A New IOM Report Reveals Why Medicare Costs So Much (Hint–It’s Not Just the Prices)

by Maggie Mahar

A New IOM Report Reveals Why Medicare Costs So Much (Hint–It’s Not Just the Prices)

(reposted with authors permission)

George WBush is 67. Chances are Medicare paid for the stent operation that I describe in the post above. For years, medical researchers have been telling us that this procedure will provide no lasting benefit for a patient who fits Bush’s medical profile.   Nevertheless, in some hospitals, and in some parts of the country, stenting has become as commonplace as tonsillectomies were in the 1950s.

Location matters. Last month, a new report from the Institute of Medicine confirmed what Dartmouth’s researchers have been telling us for more than three decades: health care spending varies  across regions. More recently, as Dartmouth’s investigators have drilled down into othe data,, they have shown that even within a region, Medicare spends far more per beneficiary in some hospitals than in others.

In a recent Bloomberg column, former CBO director Peter Orszag notes that “Because this variation doesn’t appear to be reliably correlated with differences in quality, the value [that we are getting for our health care dollars] seems to be much higher in some settings than in others.” He asks the logical question: “What is causing this and what might we do about it?”

Some health care analysts claim that as a nation, we spend far more on health care than any other developed country because we over-pay for everything—from statins to surgery. (A landmark article that appeared in Health Affairs in 2003 put it this way “It’s the Prices Stupid!” )

Others put more emphasis on overtreatment. Up to one-third of Medicare dollars are squandered, physicians like Dartmouth’s  Dr.  Elliott Fisher, Boston surgeon Atul Gawade and former Medicare director Dr. Don Berwick argue.  As Fisher puts it, “hospital stays in the U.S. may not be as long as in some other countries, but more happens to you while you’re there.” (Note: the authors of “It’s the Price’s Stupid” also point out that care in the U.S. is “more intensive.”)

I agree that both theories are true: We have managed to devise a health care system where we both over-pay AND are over-treated. The  Institute of Medicine report that came out at the end of July supports this thesis.

The Difference between Medicare and Commercial Insurers

The IOM report reveals that both Medicare and commercial insurers are spending about 40 percent more per patient in some areas and in some hospitals than in others. “This has persisted over decades;” Orszag observes.  “Regions that spent the most in 1992 tended to remain big spenders in 2010.”

But, he adds, “There is one important difference between Medicare and commercial insurance, the Institute found, and that is in the causes of spending variation. With commercial insurance, spending is higher in some areas because of markups — that is, the difference between the charge for a service and the cost of providing that service.

“Seventy percent of the variation in commercial spending was attributed to differences in markups, which in turn probably reflect local differences in market power among hospitals and other providers relative to insurance companies and beneficiaries.”

Exactly. When one medical center charges a private insurer far more than another –even for very simple procedures—we are looking at a hospital that is using its brand-name reputation to leverage prices. Most private insurers have little choice but to pay up.

“The story for Medicare is much different,” Oszag notes. “The variation” in Medicare spending “is driven by use. In some regions and at some hospitals within a region, Medicare spends more because beneficiaries there use more services.”

This makes sense. Even our most prestigious medical centers are not able to shake down  the Centers for Medicare and Medicaid (CMS). CMS has the market clout to stand up to marquee hospitals: it is the nation’s largest purchaser of health care services.  No hospital could keep its doors open without Medicare’s business.

Of course, many hospitals grouse that CMS underpays, but evidence from the Medicare Payment Advisory Committee  suggests that, by and large, this is not the case. When hospitals are under financial pressure and reduce waste they turn a profit on Medicare payments. (A memorable 2009 HealthBeat guest-post by Dr. Pat S. offers in-depth analysis of  how, why, and when hospitals make a profit on Medicare patients.)

Nevertheless, the CEOs of many, if not most, non-profit hospitals  believe that it is their job to grow revenues, year after year—just as if they were at the helm of a for-profit corporation reporting to Wall Street’s investors.

Yet by keeping their operating rooms busy– even when medical evidnece does not jusitfy the surgeries– they are not adding to the wealth of the nation. By looking the other way when rainmaker surgeon operate in several ORs simultaneously, they are simply helping to drive the nation’s health care bill to unaffordable heights .

Yet hospital CEOs know that higher revenues enhance a hospital’s “reputation” making it more likely that it will make U.S. News & World Report’s list of the nation’s “100 Best Hospitals.”  (In the U.S. News rankings “reputation” currently counts for 32% of a hospital’s score. ) This, in turn, is likely to lead to a raise for the CEO.

Thus, from a hospital administrator’s point of view, if he cannot insist that Medicare pay more per procedure, there is only one solution: do more tests, more scans and more surgeries.

Indeed, as Dr. Atul Gwande explains in a New Yorker essay titled “The Cost Conundrum”:

“In recent years, we doctors have markedly increased the
number of operations we do. In 2006, doctors performed at least sixty million surgical procedures, one for every five Americans. No other country does anything like as many operations on its citizens. Are we better off for it?” he asks. “No one knows for sure, but it seems highly unlikely.”

Since 2006 “Things haven’t changed very much,”  says Lucian Leape a former surgeon and renowned patient safety expert.  “It’s a very serious issue, (and) there really hasn’t been a movement to address it.”

By some estimates unnecessary surgeries may account for 10% to 20% of all operations in some specialties, including a wide range of cardiac procedures — not only stents, but also angioplasty and pacemaker implants — as well as many spinal surgeries. Knee replacements, hysterectomies, and cesarean sections.

Neverthless, the problem remains hidden. “The system doesn’t want us to know about it,” says Rosemary Gibson, author of The Treatment Trap. Even the victims rarely know that they didn’t need the operation. For example, someone has an unnecessary knee replacement, that person might never know that the pain  could have been relieved just as effectively with physical therapy or a less invasive procedure. The symptoms are gone, so the patient suspects nothing.

Hospitals frequently claim that they are merely responding to patients’ demands.  And without question, in the places where Medicare spends so much more per beneficiary (Manhattan, Miami and Los Angeles, to name a few) most physicians and most patients firmly believe that more care –and more expensive care–is better care. This mindset defines the medical culture in these places, and helps explain why “location” is so important to health care spending.

                How Much Does Inpatient Care Add to Medicare Spending?

The IOM report emphasizes variations in spending on post-acute care after a patient leaves the hospital, including nursing homes and rehab facilities

But the report also shows that differences in acute care while the patient is in the hospital account for fully 27% of the variation in spending, with extra testing explaining 14% of the difference in costs, more procedures explaining another 14%, and increased use of prescription medicine accounting for 7%.

Other research underlines how much futile inpatient care boosts Medicare’s bills.  In March, the Journal of the National Cancer Institute published a report revealing that when it comes to spending on advanced cancer, Medicare’s outlays vary by up to 41 percent across regions, with spending linked to longer and more frequent hospital stays. At the same time, the researchers found no direct link between higher regional spending and improved patient survival.

The article pointed out that cancer care accounts for approximately 10% of Medicare spending.

The authors concluded: “The identification of inpatient hospitalization as a key driver of regional variation in advanced cancer spending is an important finding at a time when much attention on the cost of cancer care has been focused on the cost of chemotherapy.

“Our findings suggest that health-care providers should be incentivized to develop strategies aimed at reducing potentially avoidable hospitalizations and increasing timely access to palliative care for patients with advanced cancer—goals that are consistent with patient centered care.”

                       More Profitable Procedures Become More Popular                           

The truth is that many hospitals are tempted to over-treat particularly when it comes to the more lucrative procedures.  Stenting shows up near the top the list.

In 2007 Business Week told the story of how stents “rescued” New York’s Mt. Sinai hospital:

“The 2,000-doctor hospital was struggling in March, 2003, when Dr. Kenneth L. Davis took over as chief executive. During the previous six months, Sinai had lost $50 million, partly as the result of tougher caps on Medicare reimbursement rates.  . . . While trimming costs, Davis also decided to build up practices in high-margin specialties. ‘Interventional cardiology was one of myriad areas where we were eager to facilitate growth,’ Davis explains. Dr. Samin Sharma, Mt. Sinai’s “King of Stents,” ran a cath lab which was central to this campaign, performing procedures that typically brought in as much as $20,000 a piece for the hospital.

“Sharma convinced his bosses that to capitalize fully on the stent boom, Mount Sinai should turn his cath lab into a 24/7 operation. At a cost of $400,000 a year, he figured, the hospital could put enough doctors and nurses on call to do emergency angioplasties late at night and on weekends. Soon the lab was averaging 15 off-hours patients a month. Interventional cardiology became a key revenue source for Sinai. By the end of 2006 the hospital’s total patient revenues had grown 41%, to $1.2 billion. Cardiology services, excluding surgeries such as heart bypass, contribute 15% of that, most of which comes from Sharma’s cath lab.”

This is just one of many such stories.

Let me be clear: I don’t think that most doctors who recommend these procedures are motivated by greed. As Dr. Nortin Hadler points out, there are many ways for physicians to rationalize their use. Professional pride plays a role: most doctors who implant stents firmly believe that they are helping their patients.

                            Changing Our Medical Culture

I am convinced that at this point in time, the greatest challenge health care reform faces is our medical culture. What we are attempting to reform and transform is how millions of patients and providers think about medical care.

Inevitably, this will take time. And, just as with civil rights, while legislation can kick-start change, in the end a revolution will have to come from within.

Legislation can provide access to healthcare (a.k.a. health insurance.”) Recognizing that comprehensive healthcare is something that a civilized nation should make available to all of its citizens was a moral imperative. We have come close to doing that. I applaud the legislators and Congressional leaders who, against all odds, succeeded.

But legislation cannot improve the quality of health care unless and until both providers and patients are willing to embrace a radically new—and ultimately more conservative– way of looking at medicine.

In the final decades of the 20th century we created a medical culture that values autonomy over team-work, competition over collaboration, cure over care, aggressive interventions over prevention, and certainty over humility.

Discussing stents, Dr. Thomas Graboys, a professor of medicine at Harvard Medical School, warned: “The public is looking for a magic bullet.

“Go to a non-hospital-based doctor in the community,” he advised patients suffering from angina.. “A well-trained internist can take care of the lion’s share of people with coronary heart disease. The vast majority of people do well on medication—cholesterol-lowering drugs, anti-hypertensives, low-dose aspirin”.

We like to think of medicine as a heroic endeavor. Patents find it reassuring to think of their doctors as omnipotent and omniscient super-heroes. (If you will, “action figures.”)

We want them to Act –do something now.

But going forward, patients will have to come to a new understanding of what high-quality care means.These days, more physicians are beginning to counsel patients that cutting-edge hi-tech medicine carries risks as well as benefits. Trimming some of the waste from the system means sharing information with patients, acknowledging the pros and cons of various tests and treatments, and admitting that, for many illnesses, we have no definitive answers.

Medicine is, and will remain, an uncertain science.

In future posts, I plan to write more about how we can change our medical culture, and my belief that financial carrots and sticks may prop open the door, there are limits to what they can do. People change only if they see a reason to change. .

I would be interested in hearing from readers about how both doctors and patients are–or are not–changing.

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This entry was posted in “It’s the Prices Stupid!”, Berwick, commercial insurers, Dartmouth, Fisher, Gawande, George W. Bush, Institute of Medicine, Medicare, overtreatment, Peter Orszag, regional variations, stenting and tagged commercial insurers overpay, Dartmouth, hospital mark-ups, hospitals, Institute of Medicine, Medicare spending, overtreatment, regional variations, stenting, surgeries, unncessary surgeries by Maggie Mahar. Bookmark the permalink.


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