Healthcare Spending Reaches 17.3% of GNP, Largest 1-Year Rise Ever Recorded

Independent actuaries working for the CMS reported that the healthcare sector’s share of the economy grew by 1.1 percent in 2009, the largest one-year increase ever reported, according to a report in Health Affairs.

The healthcare sector’s rising share of the economy, magnified by a contraction in other sectors, reached 17.3 percent of the gross domestic product and is expected to reach 19.3 percent of GDP by the end of the decade.

Looking at another measure, healthcare spending growth, 2009 was not a record year. Healthcare spending grew by 5.7 percent to $2.5 trillion last year, higher than the 4.4 percent it logged in 2008 but lower than the 6 percent reported in 2007. This year, the actuaries expect healthcare spending growth to slow to 3.9 percent.

Factors for the 2009 increase included increased spending on Medicaid, which rose 10 percent in 2009, increased spending on COBRA health insurance for the newly jobless, a large number of baby-boomers entering Medicare and treatments for H1N1 patients.

Government healthcare spending in 2009 rose by 8.7 percent to $1.2 trillion, or nearly half of total national healthcare spending. By 2012, the government’s share of healthcare spending will exceed half, compared with one quarter 50 years ago, before Medicare and Medicaid were created.

Private-sector healthcare spending did not grow as fast as government spending and is expected to increase by 2.8 percent in 2010, a slow-down caused by continuing loss of health coverage due to unemployment and the expiration of the COBRA created by the stimulus bill.

The Los Angeles Times quoted analysts who were dismayed by the healthcare sectors’s increases.

Stuart Butler, an analyst at the Heritage Foundation, said the figures show that more aggressive cost controls are needed. “The only way to do this is to simply spend less,” he said.

Len Nichols, health policy director at the New America Foundation, added: “If you believe that much medical care is unnecessary, as I do, then it is criminal that we are spending so much.”

Read Health Affairs‘ report on healthcare spending.

Paying now and chasing later the worst way to counteract fraud

AS SHOWN BY several significant industry studies, fraud and abuse take an enormous bite out of national healthcare. According to a Thomson Reuters’ October 2009 report, fraud costs $125 billion to $175 billion a year, accounting for nearly one-fifth of all healthcare dollars wasted—about 7% of healthcare spending overall. Other experts put the figure as high as 10%.

Preventing funds from leaving the organization, rather than retroactively prosecuting those who took it, is critical, according to James Quiggle, director of communications for the Coalition Against Insurance Fraud, based in Washington, D.C.

“Once the money is out the door, it’s very difficult to recover,” he says. “And while an insurer is chasing money that’s already gone, new schemes spring up to take more. Health fraud is easy to get into and highly lucrative. An illiterate immigrant with minimal education could latch onto an organized gang’s scheme and be a multimillionaire a year later.”

On the bright side, efforts to prevent fraud and abuse typically provide an excellent return on investment. For every dollar a payer invests, there usually is a return of six or seven dollars, according to Louis Saccoccio, executive director of the National Health Care Anti-Fraud Assn. (NHCAA).

“Most importantly, all of the healthcare stakeholders need to share information about their fraud investigations,” he says. “Without the relevant information, technology can only do so much.”

Although everyone agrees the problem is rampant, the industry’s outlook on fraud frequently is different from that of the general public. While many in the general population focus on punishing the perpetrators, most health plans simply want to keep from paying out more money than they need to.

“The word ‘fraud’ generates a lot of excitement, because it’s easy to understand and generates a lot of interest from a public relations standpoint,” says Dean Farley, vice president with Eden Prairie, Minn.-based Ingenix Consulting.

In his role, Farley oversees the company’s prospective payment and payment accuracy consulting services. He says in many cases, the intent behind the transaction is difficult to determine, and ultimately irrelevant. From a payer’s perspective, the focus is on any type of incorrect payment or overpayment.

“The goal is to identify all types of overpayment and stop them before money leaves the organization,” he says. “And they’re less concerned with putting the bad guys in jail than they are ensuring that the bad guys don’t get the money in the first place.”

One of the greatest challenges payers have when battling fraud involves provider relations. The more aggressive a plan is when investigating suspicious claims, the more payments will be delayed.

Additionally, there are legal issues regarding prompt payment, at the state level and under ERISA. Many of the laws have exceptions for claims that a payer decides to investigate as potentially fraudulent. Still, unless the evidence is overwhelming, plans usually opt to simply pay it rather than risk worsening provider relations or legal issues.

PAYERS GIVE CHASE

Unfortunately, Quiggle says, paying now and chasing it later isn’t a very effective strategy.

“Once the money leaves the plan, it’s often gone for good,” he says. “These organized gangs are very smart in terms of covering their tracks, and steal with production-line precision and volume. They can steal tens of millions of dollars in a very short time and move much of the money overseas, making it virtually impossible to find. Even the money that stays here in the United States might have already been converted into a Ferrari or a villa by the time a health plan tracks it down.”

Anti-fraud technologies such as predictive analysis seek to identify potentially fraudulent behavior and can do it in near real-time, Quiggle says. Complex schemes that used to take investigators weeks or months of sifting through manila folders to discover, can be uncovered with predictive analysis overnight.

Because not every plan has the resources to invest in prevention, NHCAA has developed a fraud database, available to member companies and all government agencies.

“If someone is defrauding one payer, they’re almost certainly defrauding others, and government agencies as well,” Saccoccio says.

If Payer A (or a government agency) opened an investigation into potential fraud by a certain provider in a certain geographic area, they load the information into the system. Later, if Payer B has suspicions about that provider, they could see that Payer A already opened an investigation.

“The two could then compare notes and get a much better picture of what’s going on,” he says. “Much of the data we need to fight fraud already exists; we just need to share it and use it better.”

Quiggle says without collaboration, every insurance company is like the blind man touching an elephant: He can only get his arms around a small part of the problem and will never see the whole picture.

Overpayments that result from simple misunderstandings, however, might not be fraudulent, even though they cost billions of dollars each year. Part of the problem is the distance and time lapsed between the delivery of the service and the reimbursement for the service. The bill is the only real medium between the two, and payers have little insight into how providers create them.

“The bill is supposed to be a reflection of the medical record, but payers don’t have access to those unless they specifically ask for them,” Farley says. “If payers had more insight into what services are actually being delivered and the clinical condition of the patients when those services were delivered, overpayment would be a much smaller problem.”

And while health plans can’t communicate individually with every one of the thousands of providers in their network, they most certainly can communicate with them en masse. Transparency should be the first goal, Farley says.

“Health plans can use their Web portals to spell out, very clearly, exactly what their expectations are in terms of bill preparation,” Farley says. “They also need to make sure that their claims adjudication systems enforce those payment rules exactly as they are spelled out.”

Another step insurers can take is to design their processes to be similar to those of other health plans—or even the government. There’s a lot of talk about administrative simplification, but there isn’t much of it happening, Farley says.

“There’s no reason that a plan couldn’t align its methodologies with those of other payers, and there’s no reason they couldn’t use Medicare principles and Medicare billing requirements to drive their contracting,” he says. “Most providers are already familiar with those and it would help them understand what a payer’s requirements and expectations are.”

Farley also recommends that plans get serious about audits.

“You can’t check every claim, but you can convey to your network that you’re serious about identifying overpayments,” he says. “That delivers a message to the network, and prevention of overpayment is the number one goal.”

Michael T. McCue is a Virginia-based freelance writer.

Cost spiral slows, stays on upward path

Squeezed by the recession, U.S. health spending growth slowed from 6% in 2007 to 4.4% in 2008, the smallest increase in nearly half a century, according to a new federal report. Still, health costs hit $2.3 trillion, rising from 15.9% of Gross Domestic Product to 16.2% as economic output sagged.

Experts say the slowdown in total spending doesn’t necessarily signal any long-term flattening of the cost curve.

“History would say it’s not sustainable,” says Bob Campbell, the state government leader for Deloitte LLP. “As the economy turns, so do healthcare costs.”

PRIVATE AND PUBLIC SPENDING

Federal healthcare spending grew much faster than private or local government spending. Costs for various federal programs soared 10.4% in 2008, with Medicare increasing 8.6% compared with 7.1% the year before. Healthcare consumed 36% of federal revenue, compared with 28% in 2007.

In contrast, spending by private businesses grew only 1.2% in 2008, while state and local government spending grew 3.4%, compared with 6.6% the year before. Health Affairs, which published the report last month, said business costs for healthcare declined as private plan enrollment dropped by 1 million people—at least partly due to lost jobs.

State Medicaid spending growth declined, according to authors, partly because cash-strapped states cut payments to hospitals and other providers.

The report, compiled by researchers at the Center for Medicare & Medicaid Services (CMS) attributed the overall health cost slowdown to the economic recession. But the jump in federal spending was due to faster Medicare spending growth on hospitals, physicians, Part D drug benefits, and private Medicare Advantage plans, as well as a temporary new infusion of federal funds into state Medicaid programs.

Costs for Medicare Advantage plans soared 21.3% in 2008—to $108.2 billion—similar to the 22.1% growth in 2007. That was due to 13.6% enrollment growth in private Medicare plans, and to a 22.9% increase in Part D drug spending within those plans.

“The slowdown is good news but likely reflects the recession and to some extent anticipation by providers of the threat of controls from healthcare reform,” said Marilyn Moon, a health economist at the American Institutes for Research in Washington, D.C. “When people are feeling more secure, I expect we’ll see it go up again.”

By sector, U.S. spending on hospitals totaled $718.4 billion in 2008, with cost growth dropping to 4.5% from 5.9% the year before—the slowest rate of increase since 1998. Expenditures for physician and outpatient clinical services reached $496.2 billion, representing 5% growth, down from 5.8% and the slowest growth rate since 1996. But outpatient clinical costs rose faster than physician spending—6.6% versus 4.7%.

SLOW GROWTH ON DRUG SPENDING

Prescription drug prices grew 2.5% in 2008 compared with 1.4% the year before; that was still below the average annual growth of 4.1% from 1997 to 2007. Home health spending reached $64.7 billion in 2008, with growth declining to 9% from 11.8%.

Private health insurance premiums and benefits in 2008 grew 3.1% and 3.9%, respectively, the slowest rate since 1967. That was due to declines in enrollment and smaller spending growth for physician and outpatient services and prescription drugs, journal authors said. Consumer out-of-pocket spending growth slowed to 2.8%, from 6%, as people may have forgone medical care due to the poor economy and unemployment.

Moon says the new report shows that congressional health reformers are targeting the right areas for cost control—Medicare spending on hospitals and Medicare Advantage plans, which are among the fastest growing sectors.

Health Affairs authors cautioned that despite the overall spending slowdown, monitoring the drivers of cost growth will remain critical since the proportion of personal income and government revenue devoted to healthcare continues to rise and the nation faces an uncertain economic future.

Campbell warns that health reform could drive up costs as uninsured Americans obtain coverage and seek care. But Moon says reform will have highly uneven effects, with the drive toward ever-increasing prices possibly moderating when there are more paying patients.

“Those things are very hard to predict until it’s all out there in full bloom,” she says.

Squeeze out waste

Understandably, the painstaking scrutiny of healthcare costs has reached a fever pitch. While administration is a relatively small percentage of the overall costs in the system, the pressure is on payers to trim as much waste from their operations as possible.

Administrative costs—or any outlays that are not specifically tied to medical care—are a political hot button. Insurers defend what they spend on tasks such as case management and disease management as well as investments in technology as necessary spending that results in net savings and improved health. Some critics of the insurance industry characterize administrative costs as nothing more than profits and executive compensation and seek legislation to control how premium dollars are spent.

In fact, 15 states have implemented laws dictating minimum medical loss ratios (MLRs), ranging from 50% to 80%. In 2008, California Governor Arnold Schwarzenegger vetoed a bill that would have forced insurers to maintain an MLR of 85%.

According to America’s Health Insurance Plans, in a 2008 study conducted by PricewaterhouseCoopers (PwC), 87 cents of every premium dollar goes to healthcare and medical services, and just 3 cents goes toward profits.

PASSING THE BLAME

Governments are taking some steps that could eventually result in lower healthcare costs, such as smoking bans in public places and removing soda and sugary snacks from school vending machines. On Jan. 1, 2010, California became the first state to ban the use of trans fats in restaurants and bakeries. New York City adopted a similar ban several years ago.

Nonetheless, it was inevitable that scrutiny would intensify on payers and their efforts to reduce costs and minimize wasted resources in the system, and now that it has, they’re possibly receiving more blame than is fair.

“When people look at waste in claims processing, for example, they assume [all of the money is being wasted] by insurers, when a lot of it is wasted by providers,” says Mark Merlis, a health policy consultant who has written several papers on the topic of healthcare waste. “But in fairness to providers, they have to comply with many different insurers’ administrative processes, so we should be doing as much as we can to promote uniform transactions.”

Merlis says the more uniformity that can be achieved among payers, the more money the system overall is going to save. Market complexity makes it difficult to identify who is “committing” the waste. Furthermore, cutting waste from one area might simply shift costs to another. For example, in an attempt to fight losses from fraud, payers could investigate more claims in detail, but that will delay payments to providers, damaging relations and potentially resulting in legal action under prompt payment laws.

TECHNOLOGY TO THE RESCUE

The siloed yet sprawling nature of the U.S. healthcare system—payers, physicians, pharmaceutical companies, hospitals, government agencies and consumers—means that waste elimination isn’t as easy as making an individual organization operate more efficiently.

Some Americans, including some physicians, believe a shift to a single payer system would simplify healthcare administration, but the large majority is firmly opposed to such a change. As Merlis points out in his paper, “Simplifying Administration of Health Insurance” (January 2009), complexity is not just a byproduct of the insurance system—it is what insurers are selling.

“The value-added of the managed care industry consists of the very features that make insurance complicated: different coverage rules and formularies, authorization requirements and careful scrutiny of claims, and so on,” he writes. “The variations are what differentiate one plan from another, and competition and uniformity may be conflicting goals.”

Still, that doesn’t mean plans can’t improve their internal operations and their relationships with other healthcare stakeholders. There are also high hopes that technology can eliminate some waste in the system, and at least one project is proving that to be true.

In 2008, Blue Shield of California (BSC) created its Partnership in Operational Excellence and Transparency (POET) transactions-tracking tool to improve payment accuracy and dispute resolution, speed claims turnaround, and increase operational transparency. The program is available online for 90 of the hospitals Blue Shield of California contracts with across the state.

“POET has been enhancing our working relationships with network hospitals by providing opportunities for data-driven discussions that directly improve operational efficiencies,” says Juan Davila, the plan’s senior vice president for network management. “Using key claims performance indicators and transparent claims data, we work jointly with our facilities to target and prioritize impactful process improvements.”

Davila says the claims-processing related improvements have been impressive, and the benefits of improved relations with network providers are even more so.

“We wanted to show that we were really trying to get at the root of the problem,” he says. “We paid for the system up-front, and we were increasing our transparency to them, as opposed to trying to cover up our errors. We genuinely wanted to develop a more collaborative relationship with our network hospitals, and that’s changed the way we think of each other in a very positive way.”

The hospital association of Southern California recently approached BSC to help the association with another large-scale project.

“I have been in this business for 20 years and have never gotten a phone call like that before,” Davila says.

Within administrative functions, such as those BSC is addressing, it’s hard to know exactly what is waste. A 2008 study by PwC’s Health Research Institute, “The Price of Excess: Identifying Waste in Healthcare Spending,” points out that “inefficiency” and “waste” are not interchangeable terms; the former is merely one component of the latter.

Authors define waste as costs that could have been avoided without a negative impact on quality, which is similar to the definition used by the Institute of Medicine and the authors of another watershed study conducted by Thomson Reuters in October 2009: expenses that don’t add value.

WHERE TO FIND WASTE

The PwC research estimates that slightly more than half of all healthcare spending ($1.2 trillion of the annual $2.2 trillion spent) is wasteful and breaks it into three categories:

• Behavioral waste, which accounts for $303 billion to $493 billion each year;
• Clinical waste, accounting for $312 billion annually; and
• Operational waste, which consumes $126 billion to $315 billion.

The study further breaks the operational waste segment down into four subsets:

• Claims processing, which accounts for $21 billion to $210 billion in waste;
• Inefficient use of technology ($81 billion to $88 billion);
• Staff turnover ($21 billion); and
• Paper prescriptions ($4 billion).

The research by New York-based Thomson Reuters Healthcare Analytics (October 2009) is slightly less pessimistic, estimating that each year, between $600 billion and $850 billion of healthcare spending is wasted.

The study, “Where Can $700 Billion in Waste Be Cut Annually from the U.S. Healthcare System?” identifies six primary culprits:

• Unnecessary care (40% of waste), accounting for $250 billion to $325 billion;
• Fraud (19%), $125 billion to $175 billion;
• Administrative inefficiency (17%), $100 billion to $150 billion;
• Healthcare provider errors (12%), $75 billion to $100 billion;
• Preventable conditions (6%), $25 billion to $50 billion; and
• Lack of care coordination (6%), $25 billion to $50 billion.

Those figures are so staggering that the system can’t expect to “cut” its way out of them, according to Bob Kelley, Thomson Reuters’ vice president of healthcare analytics and author of the report.

“Simple external controls on cost and utilization will not work, and any effort to control costs by eliminating waste must be careful to consider possible unintended impact on access to appropriate and necessary care,” he says. “We should expect that any change to the system of care that improves its performance will require a realignment of the types and levels of professional and facility resources and the relationships among these resources.”

The best solutions will effect positive changes and recognize that the healthcare market dynamic is much different from other product or service markets. Most consumers believe that their access to all potentially useful services is a right.

“We need to shift the public’s perception and expectation [of quality] away from ‘more services is better’ to ‘the care that will most likely result in the outcomes that are best for me,’” he says. “Simultaneously, we must begin to reward physicians for providing this type of care, and recognize and pay for the required time and effort.”

CONSUMER BAD HABITS

Shifting public perception is critical, because for many Americans, “waste in healthcare” brings to mind images of bloated, lethargic mega-plans with outdated technologies and overpaid, fat-cat executives. Although the U.S. Centers for Disease Control and Prevention estimate that fully half of the nation’s deaths each year are the result of bad and avoidable habits, most Americans, rather than look in the mirror, latch onto headlines about excessive health plan profits and executive bonuses.

When consumers learned that former UnitedHealth Group CEO William McGuire received more than $124 million in total compensation in 2005, it’s understandable that many of them reacted with indignation. While the public’s sensitivity to what they perceive as excessive income is at an all-time high, salaries and bonuses paid to health plan executives are a very small number in a very large sum, according to Dan Munro, principal with The DMM Group.

“If you added up all of the executive bonuses and salaries for the entire healthcare industry, it would just be a drop in the bucket compared to the other costs,” he says. “Healthcare is nothing at all like Wall Street, where firms are racing to pay back their Troubled Asset Relief Program funds because they want to go back to handing out those huge bonuses again.”

Merlis agrees, saying executive compensation “might look ugly when you see how much money certain people are being paid, but it’s really not a driver of healthcare expenses.”

It’s clear that politicians are doing what they can to foster greater use of technology in healthcare, particularly with federal funding included in the stimulus package to spur greater adoption of electronic medical records, which are not yet widely adopted.

“The government is trying to encourage the meaningful use of electronic health records,” Munro says. “For the first time, the government is mandating that EHR applications engage the consumer. If you tell most EHR vendors that you’re going to develop a patient-focused system, they’ll laugh at you. They have always been provider-focused, because that’s where the money is.”

An EHR system can cost millions of dollars, so small providers are less likely to adopt them simply because of the cost. The government has realized that use of health IT won’t progress if it doesn’t engage the consumer, Munro says.

THE OPPORTUNITIES ARE REAL

To further explore IT’s opportunities to improve healthcare, Kelley and Thomson Reuters are working on a follow-up whitepaper highlighting specific initiatives that have been successful in eliminating waste, or that show the potential to do so.

“There are certainly high expectations for the contributions of IT to both improved quality and reduced waste,” he says. “Many of these initiatives are either directly related to new or enhanced IT applications or require IT system support to enable new relationships between providers, or between providers and patients.”

Examples of the first type include electronic medical records, health information exchanges, and clinical registries. Examples of the second type include patient-centered medical homes and bundled or episode-based payment systems.

“I think that these opportunities are real, but changes in the systems of care and the relationships among providers and patients will be required if the great potential for these solutions is to be ultimately realized,” he says.

According to Davila, BSC’s POET program is improving efficiencies at the larger system level.

“Historically, when we would show up to renegotiate a contract, the hospital representative would say, ‘My people are telling me that you don’t pay your claims right, you don’t handle appeals well, and you owe us X million dollars. Before we recontract, I need you to fix that.’ The result, inevitably, was a lot of negative energy.”

To solve the problem, BSC worked with a third-party vendor to develop a system that enables participating hospitals to review 24 months of processed claims information and performance metrics on the POET Hospital Dashboard, an online performance analytics portal specifically designed for those hospitals.

Those facilities routinely receive quarterly claim summary reports that provide information on key indicators such as cycle time; submission type; denial volume and reasons for denial; appeal volume, outcomes, and reasons; and claim volume for patients with Bluecard, a national program that allows any Blue member to receive care from another Blue company when traveling or living outside of their usual service area.

“It’s all right there in black and white for everyone to see,” Davila says. “One national hospital system was upset because they thought we weren’t paying as quickly as we should, until POET revealed the problem: We were paying the claim in 12 days, but it was taking them 25 days to get the claim to us. The system showed them exactly where the process was broken so they could fix it.”

PHYSICIANS’ WEIGH THEIR COSTS

The need for such transparency is significant, according to research from the American Medical Assn. Its second annual National Insurer Report Card study attempts to diagnose the strengths and weaknesses of the claims processing systems used by eight of the nation’s largest health insurers. Five of the eight plans showed improvements in the median amount of time necessary to respond to providers’ claims, but the report estimates that providers still divert as much as 14% of their revenue to ensure they are receiving accurate payments.

Physicians reported spending three hours weekly interacting with plans in 2006, according to a Web Exclusive produced by Health Affairs in May 2009. When time is converted to dollars, the cost to practices is estimated at $23 billion to $31 billion annually, or 6.9% of all U.S. expenditures for physician and clinical services. Further, 45.9% of physicians surveyed for the report said the cost of dealing with health plans had “increased a lot.”

The report goes on to note that administrative cost cannot be reduced to zero dollars and that interactions that cost money also can produce benefit, such as prior authorization, which can reduce inappropriate use.

President Highlights Spiraling Healthcare Costs in Annual Economic Report to Congress

President Obama highlights the unsustainable rate of growth of healthcare spending and renews a call for healthcare reform proposals that stalled late last year in his Economic Report of the President to Congress, released Feb. 11.

Healthcare Spending Rises at Slowest Rate in 28 Years

The federal government reports that healthcare spending in 2008 rose 4.4 percent from the year before, the slowest pace since 1980, according to a report in Health Affairs.

National healthcare spending topped $2.3 trillion in 2008, up 4.4 percent from the previous year.

Federal healthcare spending increased 10.4 percent in 2008 and was equivalent to 36 percent of federal payments, up from 28 percent in 2007.

Federal Medicaid spending increased 8.4 percent in 2008, the highest rate since 2003, but state spending declined by 0.1 percent, the first such decline in Medicaid’s history.

Private health insurance premiums grew by 3.1 percent in 2008, the slowest rate since 1967. This was tied to a drop in the number of people with private health insurance from 196.4 million in 2007 to 195.4 million in 2008.

Retail spending on prescription drugs increased 3.2 percent in 2008, continuing a slowing trend that began in 2000.

Read Health Affairs’ article on healthcare spending.

8 Top Hospital and Health System Trends of the Past Decade

1. Loosened cost controls. HMOs in the late 1990s had successfully slowed growth in healthcare spending, but by the end of that decade they had come to be regarded as heartless conservators of the bottom line. Managed care’s tight controls began to loosen and “the negotiating power slipped back into the hands of the providers,” says Dick Clarke, president of the Healthcare Financial Management Association. Healthcare costs again began increasing faster than the general rate of inflation. “It’s not clear yet how much of that will change if providers come under more pressure to contain prices,” he says. 

2. Healthcare IT. Healthcare information technology, still rough around the edges in 2000, became a major force in hospital operations by the end of the decade, says Michael Rowan, COO and executive vice president of Catholic Health Initiatives in Denver. Innovations like computerized physician order entry and electronic medical records have been shown to improve safety as well as efficiency. Now, thanks to billions of dollars in incentives in the 2009 HITECH legislation, healthcare IT holds the promise of becoming virtually universal in the next few years. But Mr. Rowan reports that HITECH funds will pay for only about a quarter of the cost of the new technology. 

3. Patient safety movement. At the start of the decade, hospitals were just beginning to hear word of one of the most influential reports in the history of U.S. healthcare: “To Err Is Human: Building a Safer Health System,” published in Nov. 1999 by the Institute of Medicine. It concluded that from 44,000- 98,000 people die annually — the equivalent of 10 fully loaded 757 commercial airliners crashing each week, the report stated — due to errors in inpatient hospital treatment.

As a result, “hospitals started to get much more serious about quality and safety,” says Mr. Clarke at HFMA. The industry embraced continuous quality improvement, adds Thomas Dolan, president and CEO of the American College of Healthcare Executives. “Everybody realized that we have to constantly improve quality and it actually lowers costs because it reduces waste,” he says.

4. Physician entrepreneurialism. Many physicians became entrepreneurs, investing in ASCs, imaging centers and specialty hospitals as a way to supplement declining income due to lack of increases in reimbursements and become more efficient. The trend, however, put physicians into conflict with hospitals, who were concerned about losing market share to the leaner, physician-run organizations. By the end of the decade, it seemed that hospitals and regulators had blunted the trend.

“The ban on physician-owned hospitals in the health reform legislation signals the decline of the entrepreneurial physician,” says Nicholas Wolter, MD, a former MedPAC commissioner and CEO of the Billings (Mont.) Clinic. However, ASCs seem to have become a permanent fixture in U.S. healthcare, offering discounts too big for payors to pass up. 

5. Healthcare consumerism. “The future of market-oriented health policy and practice lies in ‘managed consumerism,’ a blend of the patient-centric focus of consumer-driven healthcare and the provider-centric focus of managed competition,” declared Jamie Robinson, a professor of health economics at the University of California, Berkeley, School of Public Health, in 2005 in the journal Health Affairs.

With the decline of HMOs, consumer-driven healthcare became a new way to contain costs. High deductible plans, with or without tax-free health savings accounts, would make patients cost-conscious consumers. Ratings of doctors and hospitals, from HealthGrades to CMS’ Hospital Compare site, would aid patients in choosing the best providers. Retail clinics opened to serve these new consumers. Hospitals developed a new fascination with patient satisfaction surveys. Brand-new hospitals lavished spending on patient-friendly design features, such as single rooms, sunlit atriums and concierge services, and these features seemed to shift market share. 

6. Shortages of healthcare personnel. In July 2007, the American Hospital Association reported 116,000 open positions for registered nurses in hospitals, and the existing RN workforce was aging. Mr. Rowan at Catholic Health Initiatives observes that the recession has erased the shortage for now, at least, as RNs were forced back into the workforce or into full-time work as family income fell.

Physician shortages also emerged. In a dramatic about-face at the beginning of the decade, the federal Council on Graduate Medical Education abandoned its long-held forecast of a physician surplus and predicted a shortage of 85,000 physicians by 2020. Since then, medical schools have been substantially increasing class sizes, but Congress has not removed a cap on the number of Medicare-funded graduate medical education positions for physicians that has been in place since 1997.

“Current evidence suggests that the United States is headed toward an aggregate shortage of physicians,” the Association of American Medical Colleges declared in 2009. “Given the extended time required to increase U.S. medical school capacity, and to educate and train physicians, the nation must begin now to increase medical school and GME capacity to meet the needs of the nation in 2015 and beyond.”

7. Accountable health organizations. While entrepreneurial physicians continued to spin off from hospitals throughout the decade, Dr. Wolter, the former MedPAC commissioner, says an opposing trend also emerged. Many young physicians were eagerly becoming employees. Accountable health organizations such as Mayo Clinic, the Cleveland Clinic and Geisinger Health System thrived by closely aligning hospitals and doctors to make care more efficient and effective.

Mr. Rowan at Catholic Health Initiatives says accountable health organizations seemed to be taking a lesson from the ASC playbook. Incentivizing physicians can make healthcare more efficient. But he adds that the trend is not easy for hospitals. “Many hospitals have no expertise in running practices,” Mr. Rowan says. “We’re hospital people, not group management people.” Hospitals used to hire doctors merely to generate business. Now, he says, “hospitals want doctors to take financial responsibility for outcomes.”

8. Recession. “The decade will be known for the financial turmoil that came at the end,” says Mr. Clarke of HFMA. In March 2009, Thomson Reuters reported that the median profit margin of U.S. hospitals has fallen to zero percent. Hospitals tightened their belts and many of them ended the decade solidly in the black. But the numbers of non-paying patients are still high and many leaders like Clarke believe we are entering an era of having to do more with less.

The height of health IT

Even health insurance giant WellPoint—with more than 35 million members and arguably enough reach to change the system with sheer volume alone—is taking few chances on the future of healthcare delivery. Like most plans, it’s testing new programs with cautious optimism, while aiming for large-scale implementation.

Charles Kennedy, MD, WellPoint’s vice president for health information technology, has a vital role in the plan’s innovation because few initiatives these days can be accomplished without the backbone of health IT.

Specifically, WellPoint’s emerging Individual Health Record—a simultaneously patient-facing and physician-facing electronic record—is “almost an air traffic control system to manage disease,” according to Dr. Kennedy. It’s probably one of the most promising efforts to control costs among members with chronic conditions. Pulling claims and clinical data through complex algorithms to arrive at a functional health summary differentiates the Individual Health Record from the typical EMR system.

“If you’re a hospital or institution, you have a variety of clinical data sources that have information on the patients that you see,” he says. “If you haven’t deployed an interface engine or some way of pulling those various clinical data sources together, you’re late to the party, and you need to do that ASAP.”

With more than 20 years of experience comprised of clinical practice and health IT implementation, Dr. Kennedy began his career in internal medicine. When he was a resident at Highland General Hospital in Oakland, Calif., he noticed how the patients’ needs far outstripped the hospital’s resources, and that experience solidified his vision of where medical care and information should meet.

“We tried to treat each patient regardless of who they were or their ability to pay,” he says. “It had the unfortunate side effect that we never thought about cost. We only thought about what was right for a patient. But that created a system where people are actually being hurt because they can’t afford care. I began to realize that the very laudable and applaudable approach of not caring about cost—only the patient—is right, but that doesn’t mean you can become cost unconscious. Cost unconsciousness has its own set of bad outcomes. That’s what’s led me into thinking we need to be more efficient. We need health IT.”

Earlier this year, Dr. Kennedy was named by the Government Accountability Office as a member of the new Health Information Policy Committee, which was established by the American Recovery and Reinvestment Act. Serving a three-year term, he and other committee members are creating policy framework for the development and adoption of a nationwide health IT infrastructure, including standards for the exchange of patient information. The committee will also make recommendations for handing out the $38 billion in health IT funding earmarked in the reinvestment act.

WHAT ARE SOME OF THE HEALTH INFORMATION POLICY COMMITTEE’S GOALS?

A:We’re trying to make sure the Obama health reform strategy becomes real. What people don’t realize is the number of things the industry and the government agree on. For instance, the government invested $1.1 billion in comparative effectiveness research.

The stimulus bill has $38 billion in it for health IT, and we’re trying to help the government develop policies to spend that money wisely. Our function is to say, ‘How do we take this incredible resource that Congress and the President have given us, and how do we turn it into an investment that creates healthcare value for the whole country?’ It’s a massive undertaking.

Our first objective was to ensure that the money from the stimulus package paid out over five years created value. We asked ourselves where we wanted to be five years from now, and then we worked backwards from there.

Deploying computers is not the goal. Having physicians and patients use computers to create better care at a lower cost is the goal. To do that, we have to set the bar high for the care system. Not only must you use the computer, you must use it in a meaningful way for better care. These are the ‘meaningful use’ criteria that we’ve published.

If we distribute a substantial number of computers, and physicians don’t use them, we won’t be successful. We didn’t want to focus on technical measures. We created the meaningful use criteria, and every single one is clinical.

We want physicians to achieve a clinical result, and we want information technology and the money in the stimulus package to be a contributor to that improved clinical result. For instance, one of the criteria is to avoid 1 million heart attacks and strokes by 2015. Another is to make cardiac disease no longer the leading cause of death in the United States. Those are stretch goals. That is not something simple and trivial.

It would have been much easier to say, ‘Our goal is to make sure 90% of physicians have computers.’ But we consciously didn’t do that because we recognize that health IT is a tool and that other changes need to happen.

HOW WILL THE INDUSTRY ACTUALLY ACHIEVE MEANINGFUL USE AND OTHER MILESTONES?

A:The law is actually quite specific in defining what a qualified system is, and we have a subcommittee that’s identifying the actual entity—such as the Certification Commission for Healthcare Information Technology (CCHIT)—that will assess systems as to whether they qualify or not. The bigger challenge is data integration.

Everyone recognizes that healthcare is horribly fragmented, that there are silos of care. We know that there’s massive inefficiencies, and there are significant quality concerns because information is not shared as people move across silos.

The challenge with data integration is that we really haven’t figured out how to do it correctly. If you’re an integrated delivery system and you buy one EMR, that’s fine, and that works. But 70% of physicians practice in a community setting, solo and small group practice. You have this tremendous problem that all of these systems are different. They call things by different names, and they even capture different sets of data.

WELLPOINT HAS CREATED THE INDIVIDUAL HEALTH RECORD SYSTEM THAT USES ALGORITHMS. HOW WILL THAT MAKE A DIFFERENCE?

A:Algorithms, also known as decision support, are going to be the key to getting value out of these systems. Let’s say the federal government funds a comparative-effectiveness study that identifies a new drug is great for certain people. In today’s world, we know it can take up to 17 years for that to be commonly found in a physician’s paper record. With this approach, you can create an algorithm as soon as physicians or specialty societies have decided on certain best practices. Now you’ve created an infrastructure to get that message to every doctor, but only when there’s an appropriate situation for that rule to be applied. That will take that 17 years down to 17 days. That’s a huge advance.

Let’s say we have noticed that there’s a lot of inappropriate use of PET scans. In today’s world, a doctor would have to call us for preauthorization every single time he orders a PET scan. In the future, the algorithms will be running, and they will only alert the doctor if there’s an issue with a PET scan. Today, they call 100% of the time, and we generally approve the scan more than 90% of the time. Algorithms will take hassles, administrative costs and bureaucratic burdens out of the system.

The right kind of health IT allows us to use new knowledge from our outcomes research subsidiary [HealthCore] and any gaps in a member’s care identified by our informatics company [Resolution Health] in much more effective ways. The right kind of health IT allows these advances to be applied real time at the point of care while the doctor is treating the patient or helping the patient at home.

IS WELLPOINT’S INDIVIDUAL HEALTH RECORD WORKING? HOW IS IT ANY BETTER THAN OTHER EMRS OR PHRS?

A:We’ve run a pilot in Dayton, Ohio. The idea was not just to create interoperability—don’t just allow System A to talk to System B. When you connect systems together, what you create is just a data dumpster. It’s like putting a jigsaw puzzle on a physician’s desk.

That information has to be organized to just the summarized information that the doctor needs…You don’t take all of the information out of these various systems, you only take the information necessary for the ongoing management of the patient.

Many EMR implementations have failed to show value. About 30% of the time, physicians will actually turn them off because they are incredibly time-intensive and will reduce a physician’s productivity. That will hit them in the pocketbook. We’ve looked for solutions that wouldn’t be so intensive from a physician’s data-entry perspective and would do more sorting of information and presentation of information.

Physicians are not data generators. They’re data consumers. Their orders create significant amounts of data, but the physicians themselves usually just scribble a relatively brief note. The problem with many EMRs is they will require physicians to become data-entry clerks.

In Dayton, Ohio, we have a very significant market share. We’re Anthem Blue Cross Blue Shield of Ohio, and we also have a strong partnership with Kettering Hospital Network.

Kettering had already installed an application integration solution, so even though they had 120 different clinical sources, many of those clinical sources could be accessed through infrastructure they had already built. That made it easy for us to collect all of the clinical data out of their systems. We built feeds to the application from Anthem’s claims systems. We were able to get this application up and running in a little over three months, which is incredibly rapid. We made it available to the patient in the form of a PHR and to the doctor in the form of a CCHIT-certified EMR with e-prescribing.

When we looked at who was using the tool, we found that patients who had a higher illness burden actually made preferential use of the tool. For many of the tools we’ve deployed, the ‘worried well’ have been the type of people who used it, not the people with the chronic disease that we really need to reach.

We noticed the people who used the tool and had the higher illness burden, their cost increase year over year was actually less than the people who didn’t use the tool, even though those people who didn’t use the tool were healthier.

We built algorithms in the system that exactly correlated with various HEDIS measures and every time the doctor or the patient logged on, they could see their exact compliance. By giving the patients and the doctor the same information in a simple red light, yellow light, green light format with algorithms enabled us to see quality improvement scores of anywhere from 10% to almost 40%.

WHAT’S THE BUSINESS CASE FOR A HEALTH PLAN TO CREATE A SYSTEM LIKE THAT?

A: Our strategy is maximizing healthcare value, and healthcare information technology is really a tool to get you there. But it has to be the right kind of health information technology. It has to influence doctor’s decisions, and you have to present sufficient clinical data—not mountains of data but the key things the doctor needs to know so that you can influence his decision to do something that’s consistent with the evidence base, or to prescribe a drug that will cost the patient less but has the same likelihood of creating a good patient outcome.

If you look at why healthcare spending is out of control, it’s chronic disease, not health plan profits and not health plan administrative costs. We are seeing an explosion of chronic disease in this country, and chronic disease is managed largely by the patient at home. They’re managing their diabetes 99% of the time at their home, not in the physician’s office. If you don’t make your health IT solutions patient-centric and if they don’t address chronic disease, I don’t think that you’re going to get the kind of value that you want.

HOW ARE THE PHYSICIANS EMBRACING THE INDIVIDUAL HEALTH RECORD?

A:We have 300 physicians using the system now. We’re planning for a broader rollout to the greater Dayton area in 2010 to virtually all primary care physicians.

What we’re focusing on is chronic disease management, and there’s not huge debate about many of the things that need to be done to take care of these patients. That’s not the problem. The problem is actually getting it done. The physicians in general have been positive and are beginning to see how their lives could be easier.

We also added all of our pay-for-performance rules. We pay physicians more if they practice medicine consistent with the evidence base, and we took the existing measures and turned them into algorithms in the system. As long as the physician follows all the alerts, he can be sure that he’s going to maximize his pay for performance incentive. That’s convenient for the doctors because what they usually have to do is identify the patients who haven’t had certain interventions and then reach out and call them.

We’re just starting to incorporate our utilization management rules. If we can begin to move those algorithms to the point of care, then physicians might not have to call except for when there’s a real reason to discuss something, which might be 5% of the time.

DETERMINING THE EFFECTIVENESS OF TREATMENTS IN ORDER TO BUILD THE ALGORITHMS IS AN EXPENSIVE PROCESS. HOW CAN IT BE DONE?

A:This is the beauty of health information technology…if you bring it together in a repository that’s reflective of the patient’s clinical condition and how they’re being managed, you can begin to do database-driven studies rather than very expensive prospective clinical trials where you’re enrolling patients and following them over time. You can begin to do database driven studies that are a fraction of the cost. No, they’re not the gold standard, which will always be a randomized perspective-controlled clinical trial, but there’s a lot of information we’re going to be able to glean out of database-driven studies that are more observational and more retrospective.

BE A VISIONARY. WHAT DO YOU SEE AS THE POTENTIAL FOR HEALTH IT?

A: I hope that every time a patient needs information when they’re home or need to take care of their chronic disease or want to stay well, that they have that information at their fingertips, it’s actionable, and they don’t even have to think about it. If we can make it that easy—and there is a path to get there—we could actually fix the healthcare system.

Charles Kennedy, MD, has held strategic health IT positions with a variety of organizations. He also served as the medical director of a California health center in addition to other clinical service. He earned an MBA from Stanford University, an MD from the University of California at Los Angeles, and a bachelor’s degree in genetics from the University of California at Berkeley.
” Physicians are not data generators. They’re data consumers.”

BCBS Massachusetts contributed $1.6 billion to state economy

An economic impact analysis found that Blue Cross Blue Shield of Massachusetts’ (BCBSMA) contributed nearly $1.6 billion to the Commonwealth’s economy.

Similarly, the Economic Impact Study, conducted by Tripp Umbach, found that BCBSMA contributed 5,856 jobs to the economy in positions that span the entire economic spectrum. The direct benefits reached across the commonwealth in 2008, including direct contributions of $5.2 million to more than 470 charitable organizations.

“BCBSMA felt it was important to conduct this study to track the company’s overall economic impact,” says Jay McQuaide, vice president of corporate communications for BCBSMA. “It is also important for members, customers and the community to have a better understanding of BCBSMA’s impact to the economic health and well-being of the region as a not-for-profit business.”

The impact is more than commercial, according to McQuaide. He says philanthropic efforts, tax dollars and investments in transformational initiatives make healthcare more affordable and accessible.

One of the most promising ways to slow the rise in healthcare costs is to improve quality, and the overuse, underuse and misuse of healthcare services.

“Research shows that approximately one-third of all healthcare spending is wasted on care that is medically unnecessary and potentially harmful,” he says. “By making investments in transformational initiatives that will help eliminate waste, duplication and inefficiency, the healthcare industry can work together to improve the quality and affordability of healthcare.

For example, the report singled out: $590 million in incentives to physicians and hospitals to improve quality and effectiveness; $60 million in community initiatives such as the Massachusetts eHealth Collaborative; and $9 million to collaborative efforts such as Healthcare Administrative Solutions Inc., a non-profit working to reduce administrative complexities.

Of note in the Economic Impact Study was that in addition to the $39 million BCBSMA paid in taxes to the federal government, the report found that despite BCBSMA’s not-for-profit status, the company contributed nearly $217 million in revenue to state government last year.

BCBSMA also created the Alternative Quality Contract, a provider contract model that combines two forms of payment: a global payment adjusted for health status, which increases annually in line with inflation; and performance incentives tied to measures of quality, effectiveness, and patient experience of care.

Healthcare spending consumes personal income

At current spending growth, a large share of increase in wealth over time will be absorbed by healthcare—44% between 2007 and 2020, according to new analysis from Health Affairs.

Even if excess health spending—the gap between health spending and income growth—were cut in half, a very large share of income growth will be devoted to healthcare (31%), according to Michael E. Chernew, PhD, Harvard Medical School Department of Health Care Policy, Boston.

“Over longer periods the estimates are more dramatic—63% between 2050 and 2083 in the best case,” Chernew says. “This is important because it illustrates that the status quo cannot continue. No matter what else managed care executives do, if they cannot solve the spending growth problem, some possibly drastic solution will be needed.”

Chernew suggests that some combination of payment reform and benefit design will be needed. For example, he points to Blue Cross Blue Shield of Massachusetts Inc.’s (BCBSMA) Alternative Quality Contract (AQC). First offered in 2008, the AQC pays doctors and hospitals based on the quality and outcome of the care they provide to patients. The AQC is designed to improve the quality of care members receive and cut current annual medical cost trends in half.

“The AQC offered by BCBSMA is a possibility, but we will continually have to experiment and face these challenges,” Chernew says.

Although no company wants to explain to its consumers why its product is costly, Shawn Jenkins, president and CEO of Benefitfocus, believes it is essential to educate members about premium cost-drivers.

“Explain to members how their lifestyle—diet, exercise, etc.—will result in additional needs for healthcare services or not,” Jenkins says. “Making that financial connection and providing them with wellness tools to manage their lifestyle can incent members to the right behavior.”

Finally, says Jenkins, executives must get creative in product design—such as rewards for positive behavior—to the extent the member anticipates and helps control the cost drivers.

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