Category Archives: Efficiency


We’ve blogged before about the relationship between healthcare costs and utilization. The topic is of interest in Pittsburgh, where facilities see utilization that exceeds national benchmarks. The Pittsburgh Post-Gazette has the story:

Younger people are also going to the hospital more often here than in other regions. A 2010 study by the actuarial firm Milliman found that for commercially insured individuals, the Pittsburgh region had 6 percent more hospital admissions and 26 percent more emergency room visits than the national average. We had one of the highest rates of emergency room use among 33 regions it analyzed.

High rates of hospitalizations, surgeries and emergency room use are not only expensive, but they’re also signs that the region’s health care systems aren’t functioning efficiently or effectively.

Many of the chronic disease patients being hospitalized today could stay healthier and avoid the need for hospitalization through better primary care and patient support services.

A great place to start is by reducing readmissions — Pennsylvania Health Care Cost Containment Council data show that 23 percent of the chronic disease patients in Pittsburgh who are hospitalized end up back in the hospital in less than a month. These high readmission rates can be significantly reduced; for example, projects organized by the Pittsburgh Regional Health Initiative at UPMC St. Margaret and at Premier Medical Associates showed that improving care for chronic disease patients can reduce readmission rates by 40 percent or more.

Avoidable medical errors cost $19.5 billion annually

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.

An example of convergence

A recent Kaiser Health News (KHN) article highlights a theme we’ve written about previously: the convergence of quality and efficiency in healthcare. Here is an excerpt from the KHN article:

Treating a pneumonia case at the Theda Clark Medical Center in Neenah averaged $10,435 in 2008. Sacred Heart Hospital in Eau Claire, on the other hand, charged the average pneumonia patient $20,419, nearly twice as much.

What shocked hospital administrators most were the results for quality. Instead of higher cost hospitals delivering better care, the evidence pointed to just the opposite: The higher cost hospitals were less likely to meet benchmarks for quality. Theda Clark attained 95.5 percent of the quality goals outlined for treating a pneumonia case in 2008. Sacred Heart met just 90.5 percent of the standards.

Publishing the cost and quality data has had a far-reaching impact on the state, whose health care system is now considered among the best in the country. It gave hospitals with low quality ratings objective feedback for improving their performance. And the rankings motivated high cost hospitals to begin looking for ways to eliminate expensive but medically questionable procedures that didn’t improve outcomes.

Most important of all, it created a constituency – informed consumers – who were now armed with data that allowed them to pressure local hospitals to improve their performance. “People make purchasing decisions for everything from banking to refrigerators based on cost and quality information, but that is not how it currently works in health care,” said Walter Rugland, chairman of ThedaCare, at a House Energy & Commerce subcommittee on health hearing held last Thursday. “In Wisconsin, we believe we have fixed that problem.”

At least three bills introduced in the House this session but not included in health care reform would make a start on replicating the Wisconsin system nationally. But they don’t go far enough because they focus exclusively on price, and not on the quality side of the ledger.

Rugland spent much of his career at Milliman and is volunteer chair of four nonprofit hospitals in the ThedaCare network.

High-value hospitals in Italy and the United States

The Wall Street Journal today looks at hospitals in Italy’s Lombardy region. In this region, competition between public and private hospitals has resulted not only in reduced costs but also in improved quality. Here is an excerpt from the article:

In much of the country, regions have continued to use the standards of care and reimbursement rates recommended by Rome. Some also give preferential treatment to public hospitals, making it more difficult for private hospitals to qualify for public funds.

Lombardy, by contrast, has increased its quality standards, set its own reimbursement rates and, most important, put public and private hospitals on an equal footing by making each equally eligible for public funds. If a hospital meets the quality standards and charges the accepted reimbursement rate, it qualifies. Patients are free to choose between state-run and publicly funded private hospitals at no extra cost. Their co-pay is the same in either case. As a result, public and many private hospitals in Lombardy compete directly for patients and funds.

There are also regions in the United States that have exhibited higher value than others. Recent Milliman analysis looks at this dynamic. While the Wall Street Journal has correlated hospital improvement in Lombardy to increased private/public competition, the causal drivers behind the most efficient regions in the United States are less clear.  Here is an excerpt from that study:

We were surprised to find that the 16 [highest-value] cities have little in common when it comes to what we thought were key drivers, such as:

  • Hospital market concentration
  • Commercial payer market concentration
  • Wage index
  • Ratio of primary care to specialty care
  • Hospital Care Intensity index, a measure of the intensity of services provided in a locale

Prominent among our findings are the lack of consistent association of these characteristics among our set of high value cities. Our analysis was not designed to test for such associations for the entire nation. The authors hypothesize that hospitals can meet financial goals through controlling costs (strong management of resources) or by attempting to maximize revenue (high charges to private payers).

We note there may be some other factors common among the cities that are high value for hospital care, and finding those factors would be a great public service.

See the full analysis of high-value U.S. hospitals here.

Is your city high value?

A recent study seeks out locations where hospitals are able to provide high value care to both Medicare and commercial patients. Here is an excerpt:

Many private payers are concerned that current government (Medicare and Medicaid) provider payments get translated into higher provider charges to commercial payers, which increases private payer premiums and claims costs for self-insured plans. This study was commissioned to look at actual data from commercial insurers to help answer this question:“Are cities that are high value for Medicare inpatient care also high value for private payers, or do they look better because private payers were charged more to enhance inpatient revenue?”

There are important policy implications, depending on which part of the question above is correct. It is important to reframe the high value definition as those cities  and hospitals that provide the best inpatient hospital value for all payers, consumers and the community as a whole.

So where are the high value cities? Here is the list:

  • Tucson, Ariz.
  • Albuquerque, N.M.
  • Sarasota, Fla.
  • Akron, Ohio
  • Honolulu, Hawaii
  • Medford, Ore.
  • Boise, Idaho
  • Portland, Ore.
  • Portland, Maine
  • Pittsburgh, Pa.
  • Grand Rapids, Mich.
  • Knoxville, Tenn.
  • Asheville, N.C.
  • Newport News, Va.
  • Fargo, N.D./Moorhead, Minn.
  • Spokane, Wash.