Healthcare Town Hall

The U.S. spends upwards of $600 billion each year on wasteful healthcare, and as the biggest hospital payor in the country, the federal government has an interest in minimizing this waste. For almost 20 years, the Centers for Medicare and Medicaid Services (CMS) has been developing various auditing capabilities. When the recovery audit contractor program was made permanent in August 2009, it became just the latest example of the War on Waste that has been mustering for many years and has now reached maturity. What can physician executives do to arm themselves for the War on Waste? Scientifically based guidelines and documentation of best practices will play an important role and can help ensure more efficient and quality care even as the War on Waste challenges the way hospitals provide care.

For more on this topic, read the article from the recent Physician Executive, “How hospitals can arm themselves in the War on Waste.”

Cost, Value Helen Blumen, Medicare, Tiffanie Lenderman, waste

CFO Magazine looks at the uncertainty surrounding healthcare reform and what we might expect in the near future. Here is an excerpt:

A recent Milliman survey estimates that group insurance rates will increase by 9% for HMOs and 11% for PPOs next year, which is modestly higher than in previous years. And companies may have to negotiate well to keep increases from rising even further.

Randy Lay, CFO of Lazydays, a recreational-vehicle dealer in Florida with about 500 employees, says the first offers he has seen from insurance companies for 2011 include rate increases of 30%, despite the company having begun to self-insure the first layer of costs last year. “The reconciliation between what you’d like to do for employees and what you can do, given the cost, is not getting any easier,” he says.

See the full article here. For more on employee/employer cost sharing, check this out.

Cost Cost share, Group Health Insurance Survey

Analysis of Medicare cost and utilization data has been extensively documented, most notably by the Dartmouth Atlas, and has revealed significant variation from one region to the next. Similar analysis using commercial insurance data, however, has been lacking. This study, the first to consider commercial populations, examines regional cost variation, providing cost relativities for claims paid by commercial payors for particular hospital referral regions. Among other findings, the study highlights the importance of negotiated provider reimbursement as a factor in the nation’s healthcare cost. While Medicare sets provider reimbursement rates based on formulas and rules, commercial provider reimbursement is set by negotiation between the insurer and the provider. This means, among other things, that regions with low Medicare costs could have high commercial costs. An examination of commercial data alongside Medicare data is crucial for understanding the true nature of healthcare cost variation across the country.

Cost Bruce Pyenson, geographic cost disparity, Michele Berrios, Sara Goldberg

The Health Beat blog revisits a study from last year, “Imagining 16 to 12.” Here is an excerpt summarizing the article:

Could we bring our nation’s health care bill down from 17% of GDP to 12%? An intriguing study from Milliman, the independent consulting and actuarial firm, says”yes.” Looking at actuarial data from some of our best and most efficient health care plans, Milliman’s analysts conclude that, in theory, it would be possible to trim our bloated health care system by 25%.

Before you dismiss the idea, consider this: not that long ago, we brought health care inflation down to less than 3% a year for six years running (1994-1999). During that time, the nation’s health care bill remained flat as a percentage of GDP.

And Milliman points out that today, our most efficient , high quality health plans are achieving similar savings by “reducing unnecessary inpatient stays” and “inappropriate imaging.”  The site of service also changes to emphasize lower cost settings—for example, home care instead of nursing-home care, or office-based primary care instead of emergency room care. The authors of the Milliman report acknowledge that 12% is only a “target for what is possible, not a budget.” They are not suggesting that we try to cap health care spending at 12% of GDP.

But the actuarial firm points that that in the not-so-distant past (1991) health cared did consume just 12% of GDP. Now it equals 17% of the economy. Granted, medical technology continues to advance, but have we really made that much progress since the ‘nineties?

Read the full article here.

Cost, Reform 16 to 12, Bruce Pyenson, Kate Fitch, Sara Goldberg

A new analysis looks at the cost of Medicaid expansion in the state of Nebraska and, as might be expected, the numbers are being interpreted a number of different ways. National Public Radio/Kaiser Health News has the story. The unique characteristics of Medicaid in Nebraska are another reminder of the diversity in healthcare costs from one state to another. 

This report looks only at Medicaid, which is how it arrives at the cost of between $526 million and $766 million for the state. The cost of uncompensated care has been held up as justification for the state to foot these kinds of costs.

As is so often the case anytime we talk about the cost of care, in addition to considering the specifics it can be helpful to step back and look at the underlying factors driving the healthcare cost trend.

Cost, Medicaid Medicaid expansion, Nebraska, Rob Damler

Accountable care organizations (ACOs) must manage toward actuarial targets, which is a key means to attain the end of more efficient care. This process requires both “supply-side” medical management and “demand-side” medical management. Here is an explanation of each:

Supply-side medical management services are what many consider the more challenging side of medical management but they are also what produce the savings. These services are intended to reduce utilization and payment for medically unnecessary services and also ensure that care is delivered in the most appropriate setting, which for an ACO should mean delivered by an ACO-associated provider. Clinical guidelines help evaluate the medical necessity of requested (or, retrospectively, rendered) services…

Demand-side medical management services optimize a population’s health so that demand for services will be lower. In particular, these services can impact ambulatory care sensitive admissions, preference sensitive admissions, readmissions, and ER visits.

For more on managing to actuarial targets, read the recent paper, “Nuts and bolts of ACO financial and operational success.” For more on medically unnecessary services, view this blog post or this paper.

Accountablity, Cost ACOs, Cathy Murphy-Barron, David Mirkin, Kate Fitch

Health Leaders looks at a recent report on avoidable medical errors and highlights the most costly such errors. Here are the top ten.

1. Pressure ulcers—374,964 errors, $10,288 per error and $3.858 billion total.
2. Postoperative infections—252,695 errors, $14,548 per error, $3.676 billion total.
3. Mechanical complication of a device, implant or graft—60,380 errors, $18,771 per error, $1.133 billion total.
4. Postlaminectomy syndrome—113,823 errors, $9,863 per error, $1.123 billion total.
5. Hemorrhage complicating a procedure—78,216 errors, $12,272 per error, $960 million total.
6. Infection following infusion, injection, transfusion, vaccination—8,855 errors, $78,083 per error, $691 million total.
7. Pneumothorax—25,559 errors, $24,132 per error, $617 million total.
8. Infection due to central venous catheter—7,062 errors, $83,365 per error, $589 million total.
9. Other complicaitons of internal (biological) (synthetic) prosthetic device, implant and graft—26,783 errors, $17,233 per error and $462 million total.
10. Ventral hernia without mention of obstruction or gangrene—53,810 errors, $8,178 per error and $440 million total.

Read the full article here and the full report here.

Cost, Quality of Care Jon Shreve, medical errors

A new study commissioned by the Society of Actuaries looks at the cost of avoidable medical mistakes and quantifies the economic impact of such mistakes as $19.5 billion annually. Here is a description of the study from the Wall Street Journal:

Medical errors and the problems they can cause — including bed sores, post-op infections and implant or device complications — cost the U.S. economy $19.5 billion in 2008, according to a study released today. (That’s enough to buy almost 1.3 billion copies of The Checklist Manifesto, Atul Gawande’s bestseller on reducing such errors via the lowly checklist.)

The study, commissioned by the Society of Actuaries and carried out by the actuarial and consulting firm Milliman, is based on insurance claims data. The cost estimate includes medical costs, costs associated with increased mortality rate and lost productivity, and covers what the authors describe as a conservative estimate of 1.5 million measurable errors. The report estimates the errors caused more than 2,500 avoidable deaths and over 10 million lost days of work.

The Hill also picks up on this story. Here’s an excerpt:

Preventable medical errors cost the country $19.5 billion in 2008 — or roughly $13,000 for each avoidable case, according to a report published Monday by the Society of Actuaries (SOA).

And that number is likely low, according to consultants at Milliman, who crunched the data. 

“We used a conservative methodology and still found 1.5 million measureable medical errors occurred in 2008,” says Jonathan Shreve, an actuary for Milliman who co-authored of the report. “This number includes only the errors that we could identify through claims data, so the total economic impact of medical errors is in fact greater than what we have reported.”

Read the study here.

Cost, Efficiency Jon Shreve, medical errors

We have blogged before about how the status quo approach of shifting hospital costs from patients covered by Medicare and Medicaid to commercial payors simply can’t last, a view explained in a recent reform briefing paper. That dynamic deserves a closer look:

We can model entire systems, fully adjust for reform initiatives, anticipate provider fee movement for commercial business, etc., based on our healthcare reform modeling capabilities, but in order to calculate the status quo we have only modeled the demographic changes expected in the population as the Boomers enter Medicare and as Medicaid expands. We have not figured in differences by region, type of service provider, or other sources of variation, nor have we tried to anticipate changes to the status quo and how those changes would be reflected in various cost relativities. By their very nature, those changes are dynamic and highly variable, and will depend on a number of factors, including the eventual success of provider efforts to pursue efficiency instead of cost shifting…

If action is not taken to minimize status quo cost drivers, the yield on current equivalent billed charges is projected to fall by 2020 in our most likely scenario. Specific localized areas could see a shift significantly more detrimental based on current payor mix, an aging population, and/or a heavy percent of low-income newly Medicaid eligible members. Our projection in Figure 2 shows a 12% decrease in average yield over the next 10 years before the influence of trend by payer. With governments limiting increases and little or no room left for cost shifting, this mix issue will go straight to providers bottom lines over time.

The full paper is available here.

Cost cost shift, Doug Proebsting

We’ve talked about cost control before (here and here in particular). A new healthcare reform briefing paper continues the discussion, focusing on the topic of provider risk sharing.

In the past, provider risk sharing has attracted substantial attention as a means of controlling healthcare costs. But efforts to implement provider risk-sharing strategies have often not lived up to their promise.

With healthcare costs reaching unprecedented level—and with certain reform provisions encouraging providers to shoulder more risk—the concept is again attracting attention. Given the far more precise tools now available to both payors and providers—not to mention the possibility for better coordination among all stakeholders—the healthcare system may now be primed for a successful move toward provider risk-sharing strategies.

Read the paper.

Cost Lisa Mattie, provider risk sharing, Richard Kipp