I welcome Leah Binder’s earlier post on this blog, written in response to my blog post in The New York Times. To be thus acknowledged is an honor.
As an economist, I am not trained to respond to Ms. Binder’s deep insights into my psyche, dubious though it may be. Nor, alas, can I delve into hers, fascinating though that might be. Let me therefore concentrate instead just on substance.
First of all, I do not recall calling employers “stupid,” nor did I question their IQ. I do confess to having once called employee benefits managers, when addressing them at some of their usually mournful meetings, “kind-hearted social workers dressed to look like tough Republicans.” At that meeting I contrasted how carefully their company’s tough-minded VP for Procurement, Murgatroid de B. Coverly III, Princeton ’74, purchased paper clips for the company with the much more mellow approach taken by their V.P. of Human Resources to purchase health care for their company’s employees.
Benefit managers – I hate to call them BMs — really are the nicest folks. They care deeply about their employees’ well being (until, of course, the latter lose their job with the company). They worry incessantly about their company’s ever rising outlays for health insurance. And, after a cocktail or two, they regularly lament how rarely they get the attention of top management and of the board of directors – the very folks I once told to go look into a mirror in their search for the culprit behind rising health care costs.
No, when I say “employers” I really mean top management and boards of directors who make the rules. And I did not even call those mighty ones stupid, but merely “passive payers” as did, by the way, David Dranove on this blog in his critical response to my New York Times piece. Why these usually tough and smart people have behaved so passively in buying health care for themselves and their employees remains a puzzle at the level of economic theory.
Uwe Reinhardt is one of the nation’s most respected health care economists, professor at the prestigious Woodrow Wilson School at Princeton, fellow of the Institute of Medicine, and one of the shining lights in health policymaking circles.
But alas, even the best and the brightest are wrong sometimes. Case in point: Reinhardt’s recent comments in the New York Times on the role of the American business community in fueling our nation’s health care problems. To paraphrase, Reinhardt believes that employer purchasers of health care are 1) dim bulbs and 2) responsible for the escalating costs of care.
This seemed puzzling coming from Reinhardt, whose views are widely respected by purchasers. But I was able to diagnose the problem by drawing on insights from social psychology.
Social psychology investigates “attribution,” our mind’s process for inferring the causes of events or behaviors. It’s how we describe why things happen — to us or to someone else. It turns out, we humans aren’t very accurate in our attribution processes because all of us suffer from at least one of the following problems. In his New York Times piece, poor Professor Reinhardt appears afflicted by all three at the same time. Let’s take a closer look at each:
1. Actor-Observer Bias: This is the notion that when it comes to explaining our own behavior, we tend to blame external forces more often than our own personal characteristics.
Reinhardt is rightfully troubled by a decade of escalating health care cost growth under employment-based health insurance. But seized by Actor-Observer Bias, Reinhardt blames this problem not on the world of health care that he played such an influential role in over the past few decades, but on external forces, the employers who purchase health care.
Mitt Romney’s/Paul Ryan’s premium support/voucher plan was heavily derided during the dark days of Campaign 2012, but the devil was always more in the details than the theory. While the re-election of President Obama left premium support dead on the Medicare level, health insurers are increasingly turning to the ideas that drove it – choice, competition, and the power of a (carefully regulated) market – to address high costs on the procedural level. Call it the micro-voucherization of health insurance.
This is known by wonks as reference pricing, and its recent results in California are promising: the costs of hip and knee replacements fell by 19%, with no attendant decrease in quality. Using reference pricing is an assault on the status quo that holds the promise of “bending the curve” in a meaningful way, but it faces technical and political concerns that may consign it to the graveyard of promising-but-unfulfilled ideas.
Broadly-speaking, reference pricing is the act of offering a set amount of money for the purchase of a good, where the reference is an amount that can reasonably said to offer meaningful coverage for that good. Sometimes, reference pricing is focused on a given procedure – what I’ll refer to as “inputs-oriented reference pricing”; other times, a given outcome, or “outputs-based reference pricing.”
That’s pretty vague, so let’s use the colonoscopy procedure (which has recently received a lot of attention thanks to an informative New York Times article) to help color this in. The inputs-oriented approach would see the payer asking: given the choice to have a colonoscopy – a procedure which varies wildly in cost without varying wildly in quality – what’s a reasonable price to pay? It would decide this based on some combination of price, quality, and geography, and would inform consumers of its spending cap.
Say it finds that most of its insured population can reasonably access a high-quality colonoscopy for $10,000; if a consumer choose provider that charges $15,000, he or she would pay the $5,000 difference out of pocket. Choice is preserved, but at a cost. The simple chart above shows how this may work.
But, if you read the colonoscopy article, you may be asking a separate question: why pay for a colonoscopy at all?
Recent interest in variability of cost for medical procedures is justified and long overdue. In an article in the New York Times on June 2, 2013, “The $2.7 Trillion Medical Bill,” Elizabeth Rosenthal writes from the point of view of a patient who has received a bill for colonoscopy. She then researches costs of the procedure in a number of markets in the U.S., finding a range of pricing from an average of $1,185 to a high of $8,577. There is an implication within this article that “doctors” are charging these prices. The truth is that physicians are often pawns in much larger negotiations among other entities.
While charges for procedures performed in an office setting or practice-owned ambulatory surgical center (ASC) are largely under the control of physicians, many of the highest prices come from hospital owned facilities — an area that is not at all controlled by physicians.
I called the lead negotiator for payor contracts at my institution and asked him about price variability for colonoscopy. It was clear from my conversation that the current arguments about colonoscopy price variation miss some key components. We need to better explore the true drivers of price variation.Continue reading…
Trends in US healthcare expenditures are financially unsustainable (1). I would like to propose two tweaks of the healthcare delivery process that may, in a small way, help rectify this problem.
Although there is a widespread impression that health information technology (HIT) will eventually “bend” the cost curve and put healthcare spending on a sustainable course, there is, as of yet, little data that convincingly supports this hypothesis (2).
Kaiser Permanente is a large, integrated healthcare delivery system which has invested heavily in HIT. George C. Halvorson, the chairman and CEO of Kaiser Permanente appears to have concluded that this investment will not solve the healthcare cost issue, when he was quoted in the New York Times (3/20/13) as stating “We think the future of health care is going to be rationing or re-engineering.”
Because HIT, as currently implemented, will probably not solve the healthcare cost problem, I would like to suggest a minor “re-engineering” of the electronic health record user interface which may help bend the cost curve.
At every office visit, the physician must make a myriad of decisions which incrementally effect the nation’s total healthcare expenditures. For example, the physician will have to decide which medicine to prescribe, and which radiology study or laboratory test to order.
In many situations, there is more than one acceptable choice. The physician’s ultimate decision will integrate their understanding of the disease process, the treatment’s side effect profile, their familiarity with the treatment options, patient preferences and many other variables.
I would suggest that every time a physician is about to order a test or a prescription, the cost of the test or prescription should be displayed to the physician. In the same vein, whenever a computer displays a test result, the cost of the test is immediately available to the reader. This information could then become an additional factor that the physician may choose to integrate (or ignore) at the moment when he/she is about to commit the patient and society (which is now paying >50% of all healthcare bills) to another healthcare expenditure. In terms of a risk/benefit analysis, I can see little downside to providing this cost information to physicians.
In a recent New York Times blog, Uwe Reinhardt places much of the blame for high and rising medical prices on passive employers. He argues that employers should work just as hard to reduce healthcare benefit costs as they work to reduce other input costs. But he then observes:
“One reason for the employers’ passivity in paying health care bills may be that they know, or should know, that the fringe benefits they purchase for their employees ultimately come out of the employees’ total pay package. In a sense, employers behave like pickpockets who take from their employees’ wallets and with the money lifted purchase goodies for their employees.”
I think that Reinhardt gets the economics wrong here and, in the process, he puts too much of the blame on employers. Reinhardt is right in one respect – employees care about their entire wage/benefit packages. If benefits deteriorate, employers will have to increase wages to retain workers. Thus, it seems that if an employer reduces benefit costs, it must increase wages by an equal amount. If that is true, we can understand why employers are passive.
The correct economic argument is a bit more nuanced. Employees do not care about the cost of their benefits; they care about the benefits. If an employer can procure the same benefits at a lower cost, the employer need not increase wages one iota. In this regard, there is nothing special about health benefits. Suppose an employer offers employees the use of company cars. Workers don’t care what the employer paid for the cars, and if the employer can purchase cars at a deep discount, it will pocket the savings.
The Next Health Care calls for very different strategies and tool sets. Many systems are acting as if they read a manual on how to do it wrong. How many of these critical strategic and tactical mistakes is your system making?
So I was beta testing FutureSearch, this cool new Google add-on app I’m writing with a coder, and I found an article that I wrote in 2025. My first thought was, “Cool! It works!” My second thought was, “I’m still working at the age of 75?” It was only then that I focused on the title of the article: “Fail: The 16 Steps by Which Hospitals Failed in the Post-ACA Risk Environment — An Analysis.”
The article detailed a dispiriting history from 2013 to 2020. More important, it listed the 16 most common mistakes that hospitals and health systems made while trying to navigate the new risk environment of the Next Health Care.
I found this interesting because of course right at this moment much of the health care industry, in many different ways, is trying to move away from the traditional fee-for-service payment system, which has given the whole industry adverse incentives, leading to much higher costs, poorer quality and restricted access. The rubric of the day is “volume to value.” And I see many different institutions and systems across the country making exactly these mistakes already in 2013.
As you read this list, ask yourself in what way you and your institution might be making the wrong decisions, and ask yourself what they will look like looking back from 2025.
Stick with fee-for-service. Though they included various incentives and kickbacks, most accountable care organizations and ACO-like structures built in the 2012–2014 period were based on a payment system that remained stubbornly fee-for-service. Systems continued to make more money if they checked off more items on the list (and more complex items), rather than solving their customers’ problems as well and as efficiently as possible.
CDC’s report, Problems Paying Medical Bills: Early Release of Estimates From the National Health Interview Survey, January 2011-June 2012, provides some encouraging news. The data show fewer Americans have trouble paying their medical bills.
Among adults between the ages of 18-64, the percentage of those in families that have problems paying medical bills decreased from 20.9 percent in the first half of 2011, to 19.7 percent in the first half of 2012. The news was also encouraging for teens and children 17 and younger living in families with problems paying medical bills. The percentage of these decreased from 23.7 percent to 21.8 percent for the same period.
While the report provides good news, far too many Americans still find it burdensome to access medical services.
This is why the Affordable Care Act was passed. The law helps Americans with their medical bills in several ways. It requires many insurers to cover certain preventive services at no out of pocket cost to patients. Because of the law, 71 million Americans are receiving expanded coverage of preventive services without co-pays or deductibles — including vaccines, blood pressure and cholesterol tests, mammograms, colonoscopies and screenings for osteoporosis.
The Affordable Care Act has also played a role in helping Americans access the health insurance they need. Since 2010, the law has allowed more than 3.1 million young people to stay on their parents’ health insurance policies until age 26.
Anyone who has read my work knows that articles like the one written in the New York Times on Sunday by Elisabeth Rosenthal will immediately get a response out of me. If you haven’t read it, here’s the link.
Where do I start with this??? I’m going to let Ms. Rosenthal tell you about how many unnecessary colonoscopies we do. I’ll let her tell you how much more it costs here than anywhere else. I will address the anesthesia bit. Let me tell you a little story. When I was a baby anesthesiologist my hospital sent anesthesiologists “downstairs” to do anesthesia for GI procedures maybe once a week for a few hours.
This was in 2004 or so. Now we send three board certified anesthesiologists to various GI units every day all day. We do maybe 25 cases a day on average. Now, some of this is due to the aggressive expansion of the advanced GI procedures unit as well as the addition of an outside private group that was recently folded into the greater hospital system. It’s also because we’re there. It’s no accident that as soon as we committed troops to the GI battle all of a sudden everybody needed anesthesia.
The NYT article uses Dierdre Yapalater as an example, a healthy 60-something. Putting aside the ridiculous cost for the overall procedure, she was billed $2,400 for anesthesia. But she didn’t need anesthesia. There is absolutely no reason for her to have an anesthesiologist involved for that case. None.
Anesthesia care used to be limited to very sick patients, not because they are harder to sedate (they’re actually often easier) but to monitor them closely because of their tenuous physiologic status. Now everybody is getting it. Why did she get anesthesia, why did the anesthesiologist give it, why does insurance pay for it?
A question: What is the opposite of health IT return on investment?
The answer: Unintended financial consequences, or UFCs, for short.
The scenario: A sophisticated medical center health system begins to roll out an expensive proprietary EHR and shortly thereafter sustains an operating loss, leaving no choice but to put the implementation on hold. The operating loss is attributed to “unintended financial consequences” directly related to buying a very expensive EHR system.
This is exactly the situation at MaineHealth, who selected Epic. As recently reported, a little while ago Maine Medical Center President and CEO Richard Peterson sent a memo to all employees saying the hospital …
… has suffered an operating loss of $13.4 million in the first half of its fiscal year. The rollout of MaineHealth’s estimated $160 million electronic health record system, which has resulted in charge capture issues that are being fixed, was among several reasons Maine Med’s CEO cited for the shortfall.
“Through March (six months of our fiscal year), Maine Medical Center experienced a negative financial position that it has not witnessed in recent memory,” Richard Peterson, president and CEO of the medical center, wrote in the memo to employees.
Peterson’s memo outlines the specific UFCs that explain, in part, MaineHealth’s operating loss:
- Declines in patient volume because of efforts to reduce re-admissions and infections
- Problems associated with being unable to accurately charge for services provided due to the EHR roll out
- An increase in free care and bad debt cases
- Continued declining reimbursement from Medicare and MaineCare, the state’s Medicaid program
These challenges are common to just about any medical system in the country, making MaineHealth potentially a harbinger of things to come for those hospitals and health systems that pay multi-millions of dollars for a health IT system.