Off-base Optimism

I like to view myself as an optimist, but two recent reports demonstrate the danger of misplaced or premature optimism.  I fear that they are influenced by what the authors hope will be the case rather than what has proven to be the case.  I find this generally to be the situation in the health care arena, where public policy is often based on shallow interpretations of data and on people’s political wishes rather than rigorous analysis.

The first comes from Karen Davis at the Commonwealth Fund, in a blog post entitled, “Health Spending Continues to Moderate, Cost of Reform Overestimated.”  We should know from the title alone that the conclusions cannot be accurate:  It is just too soon to reach them.  It would be like drawing a picture of climate change from one year of data about temperatures.

Here’s an excerpt:

A recent report from the Centers for Medicare and Medicaid Services (CMS) shows that national health spending grew at a historically low rate of 3.9 percent in 2010, almost paralleling the 3.8 percent increase in our gross domestic product (GDP) last year. This is . . . good news for the federal government as the slowdown indicates that the cost of health reform has been overestimated.

Now, let’s look at the possible reasons:

First . . . continuing declines in employment and private health insurance coverage have contributed to fewer people receiving both essential and nonessential treatment. [F]ewer people have received needed preventive and acute care. And people have increasingly gone without prescriptions, tests, and elective procedures.

Let’s see, is this good news or bad news?  Health spending is down because insurance coverage has become more limited.  But, what proposition does it actually support?  Answer, as universal coverage is restored under the new federal law, costs will rise again.  As we found in Massachusetts, when you give people insurance, they use it.  Indeed, that is the purpose.  Thus, this statement offers no support to the proposition that the cost of health reform has been overestimated.

Some of the slowdown in 2009 and 2010 may be related to the uncertainty surrounding the enactment and implementation of the Affordable Care Act. During earlier reform efforts . . . health care cost growth abated as cautious hospital and other health care leaders held back on hiring decisions until the implications of proposed changes were clearer. In 2009 the health care industry—including hospitals and pharmaceutical companies—also pledged to achieve voluntary savings.

Let’s start with the last line first.  Those “voluntary savings” are vacuous estimates related to the trends that might have occurred.  They are not absolute savings.  They are not measured.  They are not enforced.

But, it may be the case that hiring has slowed down.  In hospitals, though, it would be due to reduced earnings as states and the federal government have cut Medicaid and Medicare payments because of their budget woes.  This goes back to President Obama’s misrepresentation as to the nature of cost savings that would result from the Act.  These were not cost savings derived from increased efficiency in the health care system, as most economists would define that:  There were reductions in governmental appropriations that have led to reduced earnings, slowly decapitalizing hospitals and forcing reductions in staff.

There is a parallel in the private insurance market, as rate increases from those companies have also leveled off because of pressure from employers and individual subscribers.  Again, this is not an efficiency gain in the health care system.  It is simply a price reduction forced by payers who have more market leverage than the providers.

Health spending trends may also reflect almost a decade of voluntary efforts to improve patient safety and quality, and eliminate waste—cutting costs while improving health outcomes. The Institute for Healthcare Improvement has completed several successful campaigns to improve patient safety and continues to support widespread initiatives that encourage efficiency. The Commonwealth Fund’s own Commission on a High Performance Health System has been publicizing approaches to reduce hospital readmissions, implement medical homes, and improve the quality of nursing home care. Some hospitals are now using “Lean” techniques used by other industries to improve care and cut out waste.

Now, here we might have something, if it were true and could be proven.  As my regular readers know, I certainly hope it would be the case, but there is a paucity of data to show that this has occurred on a wide scale.  There are industry leaders and early adopters.  Among the large systems, Ascension Health, Gundersen Lutheran, Thedacare, and several others show the way.  In Boston, the fact that hospitals like BIDMC and Mt. Auburn Hospital can achieve earnings comparable to their counterparts in the much more highly paid Partners Healthcare System is a demonstration of the virtuous feedback loop between improving patient quality and safety and reducing waste.

I would dearly love to engage in the kind of wishful thinking that would suggest that these efforts have made a noticeable blip in the health care cost trajectory.  But, as I speak to front-line staff people in hospitals around the country, it is clear that there are miles to go on this front.  The most common reaction I get from enthusiastic doctors and nurses and managers to my presentations at national conferences is this:  “We believe in what you say.  How can I get my — fill in the blank — CEO, CFO, CMO, Chief of Service — to provide leadership on this, to focus on it, to provide training and resources to make it happen.”

Notwithstanding her optimistic lede, though, we finally get to Dr. Davis’ real conclusion:

Despite the slowdown, U.S. health care spending per person is still more than twice that in other major industrialized countries, and costs are projected to rise though 2020. The retirement of “boomers” born after World War II will continue to cause health care expenditures and federal budget outlays to increase as a percentage of the economy.

Yes, that is certainly true. But it is not an issue facing the US alone.  Other developed economies in Europe and elsewhere are seeing a similar trend.  Their overall expenditures as a percentage of GDP will be growing even more rapidly than ours as public pressures emerge that push them in the direction of trying to replicate aspects of the tertiary care system that exists in the US.  (See Denmark as one example.)

But then Dr. Davis returns to unsupported hoping:

It is important to implement key cost-saving provisions of the Affordable Care Act, including value-based purchasing, shared-savings incentives for accountable care organizations, innovative payment pilots such as patient-centered medical homes, and creation of the Independent Payment Advisory Board.

I have previously addressed the underlying structural problem of ACOs under the Medicare rules, which is that the PPO character of Medicare would not change:

“The provider may not require a beneficiary to obtain services from another provider or supplier in the same ACO.”

How can you be held accountable, as a provider group, if you cannot control the management of care of your patients? I’m not blaming CMS for this contradiction. The agency is simply implementing what Congress and the President ordered it to do. There is no way Congress will limit choices among the Medicare population.

Meanwhile, too, the IPAB is under political assault, as Congresspeople figure out that it, too, could limit constituents’ choices and have other unintended consequences:

Quite simply, IPAB has so many opponents because it embodies centralized planning from Washington, D.C., and enables unelected bureaucrats to make decisions about people’s health care. The contrast couldn’t be more clear: a new government body (IPAB) charged with taking resources away from the beloved Medicare program.

Further, IPAB is a threat to critical medical treatments and services for all Medicare beneficiaries. Proponents of the board have argued that IPAB will improve the quality of care as a result of the cost-cutting measures it enacts in order to save. However, it is doubtful this will happen because the board will have to make cuts that reach annual targets. Thus, standard line item cuts will result, which will only reinforce systemic problems, not fix them, and create unsustainable savings.

Paul Levy is the former President and CEO of Beth Israel Deconess Medical Center in Boston. For the past five years he blogged about his experiences in an online journal, Running a Hospital. He now writes as an advocate for patient-centered care, eliminating preventable harm, transparency of clinical outcomes, and front-line driven process improvement at Not Running a Hospital.

6 replies »

  1. Paul–

    I’m extremely interested in this subject., and am writing about it now.

    The slow-down in spending in the private sectoris, no question, tied to the recession, and insofar as people are putting off needed care (which they are) iit s Not good news.

    But the S&P Medicare index shows a sharp drop in Medicare spending over the past 18 months to 2 years. At S&P David Blitzer says hs not quite preapred to say it’s a trend, but it’s definitelyl not a blip on the screen. The recession has relatively little effect on Medicare spending; as you know many seniors have wrap-around coverage and few co-pays.

    I’ve been talking to people who suggest that hospitals are anticipating hte ACA reforms and thus beginning to try to cut their costs significantly–

    I recall you writing about a drop in certain tests(MRIs ?) at Deaconness — and no concomitant increase in other tests.

    Of course not all providers are trying tro increase efficiency, but many are. This could be having an effect on the margin. .

    Also, whenver there is much talk about reform and the high level of healthcare spending, spending tends to slow –even if reform fails. (This happened in the 1990s after the Clilnton health care debate.)

    One hopes that this time around, the slow-down will conintue i– f we actually
    change systems and how health care is delivered. Agreed that the ACO idea needs work, but it will happen. And it’s not the only idea in the ACA.

    I’m writing to you here because I couldn’t find an e-mail address.

    If you’d like to talk about this, please send me a message on Twitter indicating how I can reach you.

    Thanks very much, Maggie Mahar

  2. Very few people w/o fee for service insurance would have the luxury of desired care. You are living in the ’80’s. Costs are driven up by uninsured healthcare seekers. If uninsured patients were covered, that need for state reimbursement would vanish. Additionally, universal coverage is not a generic one size fits all method, it is a managed care method for long term healthcare management. Its implications are not only in improved public health, but also economic growth.

  3. In order to have a long-term fix of our healthcare system, the U.S. government has to establish Medicare/Medicaid clinics and provide free training to those who always wanted to be nurses and doctors – serving the general public.
    At no cost to an individual, and in return for a 30 year commitment, the U.S. government would send should an individual to nursing or medical school. After completing school and passing a test offered by the U.S. government, the pay that they would receive would be one- half of that of an entry level private pay nurse or doctor in their geographical region. Their annual pay, if they meet all of their annual duty requirements, would increase by 3.33%. By the end of their career they would be earning twice as much as when they started. Following 30 years of service, they would earn a monthly retirement benefit which would equal 1/12 of their starting salary. Plus, they would receive a Medicare card which gives them a priority for the medical services offered by Medicare/Medicaid clinics.
    The above program would be an outstanding opportunity for those individuals who have always wanted to be nurses and doctors, but felt they could not afford the training. At the same time, the general public would be best served by low-cost professionals who always wanted to serve the general public.

  4. “good news for the federal government as the slowdown indicates that the cost of health reform has been overestimated.”

    Did commonwealth support this claim anywhere in their blog post? People like myself that do this for al iving and who are held accountable for their work would say HCR cost has been vastly underestimated. 3.9% could have been 2 percent or even better if not for HCR. That argument can actually be backed up by showing what over age dependents cost, compliance, benefit mandates, etc etc.

    Even when the private sector succeeds government tries to jump in and take credit.

  5. Costs are not driven by “needed” care. They are driven by “desired” care.

    Universal healthcare is nothing more than one size fits all take it or leave it no matter the results have a nice day thank you for playing next case.

  6. I am for universal healthcare. I recognize it is not the end all and be all answer to the health care debate. A responsible mix of private and public option for health coverage would do much for long term spending. Yes, I said do much, not to, but for long term spending. People who have not had health insurance are going to respond to having health insurance by going to the doctor “to get that thing looked at.” A sudden increase in spending should be expected. But, once health issues are taken care of or now being maintained, it is probable that long term health costs would drop off and level out. It is too early to judge how the health reform bill is affecting the economy. Much of it hasn’t been implemented yet. Perhaps patience is called for.

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