Thursday, November 30, 2006

Please help me answer this

A law student from Wyoming has written and asked me a couple of questions. Before I write my answer to this young man, I thought I would ask you readers, who are much more expert than I, to suggest answers that I might include. So please submit your comments, and I will refer your replies to him as well.

Dear Mr. Levy:

In a May 1, 2006 speech, President Bush said, "In the past five years, private health insurance premiums have risen 73 percent. And as a result, some businesses have been forced to drop health care coverage for their employees."

I have contacted you to ask you why you think the price of healthcare has skyrocketed.

I do not have the premise of faulting hospitals. I am not a writer for your local newspaper. I would just like to be become involved in politics some day, and in order to do so, you have to know the reasons for the problems from the people who are most in tune with the problems.

I have talked to several hospital CEO's in Wyoming and they say that the cost of new technology is their primary burden, not medical liability suits.

In a nutshell, what do you think are the primary reasons for the rising costs and what can be done to lower the costs? Also, do you think that health savings accounts, as proposed by the President, will lower the costs of healthcare?

I thank you for your time and look forward to hearing from you soon.


BC said...

I think there are several factors that are driving the rapid increase in healthcare costs including new technology and drugs that extend the lives of people (including those with heart disease, cancer and diabetes) who would have died years earlier 20-30 years ago. That said, I think the following initiatives could mitigate the rapid cost growth:

1. Robust price and quality transparency, especially related to big ticket events such as hospitalizations, surgeries (80% of which are scheduled in advance) and imaging could foster competition (and lower costs) among providers.

2. Much more widespread use of living wills could reduce expensive and often futile (and unwanted) care at the end of life. Indeed, I think we should make living wills and advance medical records a condition of health insurance.

3. Replace the current system of settling medical disputes with specialized health courts in order to break the culture of defensive medicine.

4. Build a system of interoperable electronic medical records and personal health records to reduce duplicate testing and adverse drug interactions.

5. Encourage more consolidation among insurers and standardization of offerings and provider payment rates to lower administrative costs.

6. People in the top 50% of the income distribution spectrum should be strongly encouraged to purchase high deductible health plans. Some skin in the game is a good thing if it is coupled with good price and quality transparency as referred to in point #1.

7. CMS should be authorized by Congress to explicitly take costs into account in determining what to pay for and not pay for, especially with respect to some of the new ultra expensive biotech cancer drugs that are coming to market.

Bottom line: there is no silver bullet solution to this problem, but there are probably a lot of silver pebbles that, taken together, could make a positive difference.

eeka said...

One component is people using ERs for non-emergency purposes, because the current system makes it harder to get a PCP and harder to be seen same-day when necessary. An ER visit to get antibiotics for a sinus infection can be $1200ish. A physician visit for this is under $200. (The author might be able to contribute better figures; those are just the ballpark of ones I've seen on bills in my work.)

The whole system is overtaxed. Really, every inch of it. This leads to ER visits from many angles. A family can't get anyone to evaluate their child who seems to be developing a mood or attentional disorder. PCP, if they even have one, can refer them, but it will be a few months. Meanwhile, the kid is out of control and trashing the house, so the family takes the kid to the ER, because it's the only way to get services. This ER visit involves the MD assessment plus a psych eval, maybe a clinician consult with the family. This might be a couple thousand. Kid probably ends up hospitalized because the ER aren't really experts in child mental health, so they're afraid to send the kid home in this state. Another several thousand for the hospitalization. In the end, the kid just needs some meds and maybe some accomodations at school. But some huge bills have racked up.

todd said...

A few reasons that come to immediately to mind are:

1) Marketing drugs directly to consumers. While there's nothing ethically wrong with it, it seems to me much more likely that a patient, without knowing anything about the side effects or cost, would demand a higher priced name-brand rather than either a generic or an alternate that would do the job just fine. Do you really need Plavix? Or would asprin work for you?

2) (related) The insane amount of money drug companies spend on marketing. Yes, developing new drugs is expensive. But it's a drop in the bucket compared with the amount big pharma spends on media and advertising. There was a recent article in The Atlantic about one aspect of this. The schwag being passed out at the last Diabetes Expo was jaw dropping.

3) Over testing. Doctors opting for the most expensive tests available for one reason or another. Either CYA, or again, patient driven, I don't know. During a recent (2002) hospital stay, the attending physician was about to order an MRI. He couldn't explain to me why he thought it was necessary, it was just "to check". For various reasons unimportant here, I didn't want to have an MRI unless it was really, really necessary. We settled for an ultrasound which was far less expensive and told him everything he wanted to know.

4) Billing errors. The amount of time I spend trying to straighten out billing errors is way, way beyond what it should be. It takes time away from my job, and I can hear the meter ticking every time I have to get ahold of someone at BCBS or Joslin (who are seemingly incapable of billing things correctly, time after time after time after time). Then I'm left of try to straighten it out. Somehow.

5) Unknown cost. There's no possible way for an individual to play a role in deciding on costly care. How much is Drug A? How much is Test A v. Test B? How much is this operation at Hosptial A v. Hospital B? Do I have a choice? Can I negotiate? Who do I talk to? I mean, if Stop & Shop is selling a gallon of milk for $5, and Costco has it for $3, I can make the choice of where to go. Maybe, for one reason or another, Stop & Shop is the right choice. But the point is, I know the value v. convenience v. cost ratios before I start. That's impossible in health care.

Mark said...

When I buy a new dishwasher, I look in Consumer's Reports, check their reliability ratings, and shop around for the best value.

When I have a heart attack, as far as I know, the decision where I get treatment is determined by the ambulance driver.

Need I say more?

I have heard that the prices for cosmetic surgery have been coming down, and that is due to the fact that people pay out of pocket, and shop around for the best value for their money.

Anonymous said...

Because hospitals like yours are so busy with paperwork from HMO's and because doctors are so worried about which course of action to take so as not to run afoul of the HMO's, patient care is suffering. Also, I believe that doctors in your very hospital are forced to order expensive and unnecessary tests to reach unspoken quotas. I just went through a series of very expensive tests at your hospital which in the opinions of some unaffiliated medical providers were completely unnnecesary given my condition. In short, I am starting to feel that a free clinic would provide better care (and doctors who actually listen) than the BIDMC. You should sit in your emergency room sometime and see how many hours you wait and see how frustrsted you become.

Paul Levy said...

Please rest assured that there are no quotas of any sort, and that clinical decisions are made without regard to the feelings of insurance companies. (For one thing, each insurance company has its own rules for reimbursement, and the doctors in charge of a case usually don't even know which company you have or whether you are even insured.)

Emergency room doctors make decisions based on what they see at the moment you arrive and their experience. Another doctor, not in that setting, might second-guess those decisions, but he or she is not in the ER at that moment and does not have that benefit of your specific information.

And, for the record, I have been in our ER and others for myself and family members and friends and have waited those many hours. Sometimes tests take a long time. Sometimes you wait a long time because there are more serious cases to be seen and you have been triaged as lower priority compared to a person, say, with a stroke or heart attack.

Anonymous said...

There are many factors, including an aging population, better drugs, procedures and care in general and the lack of preventative care for the uninsured resulting in more wide-spread use of the ER as a last resort. But let's not forget that the U.S. has the highest administrative costs of delivering healthcare, three times higher than in Canada. When insurance agencies spend a lot of resources trying to not pay a claim - as they do here - the system becomes very inefficient.

Anonymous said...

One follow-up to Todd: the average cost of drug development is $800 Billion. With a B. I find it very hard to believe that any company is spending that kind of cash on ad campaigns - and I know that's not the case in my personal experience. Just sayin'.

Shai said...

Some of it I chalk up to "overhead costs", by which I mean everything ranging from the receptionist's time figuring out which health care plan you're on, to the billing agent figuring out how the hospital gets its money back, to the cost of consumer advertising and lobbying built into the price of drugs.

Another part I chalk up to the lack of preventative care, which others have mentioned. And by preventative care, I don't just mean regular checkups (though that is good too), I also include things like proper nutrition and adequate exercise. If we as a society had better nutrtition and exercise, diabetes incidences would plummet, taking care of one of the most widespread and expensive chronic health problems.

margalit said...

Some of what I have to say has already been said. I completely agree with Eeka about childhood mental health costs, having had the same experience she has had on three separate occasions until the proper meds were prescribed.

Todd's comments on marketing by drug companies is right on. We don't need to pay for that "ask your doctor" crap and it really bothers me to see the amount and scope the pharmaceutical companies have stooped to. We're paying for that and it's just plain wrong.

He's also correct about corporate schwag. My child's psychopharm hands out pens at the end of each visit. I've watched those sales reps come in loaded down with stuff nobody needs. The competition amoungs drug companies to market their medications to the unsuspecting public is crazy. I think back to the Ulcer craze, and how many meds were prescribed for ulcers before it was found that ulcers respond to antibiotics.

The fact that we have so many insurers is costing us a fortune. They're competing against each other for clients, but in order to pay for that competition, they keep lowering the bar for health care. The formularies change arbitrarily on a consistant basis. Tests change. We're allowing corporations that are not psysicians to decide what is and isn't appropriate for a patient. Insurance will pay for a gastric bypass, but not for the pounds of extra skin left after the surgery. Doctors think this is wrong, but the insurance companies made this decision. It makes no sense.

Too many people remain uninsured in this country, relying on emergency room care for their medical problems. In MA we have MassHealth as a supposed safety net, but it does not take into account the cost of living, so very few families really qualify as qualification is based on the US poverty rate. So people above the poverty rate by 150% are no longer eligible. Hence they wait until they are really sick before seeking help at an emergency room

The dearth of PCPs and the way patients are shuffled between PCPs is dispicable. Every time a patient is moved to a new PCP, there have to be repeat testing, medication changes, and more unnecessary appointments.

The onus of health care has fallen on the patient. Your doctor mentions you might have a sleep disorder or a fibroid or a slipped disk, but you have to find the follow up care.

The wait time in some parts of the country to see a specialist is so long that people get sicker and sicker while they are waiting. Ever have a kidney infection and have to wait over a week to see your doctor? Not uncommon in the Bay Area, where doctors are so few that you might wait for months to see one.

The way patients are billed is just plain wrong. The bills are too hard for people to decipher, they're often incorrect and require hours and hours of wasted discussion with your health insurer, only to end up in arbitration. This costs a fortune and it's a complete waste of time and effort.

Most medical facilities outside of Boston still rely on paper for records, prescriptions, and test requests. Paper costs money and is much more error-prone. Those errors drive up the cost.

Every time there is a new enrollment period, companies decide on their insurers based on cost, not on the health care provided. Sometimes the health care chosen for coverage is minimal coverage, or even poor coverage, which drives up the cost for everyone. Because the costs insurance companies pay has been negotiated, but the out of pocket cost is significantly higher.

I agree with bc that many people are much older and sicker than they ever have been. But as a society we are responsible for caring for all of our citizens. We don't put our elderly out on ice flows, so we need to plan for the cost increases. However, that does not negate the need for living wills and the need for education amongst the elderly and significantly ill about prolonging life unnecessarily. It's always going to be a personal choice, but we don't need a government intervening with Terry Schiavo type-insanity. That cost a FORTUNE, and for what?

Encouraging and PAYING for preventitive health care is essential. If you have a smoker, pay for the smoking cessation program. If you have an obese patient, pay for gastric banding or gastic bypass, and then for the skin removal as well. If you have a patient with dental issues, pay for them in full. The more we prevent serious problems, the cheaper health care will be overall. That we allow problems to fester until they are out of control is the biggest problem with health care coverage I can think of. And as a patient with a severe heart problem, I've experienced this first hand over and over again.

BC said...

I think it might be useful if we benchmarked our healthcare system against the systems in other developed countries such as Canada, UK, Germany, France, Switzerland, Japan and Australia. Some of the differences may be addressable within our current system and others might require fundamental change. I suspect key differences might include the following:

1. Lower administrative costs elsewhere due to taxpayer financing and fewer or no (in the case of the single payer systems) coverage choices.

2. Providers, especially doctors, earn less money in other countries.

3. A less litigious litigation environment means much less defensive medicine outside the U.S.

4. A very different approach to end of life care including, in some countries, QALY metrics and/or explicit rationing.

5. Longer wait times for non-emergency surgery, imaging, etc. which forces lower utilization due to supply restrictions, certificate of need requirements, and the like.

6. Price controls on drugs and not allowing DTC advertising by drug manufacturers.

Personally, I think taxpayer financing of a premium support / voucher model with numerous plans competing for business in each region would be a better approach than what we have now. I think competition is absolutely essential, however, in order to insure continuous improvement. Moreover, since a taxpayer funded approach would support a health benefit package of approximately equal insurance value to each individual or family within a geographic area, I think there needs to be a cap on the incremental taxes to be paid by the wealthy to help fund this benefit. If the value of family coverage is, say, $10,000, I don't think even the very wealthy should have to contribute more than $50,000 in dedicated healthcare taxes to fund such a system. If more money is needed, it should come from a broad based tax on consumption such as a value added tax with a mechanism, like expanding the Earned Income Tax Credit, to insulate the working poor from paying it.

Anonymous said...

For the insurance company price X volume equals total expenses paid out in claims (the medical loss ratio). Of the two I would suspect that the volume side has increased more than the price side due to more drugs on the market, more niche healthcare providers, the aging of the population, new imaging modalities etc... So five years ago if an insurance company charged $100 in premium and spent $75 of that $100 paying claims they were able to keep $25 for overhead and profit. Today assuming a 73% increase they would have about $130 in claims and would have to charge $173 in premium to have the same percent for profit and overhead. In order to lower the rate of growth you either have to eliminate a portion of the overhead and profit side of equation (fewer insurance companies, an all payer system or nationalized health coverage) or you have to limit volume (ration care). Easier said than done, one man's revenue reduction is another man's expense reduction.

Paul Levy said...

This has been really interesting. Thank you. I feel like we have heard many of the aspects of the national debate on this subject in our on-line help for this student.

Let me just add a bit more about the causes of cost increases, from the hospital perspective. As a general rule of thumb, hospitals must spend 110%, 120%, or 130% (depending who you believe) of annual depreciation to renew and replace capital investments like buildings, infrastructure, and major medical equipment. (This is because depreciation is based on the original cost of those items, while renewal and replacement take place at today's costs.)

For BIDMC, annual depreciation is about $65 million. Using the middle case (120%) means that we have to spend $13 million more than this amount, or $78 million per year, on capital improvements. Our annual budget is $1 billion, so that means that we would have to have an operating margin of at least $13 million just to stay even with renewing and replacing our existing stock of capital investments.

If, as is the case, the public's demand for our services is growing at about 4% a year for inpatient services and 6% a year for outpatient services, it means that we have to ADD facilities and equipment -- in addition to the renewal and replacement mentioned above. That adds still more millions of dollars to our capital requirements.

Meanwhile, our payroll -- particularly for high demand professionals like nurses, rad techs, and lab techs -- is rising at well above the rate of inflation. Ditto for drugs that we dispense and for medical supplies of all sorts.

So, if we can convince the insurance companies to pay us our costs plus a reasonable margin so we can invest for the future, it will require a reimbursement increase greater than the rate of inflation. This is turn means the insurers have to seek premium increases of a like amount. (By the way, the major insurers in this state are non-profits, so they are not collecting money for distribution to shareholders.)

And the hospitals are just one part of the healthcare system. Similar factors come in to play for doctors in private practice, skilled nursing facilities, nursing homes, and the like.

Anonymous said...

A response to your response to "anonymous" about emergency room treatment: The unnecessary tests were not in the e.r. setting - they were ordered by doctors (plural) in the normal, non-emergency room setting, where they had ample time to review their decisions. Fortunately my condition was not life threatening. Unfortunately I had to go through a series of unpleasant and unnecessary tests that were obscenely expensive. It is hard to tell who benefitted from these tests other than your hospital. This experience left me with very little confidence in your institution - and your doctors. Perhaps there's no quota per se, but there might be some pressure, whether from internal or external forces, on your doctors to order such tests. And I doubt that your doctors are unaware of a patient's medical insurance. It is the FIRST thing I am asked for when I visit my PCP at your hospital or any doctors to whom I've been referred. And it is very easy for the doctors to inquire of their staff.

Paul Levy said...

I guess I can't persuade you. There is no quota whatsoever, and there is no financial pressure on doctors to order tests.

Yes, the front desk clerk in any hospital-based or private physician practice inquires as to your insurance carrier when you check in so that the office can make sure to send a bill to the right company. But once again, the doctor treating you has no interest in what insurance company you have or even if you have one. It has no influence on the care you get.

At most, when a doctor orders a prescription for you as an out-patient, the computer system will flash back a message telling the MD whether that medicine is on the formulary of your insurance carrier, or whether an alternative drug could be offered to you at a lower cost to you. Then, you and the doctor can discuss the alternative.

I will offer this general rule to any person: If you have little faith in the honesty and integrity of the doctor you visit, whether at our place or another, switch your care to another doctor or another hospital. You should not let a lack of trust in his or her judgment interfere with your confidence in the medical care you receive. You should absolutely find someone you trust.

Long Island Nurse said...

The cost of medicine is directly related to the expectations of the public. As they have become more impatient (going to ERs for routine issues), more litigious, and more demanding (expecting every test possible and the most expensive treatments), they've driven up the costs involved in medical care.

Along the way, the public hasn't paid for their share of the expenses of medical care, foolishly believing that insurance company pockets and hospital pockets were bottomless.

Even illegal immigrants are on board with this attitude. They come to Emergency Rooms, expecting (knowing) that they'll never see a bill and knowing that confidentiality rules prohibit staff from having them deported.

The insurance industry is culpable for rising costs, too. They routinely deny payment for claims that are legitimate, even when they know they'll eventually have to pay. It's part of the "game" that forces additional burdens on healthcare providers in time and documentation and overhead.

If regular insurance companies were forced to pay equitably for medical care, if hospitals could turn away illegal aliens, and if hospitals and staff were relieved of civil liability concerns, we'd see costs go down.

Patient Dave said...

I've been offline for days - just caught this topic. I'll add just one point, which I think is vital.

The student says "private health insurance premiums have risen 73%" and then asks why the price of health care has skyrocketed.

I'd like to point out that an insurance premium is not the same thing as the cost of the health care itself.

There's an aspect the student might look into, if he wants to go into government: I've heard it said many times that the insurance industry is now the biggest lobbying force in Washington, having recently surpassed the pharmaneutical industry.

I'm not saying those companies shouldn't make a healthy profit (I'm in business myself) but I strongly suspect there's a connection between that fact and the fact that they're among the most profitable businesses in the world (even AFTER paying for their lobbying costs).

Let's recognize that insurance premiums (what insurers charge US) are a separate thing from the cost of health care.

I'd also like to see us return to the age of government of, by, and for the people, not the companies. (Boy, wouldn't I love to have equal access in Washington, the same access to legislators as an insurance company does!)

Anonymous said...

I agree with most which has been said. I think ER visits are costly and an aging population that is living longer then ever before also contributes to the problem.
I believe one of the biggest factors is the overhead spent by hospitals, medical centers and physician offices and the insurers themselves to administer managed care plans. Staff needs to be knowledgeable about each different insurance plan, following up to ensure referrals are ordered and received, collecting copays, sending out claims to the insurance company but doing some research prior to that to ensure all pertinent information in on that claim and then there needs to be staff to work on the rejections. Unfortunately, the insurers do everything possible to avoid paying a claim or postponing their obligation to do so as much as possible. This costs providers money to hire staff to reprocess these claims and too often leads to providers eventually having to write off charges off because these rejections get lost in the shuffle and the time period to submit/resubmit has expired.
Another problem is the coding system. It is far too complicated and there aren't enough people out there knowledgeable about the intricacies of these codes. Invariably, this leads to claims being rejected. The system needs to be simplified.
And finally, many insurers take their cues from Medicare. Also, hospitals and providers take huge losses due to the lack of reimbursement from Medicare and Medicaid. The government needs a major overhaul of the Medicare system. They need to review their policies, what they reimburse for and the reimbursement rates. I believe the system is wrought with fraud. Unfortunately, Medicare considers claims submitted with inaccurate codes or old codes to be fraud when they are just mistakes. These providers are fined and sometimes lose their right to treat medicare patients. Meanwhile there are providers and DME companies that submit claims for services not rendered or with overly inflated charges that go unchallenged. A company should not reimbursed $15 for a box of gauze they sell in the store for $4.
I believe if these issues are addressed as well as those presented by the other posters here then healthcare costs can be brought under control without compromising the quality of care one bit.

Anonymous said...

To Anonymous who lacks faith and trust in BIDMC's delivery of care - The providers here or any medical facility have less of an incentive financially to order more tests. We may not be reimbursed for some of those tests that were ordered for you and others may be at a lower reimbursement rate.
As Paul stated, it is very unlikely that your doctor knows what insurance you have. The front desk staff ask so that those that work on referrals and billing have the proper information so they can follow that insurers guidelines properly. The doctor has no need to know what insurance you have. Next time you see a doctor or a nurse, ask them to tell you what your insurance is. I can assure you that they won't be able to do so without looking it up on the computer or digging through your file. And even then, I'm not so sure if they'll know where to look for it.
The extra tests are more likely to make sure that they haven't overlooked something and primarily due to litigation concerns

Anonymous said...

As an employee contributing to "overhead" costs, I can state that there is a lot of busy work and inefficiency in daily tasks. These include
1. Meetings: way too many meetings, too many people at meetings, poorly run meetings, poor follow-through
2. Paperwork: retyping perfectly fine documents into new formats, too much printing & copying, rewriting documents in a new/improved arrangement each time
3. Technology: dozens of technology issues every day to solve to support "overhead" as well as direct care staff (eg: interfaces, printers, access codes, servers)

BC said...

I wonder if Paul could tell us how much of BIDMC's $1 billion annual budget is spent on business related administrative functions such as coding, billing and collections. How many people are involved in these functions, and what is the total cost of their pay and benefits? If the hospital only had to deal with Medicare, Medicaid and perhaps two or three private insurance plans, how much could be saved from simplification of the administrative process? I suspect there is not as much gold to be mined here as many people think, but I don't actually know.

Anonymous said...

1) Payor is third party and there is no disincentive to overuse care.
This creates the "the tragedy of the commons".

2) Tremendous success of the research people in developing new drugs/devices/treatments.

3) Aging population (from #2 above) makes every hospitalization much more acute/fraught with error. A 60 year old patient with disease X is much more likely to leave the hospital alive than an 80 year old patient with disease X.

For those people who can afford it, it is wise to pay more money for more care. For those who don't have access to non-emergent care because of the cost it is heartbreaking and currently, society has not engaged in a discussion about how to apportion that care besides ignoring 10s of millions of inner city medicaid patients. "If you chose not to decide you still have made a choice" (?Rush?)

Anonymous said...

Anonymous ENT Resident:
Fortuantely I'm in a field where inpatient costs and malpractice concerns are relatively controlled. We deal with a more limited and straightfoward set of diseases than many other specialties. That being said, my .02 on cost containment:

1. Patients demand the very latest and best technology almost all the time. There is little understanding by doctors, and none amongst patients, which of these technologies is proven to be more useful than cheaper alternatives. Not only related to technology, this can also inlcude human costs - needing to see multiple specialists unneccesarily, etc.

2. Fear of lawsuits and "defensive medicine". If you really think there is a reasonable possibility that a test can make a difference then it should probably be in the diagnostic algorhythm somewhere anyway - problem is we throw the book at things too early, and not stepwise. The off-chance of finding a brain tumor a month earlier in a migraine patient will have almost no impact on long-term outcomes.

3. Pharma costs. Huge problem. Difficult fix. I would have a real worry that cutting pharma profits artificially would result long term in reduced enthusiasm for new drug development. That is a cost we would never be able to measure, and wouldnt even notice. Should probably focus on treating common diseases with generics first and then being more judicious about advancing to costly drugs.

4. System costs: On multiple occasions I have had to repeat head CT's on ER patients that got transferred in simply because their scans did not get sent with them. What a $ waste, and not to mention radiation exposure. Same things happen with lab studies. Some sort of semi-universalized electonic medical record would help with this.

A start to the fix probably will involve making patients more responsible for costs. One would hope this, and medical-establishment cost transparency, would drive the system to be more efficient and the patient more "involved" and interested in their own care.

TobyTurner said...

3/10 american children aged 7-14 are OBESE.
1/4 americans will contract cancer before they die.
Smoking is popular.
Population is increasing.

In lamen's terms, were bringing it on itself.