Gregory Park from DB Technology, wrote in to say this about National Health Information Networks:
"I was wondering where is the debate on the real benefits in NHINs.
What is the benefit exactly? The way that I see it, most of the
benefits could be achieved by lower tech efforts such as disease
hotlines which exist today.
Up at the Healthcare Economist. Daniel Gilden's piece over here leads off, as it should!
Introduction
The challenge of constraining costs while maintaining or enhancing the quality of medical care is vividly brought to life by Atul Gawande in his recent widely-read New Yorker essay. The anecdotal evidence presented in the article is compelling as a description of how physician practices can relate to excessive costs. The assertion that the observations in McAllen also explain McAllen’s costliness is an inductive exercise that may go too far. Physician ownership of imaging facilities, ownership interest in hospitals and more subtle forms of self-referral are all substantially present in large healthcare market areas across the country. Is McAllen an extreme example of a bad physician culture or is there another explanation? Our analysis of Medicare data from McAllen Texas demonstrates that exceptionally high rates of chronic disease and poverty explain much of the variation in cost.
According to Gawande, McAllen Texas has a physician culture that promotes high cost, low quality care. By comparison El Paso is portrayed as having a similar patient population to McAllen with lower costs of care. Grand Junction, Colorado, however, the antithesis of McAllen according to the article, is credited with having a physician culture that promotes low costs and high quality. Ultimately Gawande warns that by failing to change the physician culture nationally, “McAllen won’t be an outlier. It will be our future.” But is McAllen really an outlier, a harbinger of physician income-enhancing practices run amok?
A fair comparison between McAllen and Grand Junction would include a more precise analytic methodology than could be offered in Dr. Gawande’s article. Such an analysis is important: the correct diagnosis of the health care cost crisis is an essential step in selecting an effective prescription. If McAllen is not an outlier and Grand Junction is not a paragon, then the solution is not to simply tamp down variation by exporting Grand Junction values to McAllen. If the physician practices reported by Dr. Gawande in McAllen lead to explainable patterns of costs according to current norms, then those practices are part of a national phenomenon right now, not in a nightmare future.
An analysis of the Medicare population in the three counties can place Dr. Gawande’s observations in a more complete context. Medicare beneficiaries enjoy a standardized benefit package, and detailed data are available on the services they receive. We can use cost data for Medicare enrollees in the three counties to test Dr. Gawande’s assertions regarding McAllen’s and Grand Junction’s comparative health care costs. Medicare fee-for-service claims provide us with service level payment and patient health status information; Medicare monthly enrollment data details HMO affiliation, Part B premium assistance and beneficiary demographics. The Centers for Medicare and Medicaid Service supplies researchers (including the Dartmouth Health Atlas team) with data of this type for Medicare policy analysis.
Accurate Medicare Cost Comparisons
The city of McAllen lies at the center of Hidalgo County, one of the costliest areas for Medicare. The population is racially diverse, low income and exhibits high levels of chronic disease. El Paso is similar to McAllen but with less poverty. Grand Junction is the county seat of Mesa County, a largely white and relatively wealthy region. In Exhibit 1 annualized Medicare fee-for-service payments for the counties of McAllen, El Paso and Grand Junction show wide divergence in the total Medicare spends per beneficiary.2
Exhibit 1: Annualized Payments per Medicare Beneficiary by County of Residence, 2006
| County | Medicare Enrollees | Medicare Payments |
| McAllen, Texas | 63,770 | $12,384 |
| El Paso, Texas | 85,478 | $6,163 |
| Grand Junction, Colorado | 22,887 | $4,436 |
The payments in McAllen’s county are twice as high as in El Paso’s and nearly three times as high as in Grand Junction’s but adjustments are required to the statistics to make the comparison fair. These adjustments should include normalization for Medicare coverage type and population health. Relatively few McAllen area Medicare beneficiaries are enrolled in HMOs (2%) in comparison to Grand Junction (42%) and El Paso (16%). Medicare publishes costs only for services paid on a fee-for-service basis; some services supplied by cost-based HMOs (more common in Grand Junction than in either McAllen or El Paso) are included and some are not. As a result the cost of care for counties with high numbers of Medicare HMO enrollees is under reported. In addition, while all eligible individuals receive hospital insurance under Part A of Medicare, beneficiaries must pay a monthly premium to receive outpatient coverage under Medicare Part B, or are enrolled by Medicaid if they are poor enough to meet the state’s income requirement. The percent of the population in the different counties without full Part A and Part B benefits varies. In Grand Junction almost twice as many beneficiaries do not have Parts A & B coverage compared to McAllen (4% versus 8%). The outpatient expenses of this population are not included in Medicare expenditure reports. In Exhibit 2 HMO enrollees and Medicare beneficiaries without full Medicare benefits are removed from the comparison.
Exhibit 2: Comparative Annualized Payments per Medicare Beneficiary by County after Managed Care and Medicare Part A&B Adjustments, 2006
| County | Medicare Enrollees | Medicare Payments |
| McAllen, Texas | 59,665 | $13,150 |
| El Paso, Texas | 67,133 | $7,656 |
| Grand Junction, Colorado | 12,355 | $5,579 |
When the analysis is restricted to cost and enrollment data only for Medicare fee-for-service beneficiaries covered by both Part A and Part B, Grand Junction’s beneficiary annual costs rise by almost 25%. The difference between McAllen and Grand Junction beneficiary costs falls, but McAllen Medicare costs, now for populations with the same coverage, are still well over twice those for Grand Junction.
County Socio-Demographic Characteristics
The dissimilarities between the McAllen and Grand Junction county populations are extensive. The socio-demographic characteristics of a population affect its access to care, ability to pay out of pocket for uncovered care and rates of disease associated with diet and life history. The costs of Medicare co-pays and deductibles can be substantial barriers to access, and history of health care coverage and access to preventive care vary substantially based on socio-demographic variables. Low-income individuals often reach Medicare enrollment age with a lifetime history of access and cost barriers, a potent mixture. Barriers to access to care can lead to expensive hospital care for conditions normally treated on an outpatient basis.
Grand Junction Medicare enrollees are 98% white and only 11% require assistance in paying for their Medicare Part B premium (a proxy for low income status). In contrast McAllen and El Paso are both 26% Hispanic, and a higher proportion of Medicare beneficiaries rely on Medicaid to pay for Part B — 36% in El Paso and 48% in McAllen. To assess how socio-demographic factors affect Medicare costs, Exhibit 3 compares costs for beneficiaries with and without Part B premium assistance.
Exhibit 3: Comparative Annualized Payments by County and Need for Premium Assistance, 2006
| County | Premium Assistance-No(not low income) | Premium Assistance-Yes(low income) |
| McAllen, Texas | $10,012 | $16,518 |
| El Paso, Texas | $6,709 | $9,374 |
| Grand Junction, Colorado | $4,853 | $11,425 |
Expenditures are consistently higher for low income beneficiaries, but McAllen is still more expensive than Grand Junction for both income groups — more than 45% more expensive for low-income beneficiaries and more than twice as expensive for those not receiving premium assistance. However, the Grand Junction advantage is not as great for the low-income population as for higher income beneficiaries. Could it be that a good part of the McAllen “excess” is simply due to its larger proportion of low-income Medicare beneficiaries compared to Grand Junction?
But socio-economic differences in themselves cannot explain cost differences. What makes the low income population so much more expensive to care for? And why is El Paso, which also has a large low-income Medicare population, so much less costly to Medicare than McAllen?
Population Health
Exhibit 4 uses estimates of population rates of disease derived from Medicare hospital and physician claims to reveal that the prevalence of chronic disease is substantially higher in the McAllen Medicare beneficiary population than in Grand Junction or El Paso; and that the proportion of the McAllen Medicare population with more than two of these conditions is a whopping 52%, in comparison to 23% in the Grand Junction area and 34% in El Paso.
Exhibit 4: Disease Prevalence by County, 2006
|
Many of the disease rates for the McAllen population are more than double those for Grand Junction. If the Medicare population in McAllen is truly that much sicker wouldn’t we expect the payments to be greater? A comparison of expenditures for Medicare enrollees without a diagnosis of diabetes or heart disease in the last year shows that costs for these standard populations are statistically very close (Exhibit 5).
Exhibit 5: Medicare Monthly Payments per Patient without a Diagnosis in the Year for Diabetes or Heart Disease, 2006
| Row Labels | Medicare Enrollees | Monthly Per Person Payments |
| McAllen, Texas | 28,680 | $3,147 |
| El Paso, Texas | 47,960 | $2,564 |
| Grand Junction, Colorado | 11,160 | $3,307 |
By eliminating diabetes, ischemic heart disease or heart failure from the population payment measures the Grand Junction advantage is completely removed. Grand Junction is just as costly as McAllen for populations without one of these conditions.
Even though diabetes and heart disease are both costly and highly prevalent in McAllen, beneficiaries experience a wide range of costly illnesses, and patients with multiple conditions are difficult to treat. We used a more sophisticated risk adjustment method to take into account an array of concurrent conditions.3 Beneficiaries in the top risk scores, the sickest patients, make up 27% of the McAllen, 16% of the El Paso and only 12% of the Grand Junction populations. Average Medicare payments were then computed for each risk group in each county (Exhibit 6). The effect on costs of accounting for this measure of illness burden is dramatic.
Exhibit 6: Annual Medicare Payments by Risk Level
Taking into account the disease combinations eliminates the apparent low cost difference across the full range of disease risk scores. If the disease levels in the McAllen population were magically made to match the Grand Junction disease distribution, but experienced McAllen-level costs, annualized Medicare payments would fall from $13,150 to $6,145. The morbidity-adjusted per beneficiary payment rate for McAllen is 10% higher than the $5,579 Medicare per beneficiary annualized payments observed in Grand Junction, substantially less than the observed 300% payment differential seen in the unadjusted data.
Discussion and Implications
McAllen is different from many areas of the United States: it is sicker and poorer. The observed differences in the rates of chronic disease are highest for those conditions rampant in low income American populations: diabetes and heart disease. Further, Medicare beneficiaries in McAllen have significantly higher rates of co-occurring chronic conditions. As a result the costs of caring for McAllen Medicare population appears high in comparison to other areas but not abnormally so. McAllen suffers from a tremendous burden, but it not caused by its physicians: the care they provide leads to costs that are substantially comparable to the other counties in the article once adjustments are made for the magnitude of the health problems they face. The disturbing pattern of physician practices uncovered by Dr. Gawande sounds a warning not because it foretells a McAllen-like future but because it portrays the on-going crisis that affects both McAllen and Grand Junction and it is national in scope. Physician culture is only part of the McAllen story.
Patients with chronic disease, especially those with multiple conditions, are extremely costly to treat. Cost savings will not be realized by denouncing and penalizing medical systems because they treat patient populations with high rates of disease. Instead health care reform must develop policies that support streamlining and coordinating care for beneficiaries with multiple chronic conditions, wherever they reside. Policies that support lifetime continuity of coverage, disease prevention and early treatment, could reduce healthcare costs for populations who now reach Medicare eligibility with a history of under-service. Physician culture has a role to play: Accountable Care Entities are intended to reduce barriers to access by facilitating care coordination. The high costs of care in places like McAllen will not be dramatically reduced by transforming physician ethics and organization if the roots of the crisis are in the interaction between class, demographics and chronic disease.
Notes:
1) The payment amounts and beneficiary counts are from CMS claims and enrollment data that includes a 5% sample of the Medicare population. The data is hosted by JEN Associates Incorporated of Cambridge Massachusetts, a CMS MRAD contractor.
2) A risk score ranging from 1 to 13 was computed for each beneficiary using diagnoses found on Medicare physician and hospital claims. Beneficiaries with scores greater than 9 are not observed in the Grand Junction 5% data in numbers sufficient for analysis. The grouping and scoring system was developed by JEN Associates Inc. of Cambridge Massachusetts for Medicare and Medicaid program planning and evaluation applications. Diagnoses are selected based on correlation with future hospitalization, nursing home entry and death and grouped according to a disease’s functional impact.
Daniel Gilden is a health services researcher with 20 years of hard core quant experience.He’s the President of JEN Associates which provides highly specialized analysis of Medicare and Medicaid data. He contacted THCB regarding the fuss about the McAllen, TX “overuse” story. In his calculations the data suggests something very different from the “practice variation” theory–the patients really are sicker. As this goes counter to decades worth of work by Wennberg et al, we invited Daniel to share his data and methodology with THCB. And we invite those of you who like this kind of research but may disagree with Daniel’s analysis to respond. Finally it’s worth noting that if his conclusions are true this has huge implications for overall health care policy…Matthew Holt
Last night I was busy spending two hours of my and my business partner’s time buying health insurance for our massive 4 person company. That means doing a multi-factorial equation between premiums, co-pays, deductibles, out of pocket maximums, & in & out of network costs. It’s no wonder that no one understands their health insurance, especially when eHealthinsurance.com still doesn’t bother putting half of the important variables on its front page. But no matter, it will be my pleasure to make Wellpoint or Aetna better off—they’re not having such great years and they can use the money.
But then I noticed from the tweets that Obama was doing a primetime townhall about health care. So having failed to find it on my TV (cos I’m on the west coast and we’re not alive at the same time as you east coasters), I looked on the ABC web site. There I didn’t find the TV version , but I did find what I thought was a most amusing article….and as I went all the way through I noticed that it was by my buddy Michael Cannon…the thinking man’s health care libertarian from Cato.
Obama’s too busy talking mush with the townhall to answer…but I thought I might.
So here’s Michael’s questions, and in italics are my answers
June 24, 2009—
“Health care reform is on life support,” says Rep. Jim Cooper of Tennessee. And he’s a Democrat.
MH: Not really! Or at least not in a sane country unless he has the word “Christian” in front of his party label
President Obama has spent months building momentum for health care reform. But when the Congressional Budget Office put the price tag near $2 trillion, it stopped reform dead in its tracks.
What Senate Finance Committee chairman Max Baucus, D-Mont., once called “nearly inevitable” now seems much less so — and that’s before supporters have confronted the really tough questions.
Before this debate is over, Obama should answer a few questions about his plans for reform, including:
Mr. President, in your inaugural address and elsewhere, you said you are not interested in ideology, only what works. Economists Helen Levy of the University of Michigan and David Meltzer of the University of Chicago, where you used to teach, have researched what works. They conclude there is “no evidence” that universal health insurance coverage is the best way to improve public health. Before enacting universal coverage, shouldn’t you spend at least some of the $1 billion you dedicated to comparative-effectiveness research to determine whether universal coverage is comparatively effective? Absent such evidence, isn’t pursuing universal coverage by definition an ideological crusade?
MH: Sadly Michael, universal coverage is not about improving public health. If you want to do that, go teach some kids age 1–5 and build some sewage systems. Universal care is about making sure that the costs of health care are fairly distributed. Under the systems you prefer and the one we now have they’re distributed to the poor and sick from the healthy and wealthy—many of whom we both know work in the health care system. But apparently there was NOT ONE MENTION from a questioner of the uninsured or sick people bankrupted by the system in the whole hour. (Update Fri: and the only time the moderator Charlie Gibson mentioned it was when he wondered how rich people like him would get access to a doctor with all these newly insured people wanting care–he spent the whole evening appearing to be a selfish git)
A draft congressional report said that comparative-effectiveness research would “yield significant payoffs” because some treatments “will no longer be prescribed.” Who will decide which treatments will get the axe? Since government pays for half of all treatments, is it plausible to suggest that government will not insert itself into medical decisions? Or is it reasonable for patients to fear that government will deny them care?
MH: Why should patients fear it? We know that less intensive care is better, and cheaper primary care is better than more extensive specialty care. As the taxpayer pays for training doctors and funds most medical facilities why shouldn’t they demand that the resources are better spent?
You recently said the United States spends “almost 50 percent more per person than the next most costly nation. And yet … the quality of our care is often lower, and we aren’t any healthier.” Achieving universal coverage could require us to spend an additional $2 trillion over the next 10 years. If America already spends too much on health care, why are you asking Americans to spend even more?
MH: Ah we agree. All the money should come from the current system, even if it means reducing the incomes of pundits, bloggers and those who sponsor them, and a few people in the system. Sadly the politics of the US means that apparently Obama can’t say that
You have said, “Making health care affordable for all Americans will cost somewhere on the order of $1 trillion.” Precise dollar figures aside, isn’t that a contradiction in terms?
MH: Well for a start it’s not $1 trillion, it’s $100 billion a year which these days will barely buy you 6 months invasion of a small country. Which we do without debate on a regular basis it seems. And if we take the money from somewhere else we’re spending the money in health care, it shouldn’t cost more. Ah ha, cant be done because well see last answer
Last year, you told a competitiveness summit that rising health care costs are “a major anchor on the ability of American business to compete.” In May, you wrote, “Getting spiraling health care costs under control is essential to … making our businesses more competitive.” The head of your Council of Economic Advisors says such claims are “schlocky.” Who is right: you or your top economist?
MH: Obama is. I just spent 2 hours figuring out a mess of health insurance decisions that not one of my international competitors has to do. Multiply that out by every business in America, and don’t bother adding the fact that what we actually pay for health care is more than double per head what everyone else does. We’re both political scientists so we know that economists don’t know squat.
You recently told an audience, “No matter how we reform health care, we will keep this promise to the American people. … If you like your health care plan, you’ll be able to keep your health care plan, period. No one will take it away, no matter what.” The Associated Press subsequently reported, “White House officials suggest the president’s rhetoric shouldn’t be taken literally.” You then clarified, “What I’m saying is the government is not going to make you change plans under health reform.” Would your reforms encourage employers to drop their health plans?
MH: So? If employers do drop coverage as there are only 3 or 4 health plans in most markets, it would still be the same plan that the citizen would get to buy if they wanted to keep it and the costs would be subsidized for the poor. But don’t worry too much Michael. Americans hate their health plans. For some strange reason though they apparently like their doctors. Of course the AMA tells them they do
You found $600 billion worth of inefficiencies that you want to cut from Medicare and Medicaid. If government health programs generate that much waste, why do you want to create another?
MH: You’re saying all government programs are the same? That means the US Marine Corps and the Iraqi volunteer EDF (or whatever it’s called) are the same. I could start a government program that saved $600b very easily in Medicare & Medicaid. I might make a few enemies 
You and your advisors argue that Medicare creates misaligned financial incentives that discourage preventive care, comparative-effectiveness research, electronic medical records, and efforts to reduce medical errors. Medicare’s payment system is the product of the political process. What gives you faith that the political process can devise less-perverse financial incentives this time?
MH: See my above answer, oh and abolish the Senate
You claim a new government program would create “a better range of choices, make the health care market more competitive, and keep insurance companies honest.” Since when is having the government enter a market the remedy for insufficient competition? Should the government have launched its own software company to compete with Microsoft? Are there better ways to create more choices and more competition?
MH: Hmm…the government did launch its own software “company”, which was way better & cheaper than the private sector competition, and made the government agency that used it provide the “best care anywhere”—demonstrably superior to privately provided care. And it was so good that the monopolists at Microsoft stole its name and never paid compensation! Or did you miss Vista in your health care system and software market analysis?
When government entered the markets for workers compensation insurance, crop and flood insurance, and disaster insurance, it often completely crowded out private options. Do you expect a new government health insurance program would do the same?
MH: I hope so because the current private options are lousy at keeping down health care costs, or satisfying their customers. Oops, Obama can’t say that, can he.
You have said there are “legitimate concerns” that the government might give its new health plan an unfair advantage through taxpayer subsidies or by “printing money.” How do you propose to prevent this Congress and future Congresses from creating any unfair advantages?
MH: I don’t know but I’ll make a deal. I’ll promise my health plan wont have use an unfair advantage if you promise that AHIP’s members will stop lobbying Congress to rip-off the taxpayer. This wonderful chart shows that the likelihood of being against the public plan is directly proportional to the bribes paid to Senators by insurance companies.
President Obama needs to address questions these directly. The health of millions depends on his answers.
MH: No it doesn’t. The health of Americans depends on a bunch of stuff. The wealth of a few millions who get royally screwed by the current system does depend on reform. The current system is aided and abetted by its defenders like Cato and others who advocate “solutions” that are not only unworkable but also politically un-feasible. Their only role is to be spoilers to keep the status quo in place.
Michael F. Cannon is director of health policy studies at the libertarian Cato Institute and coauthor of Healthy Competition: What’s Holding Back Health Care and How to Free It.
Matthew Holt is a vicious blogger who wouldn’t mind being President for a day or two but not without the ability to break Congress to his will in the first ten minutes.
You recall my piece about whether the public plan would be set up to be adversely selected against like historically Medicare has been. Well this week Paul Starr did a rather better job on the same topic.
Policy-makers involved in healthcare reform are making a mistake in disproportionately emphasizing our current doctor shortage while neglecting serious shortages of care providers in other fields of health. Rather than continuing a failed, piecemeal approach, the nation needs to establish a multi-professional, multi-disciplinary, national planning body charged with carrying out a comprehensive and coordinated national health workforce policy. National healthcare reform cannot be realized without effective national health workforce reform.
I was born into a Berkeley family of Social Democrats—my father studied Swedish economic policies—then I trained in social-democratic Economics in Scandinavia, before cutting my career teeth in a Norwegian Labor Party think tank. I thereby personify the threat trumpeted by Republicans: the sinister spread of Social Democracy.
So I am cheering wildly for establishing a federally owned health plan, right? Wrong.
Not that I’m particular opposed, either: It’s just not a big deal. Either way, new government-run plan or not, there won’t be much impact on our nation’s enormous health care problems. Our health care dilemmas—high costs, poor access, and mediocre outcomes–stem from much more fundamental issues than who sits on the board of yet another insurance plan.
These include the perverse incentive structures for key decision makers in the industry, including insurers, providers and patients. Insurers earn money by serving the well rather than the ill who need their assistance most, providers don’t become rich by managing care over time but by medically over-treating the critically sick, and consumers are incented to both stay out of the insurance pool until they’re sick and to seek medical help late.Continue reading…
Jon Cohn notes that Wendell Potter, a former PR executive with Cigna and Humana. will be appearing before a Senate Commerce Committee today. Note the word “former”.
Trudy Lieberman has an interview with Potter where he repeats what we already know:
Lieberman: How do companies manipulate the medical loss ratio?Potter: They look at expensive claims of workers in small businesses who are insured by the company, and the claims of people in the individual market. If an employer-customer has an employee or two who has a chronic illness or needs expensive care, the claims for the employee will likely trigger a review. Common industry practice is to increase premiums so high that when such accounts come up for renewal, the employer has no choice but to reduce benefits, shop for another carrier, or stop offering benefits entirely. More and more have opted for the last alternative.
It makes no sense for small businesses to provide health insurance to employees. This testimony from a small business owner to the House Tri-committee yesterday shows it. (Same is true for all employers but none save Ron Wyden dare say that).
Health insurance should be paid for by some form of taxation (VAT, income tax or payroll tax) that is in proportion to businesses and individuals profitability/income, and small businesses (and big ones) should be left to do whatever it is they do. I cannot fathom how NFIB manages to convince its members otherwise, but it does appear that there’s a crack in that dike with various small business groups coming out in support for real health reform.
Having said that, I don’t think there’s too much likelihood that a typical low wage business will get much help anytime soon.
President Obama has repeatedly promised
that providing every American affordable access to quality health care
won't cost more money than we'll save through reform, but he's recently
raised the stakes even further. Health care reform, he has said, would
"foster economic growth" and "unleash America's economic potential."
Is that realistic?
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