Tuesday, July 16, 2013

Demand drives supply which drives cost

A recent report from the Bureau of Labor Statistics showed the trends in employment by sector in the US.  I don't have the reference here, but if you look at the period from 2007 to present, the major sector that has shown growth was health care.  For example, look at this BLS article from 2011.  The current job report, as I recall, will likely mark well over 110 consecutive month of job growth for the health sector.

In a related story over at Modern Healthcare, CMS provided detail of the pioneer accountable care organizations that realize the business proposition for the program doesn't work.  "Seven Medicare Pioneer accountable care organizations that didn't produce savings in the first year of the Obama administration's most ambitious test of the accountable care model have told the CMS they will leave the Pioneer program and enter the Medicare Shared Savings Program model, while another two participants have indicated they will leave Medicare accountable care entirely."

Information Week explained this exodus:

The revelation that nine of the 32 accountable care organizations in Medicare's Pioneer program might leave it -- four of them to join the regular Medicare shared savings program (MSSP) -- has raised some eyebrows in the healthcare industry. The reason is that the Pioneer ACOs, which are among the most advanced healthcare organizations, are expected to take downside risk -- meaning they can lose money -- sooner than the ACOs in the MSSP, which have only upside risk -- meaning they share savings but not losses -- for the first three years. So the departure of nearly a third of the Pioneers would raise some questions about the viability of the government's plan to get providers to take financial responsibility for care. 

This was entirely predictable two years ago when the program was announced.  I noted that:

[T]he PPO character of Medicare would not change: "The provider may not require a beneficiary to obtain services from another provider or supplier in the same ACO."

How can you be held accountable, as a provider group, if you cannot control the management of care of your patients? I'm not blaming CMS for this contradiction. The agency is simply implementing what Congress and the President ordered it to do. There is no way Congress will limit choices among the Medicare population.

So, who can now can blame health systems for avoiding downside, unmanageable risk?

But how do the two stories relate?  The issue goes beyond the structural problem built into the Pioneer program.  The answer lies in the fact that you don't hire people into the health care system unless they are serving a growing demand for health care service.  Little has changed to alter that growing demand.  Four years ago, I outlined the causes.  The conclusions are worth repeating:

I recently had a chance to view the average annual medical cost inflation rate of a health system's capitated patient group over the last five years. It was ten percent. This was ever so slightly below the health system's fee-for-service patient group, and I am willing to concede that the payment system made a difference. But the point is that is was not a major difference. What might be the other "primary contributors" to the problems we are trying to solve?

Here's my list, produced with the benefit of no data, but just observation of what actually goes on in the four walls of our hospital:

1) Demographics. The huge cohort of baby boomers have now entered the age at which they are seeking hospital care. Meanwhile, their parents are living longer than ever and are coming to the hospital for both acute and chronic care.

2) Entitlement. The first cohort named above expects and demands everything for themselves, and of the insurance products they expect their employer to purchase. For their parents, they often expect extraordinary end-of-life care interventions, paid for by Medicare.

3) New stuff. See #2 above. A knee that previously would have remained sore in the past or be treated by physical therapy becomes a target for arthroscopic surgery.

4) The medical arms race. Physicians and hospitals feel compelled to buy the latest technology, even without proof of enhanced clinical efficacy.
[Addendum today: These "innovations" are often aided and abetted by Medicare pricing decisions.]

5) Defensive medicine. Yes, the threat of malpractice law suits leads to over-testing and other extra costs.

6) Regional medical mythology. Thanks to Brent James for this insight. Local practice patterns often are just that, with no evidentiary basis.

7) Preventable harm in clinical settings leading to extended hospitalization and bodily injuries.

8) Lack of access itself. If people don't have health insurance and can't get proper early diagnostic and preventative care, they are a more expensive burden on society when they get sick.

9) The cottage industry problem. The medical profession, both in physician practices and hospitals, has failed to adopt process improvement approaches that are common in other industries, that result in redesign of work flow and systems to derive efficiency, quality, and standardization.

10) A sedentary and malnourished lifestyle for all age groups, leading to obesity and other associated physiological problems that are the precursors to major health issues.

... We can fix some of our inadequacies through legislation, but many components of our problems lie deeper in society.

P.S. While there are pro's and con's of each country's health care systems, similar cost pressures have become evident in much of the rest of the world. Perhaps this suggests that a common organism underlies our problems, homo sapiens and its curious ability to live longer and expect more.

The BLS figures show greater growth in the ambulatory arena compared to the in-patient arena, and that may account for some moderation in the slope of the rising health care cost curve.  But it does not modify the direction.  Demand is inexorably pushing things to the northeast on the graph paper.


Anonymous said...

Welcome back.
I don't think it's just homo sapiens, but American homo sapiens. See link below, in which the pertinent quote is:
“The United States spends more than the rest of the world on health care and leads the world in the quality and quantity of its health research, but that doesn’t add up to better health outcomes,”



Paul Levy said...

True that we are twice as "efficient" in diverting money from the rest of the economy when compared to other developed nations, but they are gradually catching up. The same forces are at work there, but their legislatures have limited the amount going into health care by statute. Public pressure is pushing up the percentage of GDP that goes to health care in those countries. They also don't count other "costs" like free tuition for doctors and nurses.

akhan13 said...

Hi Paul, This is perhaps the most concise yet comprehensive distillation of all the problems that anyone with their eyes wide open the past ten years would agree on (which, admittedly, seems to be the minority of us). As you mentioned, the political will to limit choices or benefits for Medicare enrollees is just not there (to more or less extent on either side of the aisle), and will not be until cost pressures really take us to the edge of sustainability (and perhaps beyond). One hopes that a convergence of pressures (or problem, policy and political streams a la Kingdon) will eventually lead to a solution on at least a few of these fronts, but as you state, we can't rely on such a solution alone. I really believe that there will have to be a paradigm shift in the delivery of care away from the current structure of medicine beyond the old arguments of capitation vs fee for service or hospital vs outpatient. As someone with a background in both health services research and basic sciences, I cant help but see genomics as a change in the entire medical paradigm, or what Christensen refers to as an innovative disruption. I know this has already been touted in both the Innovators Prescription and the Creative Destruction of Medicine (Topal), but I am involved in that arena, and I can tell you that while the progress in the next 10 years will be mind boggling, the practical applications within 25- 30 years from now (and for baby boomers and younger this is our lifetime) at the very latest will fundamentally alter medical practice. Until then I fear we will make tweaks here and there to keep the system chugging along against overwhelming interest group pressures from every corner of the spectrum.

Anonymous said...

But Paul, they are 'catching up' from ahead - i.e., their citizens already spend less for care and have better lifespan statistics than Americans. True, that costs are increasing everywhere, but you have to see if the outcome curves are converging or diverging.

I never was any good at math, so let me know if my logic is illogical.


Paul Levy said...

Lots of apples and oranges. Lifespan has little to do with hospitalization and acute care. It has to do with diet and exercise (not to mention genetics). Exercise, in turn, is greatly dependent on the design of cities and whether commuting occurs by car versus bicycle, foot, and transit.

If you wanted to compare acute care outcomes, that might be interesting. In some countries, the stuff we take for granted, in terms of advanced care, is rationed "over there." The UK NICE committee, for example, decides what tertiary and quaternary procedures should be made available--and until what age. Over a certain age, and you can't get a kidney transplant. Here, virtually forever.

We pay more for that. Is it worth it? That's a political decision each country makes.

Where they all do much better than the US is primary care. We could hypothesize that this makes a difference. In the US, we ration primary care--by income level. How cruel.

Also, neonatal care and post-natal care for the babies and small children is surely better in many countries. That surely is cost-effective, but we just don't seem to value children as much as they do.

Barry Carol said...

Paul –

I pretty much agree with your list of cost drivers. However, one big one that you didn’t mention is that prices per service, test, procedure and brand name drug as well as devices are typically much higher in the U.S. than in other developed countries. Uwe Reinhardt and others wrote about this in a famous 2003 Health Affairs article titled “It’s the Prices, Stupid.” Regarding utilization, I’ve read that average hospital length of stay in the U.S. is actually shorter than elsewhere and the number of physician consults per capita is also lower than in other OECD countries.

We need to find ways to create more countervailing power against high prices charged by hospitals and drug companies. Tiered and narrow network insurance products are good approaches. So is reference pricing which is starting to be used selectively by certain large groups like CALPERS for procedures like colonoscopies, CT and MRI scans and hip and knee replacement.

Recent research by insurers in preparation for structuring insurance products to be offered on the new exchanges finds that most people are more than willing to give up some provider choice in exchange for significantly lower insurance premiums. Employers resisted this approach in the past because they perceived that employees wouldn’t like it, wouldn’t understand it or both. That attitude and perception seems to be changing which is a good thing I think.

Anonymous said...

Paul, individual lifespans may be affected by the factors you describe, but population lifespans over time have more to do with public health, nutrition and medicine, and have long been used to assess the general health of a country. Comparatively, we do not show up well. To return to your original point, it may be that demand is driving cost, but if the demand is for non-health improving, but comfort-improving features (Viagra, total joints, etc.) and results in neglect of the former, then one may well ask where our health care dollars should be spent.