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Is Higher Spending Truly Wasteful?

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By DAVID DRANOVE & CRAIG GARTHWAITE

Craig GarthwaiteTwo weeks ago, the Kellogg School of Management was privileged to host Joe Doyle, an outstanding economist from MIT.

In a broad research portfolio, Joe has focused on the effects from differing intensity of medical treatments.

This research is shattering some long held beliefs about the relationship between health spending and outcomes.

We think that Joe’s work is not known widely enough outside of the academic community, so we are using our blog to let you know what you have been missing and, in the process, perhaps change the way you think about healthcare spending.

It is well known that the U.S. far outspends other nations on healthcare, yet the outcomes for Americans (in terms of coarse aggregate measures such as life expectancy, infant mortality, and other dimensions) are quite average.

Of course, these outcomes are not the only things that we value in health care.

A lot of our spending is on drugs and medical services that improve our quality of life and won’t show up in these aggregate outcomes. For example, more effective pain management can decrease pain and improve quality of life – often with important economic benefits.

Despite this fact, most health policy analysts have concluded that we can cut back on health spending, without harming quality on any dimension.

This is not a new idea, of course. In a famous 1978 New England Journal article, Alain Enthoven coined the term “flat of the curve medicine” to describe how the U.S. had reached the point of diminishing returns in health spending. And for nearly 30 years the Dartmouth Atlas has documented how health spending dramatically varies across communities without any apparent correlation with outcomes.

The question has always been, what health spending to cut? Garthwaite’s previous work has shown that broad regulations requiring longer hospital stays for new mothers and their babies have provided only limited benefits and that more targeted rules could save money without sacrificing quality.

Beyond some wasteful regulations, we can always point to gross examples of overspending such as the rapid proliferation of proton beam treatments. But beyond those clear examples how can one identify what is waste and what is medically necessary?

In two important papers, Joe Doyle and co-authors ask a more fundamental question – is the often cited broad variation in health spending actually wasteful at all? They find that even in healthcare, there really is no such thing as a free lunch.

His work should be mandatory reading for everyone who believes that broad spending cuts will have no adverse consequences.

For those who lack the time to read these papers, we provide the “Cliff’s Notes” versions.

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How Mayo Clinic Is Using iPads to Empower Patients

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By Cook, Thompson, Dearani & Prinsen

Throughout the world, companies are embracing mobile devices to set customer expectations, enlist them in satisfying their own needs, and get workers to adhere to best practices. An effort under way at the Mayo Clinic shows how such technology can be used to improve outcomes and lower costs in health care.

Defining the care a patient can expect to receive and what the road to recovery will look like is crucial. When care expectations are not well defined or communicated, the process of care may drift, leading to unwarranted variation, reduced predictability, longer hospital stays, higher costs, poorer outcomes, and patient and provider dissatisfaction.

With all this in mind, a group at the Mayo Clinic led by the four of us developed and implemented a standardized practice model over a three-year period (2010-2012) that significantly reduced variation and improved predictability of care in adult cardiac surgery.

One of the developments that germinated in that effort was the interactive Mayo myCare program, which uses an iPad to provide patients with detailed descriptions of their treatment plans and clinical milestones, educational materials, and a daily “To Do” list, and to report their progress and identify problems to their providers.

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Australia’s Prisoners’ Dilemma: Incentives Matter in Health Care

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By Chris Denoia


The shortcomings of the Fee For Service (FFS) model are widely known.

During the 1800s, the British empire shipped prisoners to newly formed penal colonies in Australia (technically, these were British prisoners, but that doesn’t make a catchy title).  Ship captains were compensated for each prisoner who boarded the ship.  The financial incentive ruled over decency, each captain stuffed as many prisoners on to the ship as it could handle.  Of course, the prisoner survival rate lingered at a precarious 50%, while those who managed to survive the journey often arrived beaten, sick or starving.

Attempts were made to improve the survival rates, through what might be considered early wellness programs.  Captains were mandated to bring citrus to combat scurvy, a 19th century wellness program.  Doctors were required on each ship carrying prisoners, improved access ala concierge medicine.  I’m sure someone may have proposed it’s the prisoners responsibility to survive the trip and they ought to engage in their own survival.  Nevertheless, requiring lemons and limes and placing physicians on the ships proved equally ineffective.

In 1862, economist Edwin Chadwick suggested a change to the incentive structure.  Ship captains were no longer compensated for each prisoner who boarded in England, but, instead, received payment for every living prisoner who got off the ship in Australia.  The first pay for outcomes program in healthcare.  The survival rate on ensuing trips jumped from 50% to 98%.

The moral of the story is that incentives matter.

  • Primary care physicians are the ship captains of the 21st century.
  • American patients are prisoners of the US healthcare system.
  • Misaligned incentives are the root cause for what ails the system.

Christopher DeNoia is the Vice President of Business Development at Amplify Health, where this post originally appeared.

A Time of Change at the American Board of Internal Medicine

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By Bob Wachter, MD

Yesterday was my last day as chair of the ABIM, and the end of my eight-year tenure on the Board. In this blog – a bookend to the one I wrote at the start of the year, which went near-viral – I’ll describe some of our accomplishments this year and a few of the challenges that I leave my talented successors to grapple with.

I had two very tangible tasks to accomplish during my chairmanship. First, after a decade-long tenure as CEO and President of ABIM, Chris Cassel announced her intention to step down. (Chris is now CEO of the National Quality Forum, which is increasingly crucial in a world looking for robust measures of quality, safety, and value.) After an extensive search, we selected Richard Baron to become ABIM’s new CEO, and Rich began earlier this month. Rich is one of the most impressive people I’ve met in healthcare, and a perfect choice to lead ABIM into the future. As someone who practiced general internal medicine for nearly three decades in a mid-sized Philadelphia office, he is a “doctor’s doctor.”

He is intimately familiar with the work of the Board, having served on the boards of both ABIM and the ABIM Foundation for over a decade (including a year as ABIM chair). He also has extensive policy experience, most recently as director for Seamless Care Models for the Center for Medicare & Medicaid Innovation (CMMI), where he was responsible for putting meat on the bones of concepts like the “Medical Home” and “Accountable Care Organization.” Rich is wickedly smart, a superb communicator, and a great listener with impeccable values and an unerring ethical compass. He’ll be splendid.

The second area may be a bit more Inside Baseball, but will ultimately be just as important. A couple of years ago, we began a process to redesign the ABIM’s governance. Our 28-person board was both too large and had too much on its plate for effective decision making. In work that was superbly led by then-chair Catherine Lucey, assisted by a crack committee, staff and governance expert Jamie Orlikoff, we decided to transform our governance structure. As of tomorrow, the ABIM board shrinks to 15 members – chosen for their experiences and competencies rather than because they represent a given medical subspecialty – and a new group, the ABIM Council, is formed.Continue reading…

How UCSF Is Solving the Quality, Cost and Value Equation

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By Bob Wachter, MD

I sometimes explain to medical students that they are entering a profession being transformed, like coal to diamonds, under the pressure of a new mandate. “The world is going to push us, relentlessly and without mercy, to deliver the highest quality, safest, most satisfying care at the lowest cost,” I’ll say gravely, trying to get their attention.

“What exactly were you trying to do before?” some have asked, in that wonderful way that smart students blend naiveté with blinding insight.

It is pretty amazing that healthcare has been insulated from the business pressures that everybody from Yahoo! to my father’s garment business have experienced since the days of Adam Smith. We experienced a bit of this pressure in the mid-1990s, when pundits declared healthcare inflation “unsustainable” (sound familiar?) and we invented managed care to slay it. We know how that story ended – the public and professional backlash against HMOs defanged the managed care tiger to the point that it could barely produce a “meow.” The backlash was followed by a 15-year run during which efforts to slash healthcare costs have been remarkably meager.

That run has ended.

Luckily, while we’ve been let off the hook on cost-reduction, we’ve not been given a free pass on improvement. Beginning with the Institute of Medicine reports on safety (2000) and quality (2001), we have been under growing pressure to improve the numerator of the value equation: patient safety, quality of care, and patient satisfaction. Particularly for those of us who work in hospitals, we now feel this pressure from many angles: from accreditors (more vigorous and unannounced Joint Commission inspections, residency duty hour limits), transparency (Medicare’s Hospital Compare), comparative measurement (HealthGrades, Leapfrog, Consumer Reports and many other hospital rankings), and, most recently, payment policies (no pay for “never events,” penalties for readmissions, value-based purchasing, and “Meaningful Use” standards for IT).

These initiatives have created an increasingly robust business case to improve. Hospitals everywhere have responded with new resources, committees, ways of analyzing data, educational programs, computer systems, and more.

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Why the Supreme Court’s Healthcare Decision Will Mean a lot … and Not so Much

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By Bob Wachter, MD

Like waiting outside the Vatican for the puff of white smoke, the nation sits on edge awaiting the Supreme Court’s ruling on the Affordable Care Act. The ruling, which is likely to be announced next week, could toss out the entire healthcare reform bill, chop off one of its limbs (probably the so-called individual mandate), or leave the ACA intact. Whatever the ruling, it will be chum for the blogosophere, particularly in the heat of presidential silly season.

The two fundamental challenges to American healthcare today are how to improve value (quality divided by cost) and how to improve access (primarily by insuring the tens of millions of uninsured people). The bill sought to address these twin challenges in ways that were complex and intertwined. I’ll argue that a decision by the Court to throw out all or part of the ACA will have a profoundly negative effect on the access agenda, but surprisingly little impact on the value agenda. To understand why requires that we focus less on the bewildering details (mandates, insurance exchanges, PCORI, CMMI, IPAB, etc.) and more on some big picture truths and tradeoffs.

The job of any healthcare system is to deliver high quality, safe, satisfying care to patients at the lowest possible cost. Although America certainly does specialty and high tech care like nobody’s business, on all of the key dimensions of value we aren’t very good. The numbers tell the sorry tale: we provide evidence-based care about half the time, there are huge variations in how care is delivered, we kill 44,000-98,000 patients per year from medical errors, and we spend 18% of our gross domestic product on medical care, far more than any other country.

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Quality or value? A Measure for the 21st Century

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By MARYA ZILBERBERG, MD

One of the founders of the evidence-based medicine movement, Muir Gray

Fascinating, how in the same week two giants of evidence-based medicine have given such divergent views on the future of quality improvement. Here (free subscription required), Donald Berwick, the CMS administrator and founder and former head of the Institute for Healthcare Improvement, emphasizes the need for quality as the strategy for success in our healthcare system. But here, one of the fathers of EBM, Muir Gray, states that quality is so 20th century, and we need instead to shine the light on value. So, who is right?

Well, let’s define the terms. The Merriam-Webster dictionary defines quality as “the degree of excellence.” The same source tells us that value is “a fair return or equivalent in goods, services or money for something exchanged.” To me “value” is a holistic measure of cost for quality, painting a fuller picture of the investment vis-a-vis the returns on this investment. What do I mean by that?

Simply put, the idea behind value is to establish what is a reasonable amount to pay for a unit of quality. Let’s take my used 1999 VW Passat as an example. If my mechanic tells me that it needs to have some hoses replaced, and it will cost me under $100, and the car will run perfectly, I will consider that to be a good value. However, if my transmission has fallen out in the middle of Brookline Ave. in Boston (really happened to me once, many years ago and with a different car), and it will cost me $5,000 to fix, I may say that the value proposition is just not there, particularly given that the car itself is worth much less than $5,000. Given that my budget is not unlimited, I have to make trade-off decisions about where to put my money, so I may instead spend the money on another used Passat that has good prospects.

But in medicine, we routinely avoid thinking about value. There seems to be an overall impression that if it out there on the market, and especially if it is new, it is good and I am worth all of it. This impression is further enabled by the fact that CMS has no statutory power to make decisions based on value of interventions — they are legislatively mandated to turn a blind eye to the costs. Does this make sense? How toothless is our comparative effectiveness effort likely to be if it has to ignore half of the story?Continue reading…

Value (Outcomes/Cost)–A Unifying Concept for Health Reform?

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By RICHARD REECE, MD Picture 2

In health care, stakeholders have myriad, often conflicting goals, access to services, profitability, high quality, cost containment, safety, convenience, patient-centeredness, and satisfaction.

-Michael Porter PhD, Professor, Harvard Business School

Those who support the new health reform law and those who seek to repeal it look at the new law through vastly different ideological lenses. Each ideological camp has its own implacable, rarely movable spin on what’s important.

But, according to Thomas Lee, MD, associate editor of the New England Journal of Medicine and networks president for Partners Healthcare System in Boston, the search for value (outcomes relative to cost) unites and provides a path forward for competing ideological interests.

In Lee’s words, “The value framework offers a unifying framework for provider organizations that might otherwise be paralyzed by constituents’ fighting for bigger pieces of a shrinking pie (“Putting the Value Framework to Work,” New England Journal of Medicine, and December 23, 2010).

As an ideological and idealistic concept, I would like to think a utopian vision focusing on value is achievable. But I remain dubious because of the nature of American culture. I am also skeptical partly because the concept originates in Boston, which has the highest health costs in the nation but which has scanty evidence that its outcomes are superior. Finally, I am leery because it takes large organizations with interoperable and expensive electronic systems that communicate with each other to measure value (outcomes/costs) for a bewildering number of different diseases with different outcome dimensions (survival, degrees of health recovery, time to return to work, side effects, pain, complications, adverse effects, sustainability, long term consequences) all measured over a longitudinal time frame among diverse stakeholders. Bringing such scattered data points into a single focus with a common understanding among diverse participants over a long time frame strikes me as nearly impossible.

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