Monday, July 13, 2009

Costs are not the same as rates

Many "old" media outlets do not identify the authors of their editorials. Thus, when an opinion is offered, you have no way of knowing who wrote it or what their qualifications are. Your only recourse when there is something unsupported or absurd used to be to send a letter to the editor, where you have about a 0.5% chance of being chosen for publication. And they would edit what you sent in. Then, blogs were invented.

This thought was prompted last week when I read a New York Times editorial entitled, "Financing Health Care Reform." Here's the quote in question:

Meanwhile, it will be important to get some guaranteed fast savings from the health care industries by cutting and reallocating hundreds of billions of dollars from projected spending on Medicare and Medicaid, as the Obama administration has proposed and Congress is considering. Just to be sure, Congress ought to establish a fail-safe mechanism that could impose additional cuts after a few years if savings are less than projected.

Since I don't know the author(s) or whether he/she/they actually know anything about Medicare and Medicaid, I am uncertain how to respond to this suggestion. Except to say: "Are you out of your mind?" Medicare rates just barely cover costs today, and Medicaid rates have not covered their costs in years.

This is all part of a general confusion about cost savings versus appropriation savings, a point I made back in March:

On the cost front, the president for now seems to be confusing underlying costs with how much the government chooses to pay. His budget proposal apparently would reduce Medicare payments to doctors and hospitals as a way of building a savings account for greater access. Reductions in appropriations might reduce costs to the federal government, but they do not reduce the underlying costs of care. With 50% of American hospitals operating at a deficit right now, it is hard to imagine how a reduction in federal payments for Medicare patients deals with the cost problem.

If we have a desire, which I support, to provide greater access to health care, let's consider it a national priority and pay for it directly. But a fear of using the dreaded "T" word -- taxes -- is causing the executive and legislative branches to force cuts in services. And meanwhile, the President doesn't want to us to use the word rationing because he knows the negative political ramifications of that (even though we certainly ration care today, mainly by family income). But what do you think will happen if you cut revenue to health care institutions and doctors?

Readers here know that I strongly support improvements in the quality and safety of patient care and the reduction of inefficiencies in the provision of care. Washington seems to think you are more likely get those improvements by underpaying hospitals and doctors for the care they deliver. You will not.

How you get there is not simple, but it involves transparency of clinical outcomes and rate structures so employers and workers can see the actual value offered by different health care providers. This would stimulate competition, too, in that insurance companies could then offer plans and products that reflect providers' relative value propositions to their subscribers. Meanwhile, let's pay primary care doctors and other cognitive specialists rates commensurate with their real importance in the health system. Then, they could take the time needed to care for patients appropriately and not just act as a triage way station to higher cost specialties and invasive procedures.

Isn't it revealing that Medicare and Medicaid could today set an example for all by requiring this kind of transparency and these payment changes, but there has not been the will to do so?

So, instead, we take a political shortcut, one that will have adverse consequences for years to come.


Brad F said...

I dont follow. Yes, 50% of hospitals are running in the red, but the other half are managing, and not meagerly. As was pointed out in yesterdays op-ed section by Ginsburg, also with a flurry of costly capital improvements which propagate medical arms race which debateably improve care.

I belive the point is no, dont cut with a sword, use a scalpel. Do it sensibly and over time. You are aware of the "waste" issue as you are the quality issue--better than the average bear for sure.

There is midirected spending. It can be redirected, and probably cut as we hopefully (and I say that as a half glass full guy) transition to more of an ambi world.

Again, not sure of your point. Keep spending on the inpt side like we are now, are improve and downsize? There is a difference.



Maureen Bisognano said...

Bravo...and I would add that we need new models of care, shared openly so that all can learn which care designs produce better clinical outcomes with higher patient satisfaction at lower costs.

The Reverend of Rock and Roll said...

You know, this has been coming up more and more often for The Times lately...very disconcerting.

Good (and needed) Blog, Paul.

Anonymous said...

I think these purported Medicare cuts, absurd as they may be, are simply fiction anyway. As an example, think of the annual Medicare "cuts" to physician payments - which are routinely rescinded by Congress. This is simply smoke and mirrors to get a bill passed.
I remain profoundly disappointed by the way both the administration and Congress are handling health care "reform". Almost none of the salient points discussed for months/years by many experts and people like us are being addressed. It appears, once again, that the "Washington way" has triumphed - to the ultimate detriment of patients as well as other stakeholders.


John Greenbaum said...

The President does not strike me as an unintelligent man and he has certainly demonstrated his political savy. It is hard to comprehend how he can shepherd such a wrong-headed approach to repairing the healthcare delivery and payment system. Undepaying struggling hospitals is a recipe for disaster. It will exacerbate well documented cost shifting to private insurers who will ostensibly now face competition from a new public plan. Confusing cost and rates; I'm concerned that their fundemental misaprehension of healthcare system dynamics will only make a bad situation worse.

Hal Andrews said...


Interestingly, the Senate Finance Committee seems to agree with you on many fronts - the willingness to pay for value, to promote transparency, and to at least acknowledge the need for some form of higher taxes to pay for health coverage.

Two things are especially disappointing.

First, very little of the D.C. "reform" is focused on the delivery side of the reform equation, other than a not very subtle endorsement of primary care (a noble purpose) through payment cuts to specialists (a blunt instrument).

Second, no one in Washington seems to have embraced the concept of shared sacrifice (taxing healthcare benefits) or real behavioral change (incentives/penalties tied to wellness or lack thereof, etc.). If healthcare = U.S. economy, shouldn't our leaders ask all of us to pitch in?

Lachlan Forrow, MD, FACP said...

Paying hospitals for valuable services at less than those services cost is obviously a destructive, if not idiotic, strategy. But we do need to look more carefully at whether we should be paying so much for some of the things we do.

The one area I'm starting (still just starting) to understand is services in the last two years of life, since I'm chairing a Mass. Expert Panel on End of Life Care that will make recommendations to the Governor and Legislature by Oct. 31 about how to achieve "transformative change" -- much higher quality at what I and others believe can be much lower cost. But as I think you've stressed, one person's cost savings is another person's lost income.

Medicare currently pays a lot of money for things of questionable value, including breathtakingly expensive chemotherapy with little or zero evidence that it improves either quality or length of life. Both the pharmaceutical companies and the oncologists and hospitals get paid very well for administering it.

In 23 years at BIDMC I have never seen cost be a factor in limiting life support for an inpatient. A while back we had a BIDMC Ethics Case Conference about two cases in which ICU staff were disturbed about hugely expensive ICU life support, provided because family insisted, that only prolonged the patients' dying. Staff felt guilty about letting that happen, most of all because they considered it bad care. But staff also felt guilty about the extraordinary cost expended on limited (or, most thought, negative) value. Turns out, as our finance person explained, that in both cases BIDMC was reimbursed above cost, and so doing what we did helped us financially. If hospitals under current reimbursement don't encourage this pathway, would they face more layoffs?

There isn't remotely analogous financing of palliative care and hospice options -- if you need more than 2 hours of skilled home care services to be at home in your last days or weeks, you better be wealthy. Today, if you are in any ED in Boston with advanced cancer, and hospitalization might keep you alive for a while, you will be admitted and all life-prolonging efforts provided regardless of cost. In many if not most cases, the hospital will make money from this.

If you would actually rather be at home in hospice, that might not be covered at all (not even all Medicaid programs do). In fact, you or your family might not even be told about the hospice/palliative care option, even if the hospital has a good palliative care team. What incentives are there for anyone on the provider side to give that choice equal billing to the ICU path?

Guess which path is usually chosen?

Director, BIDMC Ethics and Palliative Care Programs
Chair, Mass. Expert Panel on End of Life Care

Mark Graban said...

It's true in the auto industry and it's true here -- slashing the price paid does NOT equal cutting true costs. GM and the rest of the Detroit automakers squeezed suppliers for decades -- forcing 5 or 10% price cuts every year. And this bankrupted many suppliers and certainly ruined any chance of collaboration that could truly reduce costs.

Toyota took a different route - working together with suppliers to improve quality and reduce cost.

Seems like CMS would rather be like GM than Toyota. Squeeze the docs, squeeze the hospitals. This is not cost reduction. Dr. Deming taught this decades ago and nobody is listening, still.

John Toussaint said last week, "The only true reform is eliminating waste." That's how we improve both cost and quality, not by squeezing people because we're big (the government or large private payers).

Bob Meyers said...

In 1970's a freeze was enacted on all hospitals , employees, vendors and the rate of hospital spending was frozen in time. This stopped the runaway healthcare inflation, why not do again?

Bob Meyers FACHE