Breaking The Healthcare Cost Curve
Breaking The Healthcare Cost Curve
Quite a bit of the commentary has been written on the question of how-to-rein-in rising healthcare costs and to slow costs to less than the rate of inflation. Massachusetts has been able to provide healthcare to its citizens but still struggles with keeping healthcare insurance costs low and affordable. Healthcare costs continue to rise at 8% annually and will double by 2020 unless Massachusetts can find a methodology to control the rising cost of healthcare.
One answer might be Maryland’s solution, a regulatory commission of seven governor-appointed-commissioners serving 4 year terms and having the responsibility of setting appropriate rates for hospital inpatient, outpatient, and emergency department care to manage its rising healthcare costs by limiting payment to the minimum amount necessary to cover hospital operating expenses, and requiring all payers (both private insurers and Medicare) to adhere to the rates set. This regulatory commission is nothing new for Maryland and has been in place for years. At one time, 30 other states regulated hospital rates only to have them fall by the wayside in the late seventies and earlier eighties with the deregulatory movement.
When Maryland’s Commission determines what can be charged by each hospital, it takes into consideration a hospital’s wages, charity cases, and the severity of illnesses. If not satisfied with the commission’s decision, hospitals can appeal to the commission or go to court for a variance in prices. So what has been the success of Maryland in its attempts to tamp down healthcare costs? Separately, the net savings for Maryland was determined to be an ~$40 billion since 1976 (Health Affairs, “Setting Hospital Rates to Control Costs and Boost Quality,” 2009) and additionally:
“Had a similar system for all states been in place, a savings of $1.8 trillion dollars would have been achieved for the nation’s healthcare system.”
Emory University’s Elena Conis adds:
“The savings and financial stability engendered by the system also receive credit for granting the state (Maryland) the lowest health insurance premiums (as a fraction of income) in the country (‘Impact of a State-Level All-Payer System’).”
In her article “How Maryland Broke the Curve; A Solution for Massachusetts” Maggie Mahar (Health Beat) continues doing the yeoman’s work with additional research on whether hospitals had shifted medical procedure or device functions offsite to avoid regulation. Maggie’s research didn’t find evidence of a shifting of either offsite when compared to other states.
- In 2004, Maryland was spending slightly more than the US average of $5283 at $5590 and was lower than 16 other states, Massachusetts included.
- The growth of its healthcare costs as compared to inflation was at the national average of 6.7% and less than 32 other states.
- In measuring against the state’s GDP, Maryland was at the national average or 13.3% for medical bills.
Maryland has managed to maintain the same markup over costs since the Commission’s beginnings as compared to the rest of the US (see chart “Keeping Costs Down”).
So what’s in it for Maryland hospitals? Hospitals are reimbursed at a higher rate for treating those who are uninsured and result in being charity cases; Medicaid and Medicare accept the Commission’s pricing and pays Maryland hospitals at the same rate as private insurance. The standardization of pricing goes a long way towards eliminating operations in the red; offers greater financial stability for hospitals as variation caused by the economy is minimized; prevents leveraging by insurance or hospitals and creates comfortable operating margins; lowers hospital administration costs with standardized pricing by eliminating insurance payout variation; and creates transparency for hospitals and patients on pricing.
What Maggie on Health Beat suggests for those waiting for a federal solution for rising healthcare costs may look to states to play a more active role in the control of cost. While the Federal Government may play a more efficient role in mandating healthcare insurance for people, states may actually hold the key to controlling healthcare costs. States are more knowledgeable regarding local conditions impacting hospital costs and pricing.
But what of Massachusetts? Realizing it could not maintain the same healthcare insurance prices against rising healthcare costs, The Massachusetts Division of Healthcare and Policy contracted Rand Corporation to strategize and help it develop a plan to contain healthcare costs. Besides the bundling of hospital and doctor fees, Rand recommended a similar approach to what Maryland has in place in addition to 10 other strategies and options, Controlling Healthcare Costs in Massachusetts,”
Estimated Massachusetts Cumulative Savings from Selected Policy Options, 2010–2020
As shown in Rand’s chart, the recommended actions and the resulting savings.
It appears to be a direction well worth taking and relieving the Federal Government of much of the responsibility of healthcare cost containment. Hat tip to Maggie Mahar at Health Beat, “How Maryland Broke the Curve; A Solution for Massachusetts”
Based on an issue on another thread I found that if you lived in Beverly Hills 90201 that Kaiser Permanente was offering individual healthcare coverage for about $1,500 a year less then Anthem (Wellpoint). So isn’t a good place to look for ways to bend the cost curve to get individuals to shop around and find the best deals.
Cantab, health premiums do not seem to be in any way logically linked to healthcare cost increases.
For example, the national average over the past ten years is around 6.2% growth in healthcare costs.
Yet, healthcare insurance premiums have grown by an average of 10+% per annum over the past ten years. Perhaps it has to do with selection bias, but they don’t seem to correlate directly.
This is the problem with many health plans. The answer is easy, but no one wants it. If we come to grips with the fact that 47% of healthcare spending is due to only 5% of the population, and that the only 1% of our population accounts for almost 30% of healthcare spending, and if we accept the fact that much of that spending centers around end of life care, then a system like NICE in the UK makes sense.
Rationing already occurs on a daily basis, but it is not rational rationing.
The last editorial I published for one of our big medical journals was on rationing. It is essential to any cost control attempts.
How can you justify any system that allows hospitals to have “cost plus” system when all the Hospitals do is to jack up the adminsitrative salaries? without a cap on Administrative expenses this is like the defense procurement system of “cost plus”. we all know how well that works
We are not a Europe welfare state country so most of their systems are not suitable for us to copy. However, of the European systems what they have in Switzerland might be suitable for the U.S. with some alterations that get indiviudals more involved in searching for lower priced healthcare. They pay between 10-11 percent of their GDP on healthcare. Now if Obama can offer a plan to get us down to 10-11 percent with added competition then I would be for it, if he’s going to keep it at 16+ of GDP then I would rather he not waste our time. But then this is me and I supported creating private accounts for real personal saving for social security. Not everyone wanted this so the proposal lost. And many Americans may not want to cut overall healthcare expenditure at the end of the day.
small point: NICE provides guidance on healthcare treatments but they don’t provide healthcare services themselves.
Curious that this system did not achieve prominence in the debate last year. After all, cost containment was part of the impetus behind the bill, and here we have a model for cost containment, not from Europe or any other country, but from America. Besides, both Senators from Maryland are Democrats.
As I understand it a national version of the Maryland plan is in place in Japan. Once a year rates are set by agreement between providers and insurance companies and all pay the same rate. Of course this is totally unacceptable to the those who have a free market fetish because it destroys the free market and their beloved incentives. IMHO makes a lot of sense to go this route. I have wondered and wanted to ask hospital admins, if you were forced to charge no more that say 110% of the medicare rates and given that at most you could go chapter 11 (meaning you would just default on debt) how would you adapt?
“We are not a Europe welfare state country so most of their systems are not suitable for us to copy.”
Who is “we”?
Some bloodthirsty, war mongering, militarist, oligarchic cabal exploiting and trodding on its lower tiered (bottom 98%) population?
Concerning “their beloved incentives”.
Those are fictions attributed to Adam Smith.
Those fictions are perpetuated by illusions: markets and some omniscient invisible hand that keeps the fiction honest.
Ficition or psywar!
Who is “we”?
Citizens of the United States.
Don’t include this citizen of the US in your “we”.
Do you think all in your “we” think like you?
There seems to be a widely held belief that healthcare costs can be fixed with one or two changes when nothing could be further from the truth.
1. In many areas insurance is a virtual monopoly. This is definitely the case where I live.
2. Medical personnel are incentivized to run up huge bills due to the common practice of personally investment in surrounding diagnostic labs and surgery centers.
3. Pharma and medical device patents are often de facto monopolies that are routinely extended indefinitely through “evergreening” or “patent thickets”.
4. Insurance is incentivized to dump the costs of the worst risks on taxpayers and retain the people who need insurance the least.
5. Insurers are incentivized to eat up all funds allowed by each state for administrative fees… staff meetings in Barbados, absurd bonuses, perks, and many senior executive personal expenses pay for with your premiums.
On and on. There aren’t any magic bullets in this case, the whole system is rotten. The entire enterprise needs to be restructured from the ground up.
Maryland’s Regulatory Commission appears to be working rather well in containing costs and the resulting stats appear to be in support of Maryland’s perfomance. This isn’t to say it would work in all cases. The Senate Manager’s Amendment did have a ratio of premiums to payouts of 80:20 for individuals and 85:15 for group insurance. This had the effect of capping administrative costs in relation to premiums. ie: for group coverage, 85% of the premium had to be applied to payouts otherwise the insurance company had to refund premiums.
Yoour 47% of healthcare cost is from the June 2006 US Department of Health and Human Services http://www.ahrq.gov/research/ria19/expendria.htm#diff1
“In 2002, the 5 percent of the U.S. community (civilian noninstitutionalized) population that spent the most on health care accounted for 49 percent of overall U.S. health care spending.” http://www.ahrq.gov/research/ria19/expriach1.htm A better stat off of the same chart would be that 50% of the population accounted for 97% of all healthcare costs while the remaining 50% of the population accounted for 3% of the healthcare cost in 2002.
And yes aging is a factor; but, but Michael, it is still not the main reason for rising healthcare costs. I believe it to be other factors such as innovation, Aging appears to be the red herring in the mix the same as social security.
“What, then, is the biggest factor pushing the tab so much higher? ‘Innovation,’ says Reinhardt. ‘The healthcare industry will continue developing new stuff for every age group,’ Reinhardt explains. Will that ‘new stuff’—in the form of new drugs, devices, tests, and procedures—be worth it? Some of it will be, and some of it will not.” http://www.tcf.org/Publications/Healthcare/Maggie%20Agenda.pdf
The Dartmouth Study appears to support this contention of over-care.
I don’t believe I ever contended it was only the elderly or aging. It is end of life care, and actually, usually the spending is more extreme in younger patient populations. IE; the 47 year old with stage IV adenocarcinoma of the lung, who recieves a platinum treatment program, when perhaps, the best thing would have been some palliative chemo and hospice care. It is centered around terminally ill, or patients a with poor definitive prognosis. Additionally, obesity is rising factor. I never meant, nor did I state that it was solely related to the elderly.
Although I would ask, if you have an 85 year old patient who has end stage renal disease secondary to hypertension and diabetes, and he has multiple other problems including advanced heart disease….well, should he get dialysis? Keep in mind that while spending varies, it may only extend his life 1-2 years, and could cost upwards of 150-250k dollars.
I don’t know the answer, but this is a discussion that we as a society need to have at some time.
In my mind there is a very good reason why cost containment has fallen away as the major issue.
Is there really an argument based on current data against single payer having the most promise for cost containment?
And no one wants to get on that subject so why not just remove cost as the driving factor and muck it up enough to produce, well, a little muck for all.
Implicit in the claim that European health insurance schemes are “not suitable for us to copy” is that we should not want to adopt systems which come from a “welfare state country”, with no reason given why that might be true. Are they not suitable by assumption, because we might be contaminated? Is there some objective reason to think that health care schemes which provide more universal coverage at lower cost can’t work here for reasons other than that they would rely less on market forces? Because if relying on market forces produces a lesser outcome, then the whole argument for relying on market forces comes into question, and there is no reason to avoid looking at health insurance as a form of social insurance.
At first, and second, and further glance, Cantab seems to be begging the question here. (In the original sense of sneaking the answer into the statement of the problem.) This is what one does when one prefers not to examine an issue on its merits.
You are probably one of the few out here who has a pretty good handle on healthcare. The elderly is only a part of the equation to healthcare cost , the one element that is publicized more than any other, and the one factor in the costs most likely to be blamed for the majority of increases in cost. It is a factor but not the greatest or most prevalent factor in healthcare cost increases. I would look back to the medical, pharma, and device industries for much of the current issues with rising costs. I would blame insurance for their silliness in not maintaining a good ratio of healthy to unhealthy insurees. If the Senate Manager’s Amendment or Obama’s new hope goes through, healthcare and insurance have only themselves to blame.
Yes, obesity is also a factor to cost, a rising factor, and it is also marked as one of those impacting the population and our youth greatly due to our poor dietary habits. Maybe tax fast food the way we tax cigarettes?
I don’t play the game of what-if when it comes to the ill or those who have disorders. What you are proposing is an outlier to the bigger issue of high cost to low benefit innovations. Solve that issue and I do not believe we will have to decide who lives and who dies as the funding will be available.
Single payer or the public option would be the first choice. Since the pols don’t have much courage and Obama lacks the nerve, I guess we are stuck with our own methods to rein in costs.