and patient preference, and over-utilization due to abundant supply of medical care services. Solutions to unwarranted variation must address these drivers individually and holistically.
          Variation in the use of effective care can be due to differences in clinical knowledge and differential rates at which providers incorporate new guidelines into their practice. Medical science is an evolving field and clinical knowledge must be updated regularly. For certain clinical scenarios, like the use of PSA screening and prostatectomy after age 80 years, the effective care guidelines are not established. Thus, providers and patients must come to a preference based decision based on inadequate evidence. The Congressional Budget Office estimates that up to 30 percent of care delivered in the United States goes toward unnecessary tests, procedures, doctor visits, hospital stays and other services that may not improve people’s health; sometime even causing harm. Medical societies must continue updating physicians and caregivers about best practice guidelines. The ABIM Foundation is spearheading an initiative called “Choosing Wisely”. The campaign is a challenge to various medical specialty societies, which asks them to identify five tests or procedures commonly used in their field whose use is questionable. The goal is to initiate awareness and strategies for effective use of health care resources. Such initiatives promote good practice and accountability from the provider end.
          Variation in preference sensitive care is a byproduct of ineffective patient-provider communication. Providers, more often than not, tend to take a paternalistic approach towards their patients and “prescribe” care options without exploring what the patient really wants. The patient, in turn, thinks that “doctor knows best”. This is the flaw in communication, and shared-decision making is the answer. Shared-decision making helps limit provider preference and engages the patient in delineating their plan of care. The process can be enhanced by tools, such as decision aids, which can help educate the patient and allow them to make an informed choice. The goal is to achieve patient centered care and respect patient preferences. For example, the tenets of palliative care firmly adhere to these principles and should be incorporated earlier when managing patient with life threatening illnesses or at the end of life.
          Overutilization of medical care is a result of supply availability and market competition, and is compounded by the above problems. Lack of effective care guidelines may lead to flexibility on the provider’s part to perform services that are instigated by a fee-for-service system, leading to non-patient centered care. The solution for this problem lies in policy. The Affordable Care Act promotes organized models of care, such as Accountable Care Organizations, to achieve quality and efficiency. Bundle payments and “shared-savings” based payment strategies will prompt providers to be more mindful of providing effective care at an appropriate cost. Providers will be rewarded for meeting quality criteria and improving the health of their patient population. In such systems, hopefully, supply will be dictated by “true” demand.
          The foundational solution to all three drivers of unwarranted variation is the code of medical ethics. Regardless of scenario, providers have the ethical responsibility to respect patient autonomy, act in the best interest of their patients, “do no harm”, and approach all patients with fairness and equality. As the stipulations of the health care reform further materialize, physicians need to ignite their capacity of ethical doctoring and help their patients and the failing system.

          • legacyflyer says:

            Thanks for your response. I was struck by how much of it was couched in “health care speak”.

            Your remedies are the standard ones; an appeal to “providers” to be good girls and boys and “choose wisely” about tests and treatments and a faith that ACOs will solve the problem.

            We will see how effective ACOs are and how well accepted they are by patients. Since as far as I can tell, an ACO is just an HMO with an EMR, I am skeptical.

  8. Barry Carol says:

    I don’t think politics is at all relevant in this data.

    Seven of the 10 Republican states are in the south. OK is also in the southern tier but is more western. TX is both southern and western. None of the Democrat states are in the south or the southwest. Obesity rates are well above the national average in the southern states and people are poorer as well based on average income per capita even after factoring in the lower cost of living.

    In the Democrat group, Hawaii is more akin to Japan than the U.S. given their population’s heritage and diet. The incidence of heart disease, for example, is far below the national average. At the same time, the large Mormon population in Republican Utah probably drives a healthier lifestyle and lower than average medical spending there. The conservative practice pattern culture at Intermountain Healthcare is also a helpful factor I believe.

    The data are probably influenced by everything from differences in physician practice patterns to the amount of fraud to the malpractice litigation environment to the prevalence of academic medical centers and number of rural hospitals that operate with low occupancy rates. Like I said at the outset, politics has nothing to do with it.

    • Peter1 says:

      “Obesity rates are well above the national average in the southern states and people are poorer as well based on average income per capita even after factoring in the lower cost of living.”

      “Like I said at the outset, politics has nothing to do with it.”

      You’re kidding, right Barry? All of the above is politics. Would you argue that segregation in the South was also not politics? Anti union legislation in the South is not politics?

  9. Bob Hertz says:

    The Dartmouth data also suggests that those states which more uninsured working people will have higher Medicare costs as those persons turn 65.

    That certainly makes intuitive sense. People who have crummy insurance or no insurance when they are 60 years old will postpone expensive care until Medicare comes in to pay for it.

    Also, the Southern and Western states have a greater prevalence of beef-and-bourbon diets, at least judged by restaurant and grocery store offerings. That will create a need for more heart care under Medicare.

    Neither of my observations are scientifically grounded, although I suspect they can be proven out.

    In the defective American model of state vs state competition, the red states have attracted industry by opposing unions and minimizing Medicaid.
    This has the byproduct of creating a less healthy working population.
    Time after time, the Red states rely on the very federal spending that they claim to oppose.

  10. Dr. Mike says:

    My simplistic hypothesis: Warm states and the industrialized East have higher utilization – i.e. places where there are retirees have higher utilization. Not sure why this is surprising. Yea you can adjust for age,sex, health status, etc, but obviously there is something about treating LOTS of retirees that makes you more likely to order tests. I don’t think it is political at all.

    • Peter1 says:

      “but obviously there is something about treating LOTS of retirees that makes you more likely to order tests.”

      Obviously? My take of the data is that it looks at Medicare recipients, which would assume retirees. It does not appear to total the tests, but does it per capita – that should adjust for higher number of retirees in the south/west. If anything, the northern retirees (assumed to be healthier?) would make the southern locals look better.

      Anubhav Kaul will have to comment.

      • Anubhav Kaul says:

        You are correct, We are comparing rates rather than absolute numbers.
        If we had to compare total number of Medicare beneficiaries by state, you can refer to:
        http://www.statehealthfacts.org/comparemaptable.jsp?yr=255&typ=1&ind=290&cat=6&sub=74
        You will notice that California has the biggest Medicare population by far.
        Regarding the health of individual state populations, that is obviously a questionable issue and could explain some of the variation seen.
        However, it is interesting to note that New York, Massachusetts and California are states that have a high supply of medical care, yet they are able to keep the cost of care per Medicare beneficiary below $10,000.
        Will the ACA help high utilizer states curb their high costs? That will remain to be seen.
        Again, the culture of medical practice is not inherently political but the current solution to the healthcare crisis is politically tormented. States are opposed to the ACA just because of party allegiance. But these very states may stand to benefit the most from continued implementation of the ACA.

        • Dr. Mike says:

          Are you accounting for the ‘snow-bird’ effect? I have heard internists complain about the mega workups their patients get from florida cardiologists – are not those patients counted as residing in NY but the cost to CMS counted as coming from Florida? I don’t think you have disproven the effect that numbers have on rates.

          • Anubhav Kaul says:

            Regarding the “snow-bird” effect – All services used will be reflected under the location of residence (in this care NY), regardless of where the services are obtained.

  11. southern doc says:

    I think Dr. Mike makes an anecdotally valid point.

    If one has a patiient mix of healthy young people and chronically ill old people, all scheduled every 15 minutes, you’ll steal time from the healthy and give it to the sick.

    If all your patients have 10 medical problems to deal with in 15 minutes, it’s going to be very much a move ‘em in, move ‘em out situation: less time on history and exam, more tests ordered to compensate, more follow-up visits, more referrals. It adds up.

  12. Barry Carol says:

    I think the culture of medical practice should not be underestimated and can vary significantly even with in a state. For example, practice patterns are much more conservative at UCSF than at UCLA and utilization in Southern CA is generally higher than in Northern CA where, by the way, HMO’s are well accepted. Northern FL is a different (more conservative) world than Southern FL, especially Miami-Dade County where fraud is a huge issue. Utilization in NYC is much higher than it is upstate and fraud is higher as well. There are lots of academic medical centers in NYC. In MA, the Boston metropolitan area has much higher utilization than the rest of MA in part because of the prevalence of academic medical centers. Interestingly, other data show that Massachusetts has the highest per capita spending in the country across its entire population.

    Separately, Bob Hertz’ point about pent up demand among newly eligible Medicare beneficiaries who were previously uninsured has some validity though it usually runs it course after the first couple of years. Medicare Advantage insurers report higher claims on average in the first year of eligibility than in subsequent years though they’re not sure how much of that to attribute to the pent up demand phenomenon

    In the upper Midwest, Medicare spending per capita is well below the national average and the primary reason, I believe, is conservative practice patterns. Again, politics has nothing to do with it.

  13. legacyflyer says:

    Barry,

    I think you are right about practice patterns differing.

    The question is: “Why do they differ?”

    Possibilities:

    1) Number of docs per capita. More docs available means more mouths to feed means more procedures/tests/etc. This may explain Boston, NYC and Miami.

    2) Malpractice risk. Although this has not been proven, it is certainly a plausible reason to explain increased usage. Again, NYC and Miami are high risk. Not sure about Boston

    3) Intrinsic health of the population. Since many of the Southern States have higher rates of poverty and poverty is associated with poor health, this may help explain some regional variation.

  14. Barry Carol says:

    legacyflyer –

    I agree with you. To your list, I would add the following:

    Doctors as entrepreneurs – This is the McAllen vs. El Paso phenomenon that Dr. Atul Gawande described within Texas in on of his New Yorker Magazine articles. Both locations are similar in socioeconomic makeup if I remember correctly. I’m not sure if the litigation environment differs regionally within TX or not outside of the largest cities.

    I’ve also read that a very large percentage of physician owned surgery centers are located in Texas. HCA, the largest for profit hospital chain, has half of its hospitals in TX and FL, both high usage states. Finally to the extent that hospitals and large physician practices base bonus compensation in large part of relative value units billed, there are likely to be more relative value units billed by those docs than there would be otherwise.

    At a conference I attended a few years back, a Medicare expert put up a slide that showed that Medicare spending per capita was higher in large cities than in less populated areas. For the commercially insured population under 65 years old, it was exactly the opposite. There are a lot of complexities here. That’s for sure.

    • legacyflyer says:

      Barry,

      I am very familiar with the concept of doctors as entrepreneurs. Without trying to start an inter-specialty battle, the data on usage of physician owned/self referred imaging equipment vs. referrals to facilities from which the referring doc gets no financial benefit is striking.

      Still, I don’t think this explains everything, or even the majority of the variance.

      I still believe that most docs are sincere and trying to do the best they can within the framework of malpractice risk and (sometimes unreasonable) patient expectations.

    • Barry,
      Earlier this year, Medicare has revised its data and published it:

      “The Centers for Medicare & Medicaid Services’ analysis offered a very different assessment than did the Dartmouth Atlas…….
      ………
      Hospitals in McAllen, Texas, another region of the country that Dartmouth judged as so extremely expensive that its name became nearly synonymous with excess health care use, hewed close to the national median in the Medicare analysis. ”
      http://www.kaiserhealthnews.org/Stories/2012/May/09/Medicare-Hospitals-Costly-Patients.aspx

      CMS still found great variations, but they were different than the Dartmouth data. The point here is that if we built theories (entrepreneurial doctors) based on flawed numbers, we should have the intellectual integrity to revisit them when the numbers are corrected.

  15. Barry Carol says:

    Margalit –

    After a 40 year career in the investment business, I’ve learned to be very distrustful of statistics that come out of the OMB, the CBO and the Department of Commerce. Often it’s based on flawed methodology or assumptions and turn out to be little better than garbage in garbage out. I’m equally distrustful of a lot of the CMS data as well. I’m more inclined to trust the Dartmouth Atlas data and common sense regarding the issues in this thread. Interpretation of data is a separate issue.

    Payment policy that rewards doctors with more money when they do more and bill more, perceived malpractice litigation risk, fraud, self-referrals and the standard of care in the local area along with the internal culture at specific hospitals and physician practices are all going to drive regional practice pattern variation independent of the health status and medical needs of the served patient population.

    • Well, we could talk about the data too, which I also find peculiar.
      The dollar amounts are from 2009, the procedures are from 2007, and the rankings of states politics are from a random newspaper projection before the 2012 election, some of which was not quantitative, thus not rankable.
      Besides the 2012 election results are in. Would it be too much trouble to adjust the top 10 list? Why aren’t Wyoming (68.6% Romney), and Idaho (64.5% Romney) in the top republican States? Where aren’t DC and Connecticut on the Democrat side?
      So Barry, I have issues with both the data and the tortured analysis of it.

      • Anubhav Kaul says:

        Thank you for pointing out the missing states. The polling results used were not quite accurate. We have made the changes and sent them to editor to update. We have also expanded the list from 10 to 20 per side to make the data more inclusive. The stated speculations still hold true.

        As for the analysis….this was a quick and dirty investigation to an intriguing hypothesis. It is obviously open to vast criticism. We hope to update this article with more variables and further analysis.

  16. integrity says:

    Separate out and take a peek at the variation of the care and costs at the academic tertiary care centers, each with multiple executives earning far in excess of $ 1 million, and some (Pittsburgh) with about 20 over $ 1million. These for profit non profits use patients as fodder for their EMR grinders.

    It is not politics, except insofar as the politicians are afraid to tangle with these behemoth self righteous robber barrons.

    See how patients are treated at UPMC, an EMR run profit machine with the executive earning more than $ 4 million with scanner running 24/7:

    http://www.post-gazette.com/stories/business/news/doctors-flight-from-upmc-to-highmark-leaves-patients-in-the-lurch-667853/

    • Dr. Mike says:

      Sarcasm ON
      How dare you sully the reputation of those fine institutions of higher learning. To imply that these non-profits profit off of their ultruistic care of our nations poorest is not an idea to be taken sitting down by true thought leaders. The entrepreneurial spirit is dead at these institutions, DEAD I say – they consistently look for ways to control their own, er, societies costs to the benefit of us all.
      Sarcasm OFF

  17. bob hertz says:

    Thank you Integrity! It is a set-up for one of my personal pet proposals –

    that no institution receive Medicare reimbursement if any executive at that institution makes more than a top grade civil service salary. This would include hospitalist-physicians.

    Bob Hertz, The Health Care Crusade

    • legacyflyer says:

      Bob,

      Are you including the value of a Federal Pension?

      A colleague of mine’s husband just retired from HHS at age 55. He will receive a pension of roughly $100,000 per year for the rest of his life (and presumably there will be survivor benefits) This will be adjusted for inflation.

      Assuming he has an average life span and reaches age 85, he will be receiving 30 years of pension benefits – a total of $3M. (sorry – I am not able to compute the “net present value”)

      For contrast, I am a 58 year old physician (still working) and have worked as a physician since 1980. I do not have anywhere near $3M in my pension. What I have will need to last me until the end of my life and I have no inflation adjustment.

  18. Barry Carol says:

    Bob –

    I disagree with you on the executive compensation issue at non-profit hospitals. When it comes to labor, lower paid employees like orderlies, transporters and housekeepers are paid based on the going rate for similar jobs in the local market. Compensation for doctors, nurses, IT specialists, etc. must be competitive with what other employers in both the local and regional market are offering. For senior executives, especially CEO’s, the labor market is national in scope. If you want to attract and hold competent people with strong leadership skills at the top level, you have to be willing to offer competitive compensation. I also note that there is no such thing as stock options or restricted stock awards in the non-profit sector. All they can offer on the compensation front is salary, bonus and fringe benefits.

    At the same time, hospitals, especially academic medical centers and hospital systems with strong local or regional market power, have a lot to answer for when it comes to their prices per service, test or procedure, in my opinion. I think this is an issue that could be addressed with robust price and quality transparency tools so both patients and referring doctors can know how a given hospital’s prices stack up vs. its competitors before services are rendered. Tiered networks can also help to create countervailing power for insurers vs. the large hospital systems and those with famous brand names.

    As I’ve noted numerous times before, I think there needs to be special rules regarding what can be charged relative to Medicare for care that must be delivered under emergency conditions because price shopping is not practical during an emergency.

    • Peter1 says:

      Barry, CEO compensation, at least at publicly traded corporations, has nothing to do with ROI, but rather the alchemy of the board intent on turning lead into gold. There isn’t any way CEOs are worth 250 – 350 times the average salary, especially when you look at their retirement/ golden parachute treasure chest. Take our last economic fiasco and tell me they were the best and the brightest – or the most crooked.

      In health care the incentives are perversely inverse, given the cost of care. We need a different mind set otherwise we’ll just keep doing all the wrong financial things for all the wrong reasons.

  19. Great comment, Integrity!
    We can make up fictitious problems by slicing and dicing all sorts of numbers, and we can pay for labor by the yard, by the bushel or by the widget, or even with company store credit or nothing at all. The cost may inch down a bit, but the price we are asked to pay will not, as long as health care is seen as a market where corporations and their executives can make profit.

    Fortunately, there are many health care experiments executing in parallel all over the world that seem to achieve better results. Some pay salaries to doctors, some pay fee for service (and proud of it), some are run by governments, others are private to many degrees, some are standardized in some ways, others are not.
    But all of them have three things in common: 1) tax financed 2) equity for all citizens and 3) true non-profit models. We seem to be moving in the opposite direction.

  20. Barry Carol says:

    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.

    • Peter1 says:

      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.

  21. Barry Carol says:

    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.

    • Peter1 says:

      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.

  22. Brad F says:

    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

  23. bob hertz says:

    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.

    • Peter1 says:

      “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.

  24. Tim Tanparent, PhD says:

    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.

    • Peter1 says:

      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.

  25. Barry Carol says:

    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.

    • Peter1 says:

      “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.

  26. 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.

  27. …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.

  28. bob hertz says:

    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

    • Peter1 says:

      “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?

  29. Barry Carol says:

    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.

  30. bob hertz says:

    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.

  31. Barry Carol says:

    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.

  32. bob hertz says:

    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!

  33. Barry Carol says:

    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.

  34. Joseph Landers author of Intravenous says:

    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.

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