Hospital Computing and the Costs and Quality of Care: A National Study

By David U. Himmelstein, MD, Adam Wright, PhD, Steffie Woolhandler, MD, MPH
The American Journal of Medicine
November 20, 2009

BACKGROUND

Many believe that computerization will improve health care quality, reduce costs, and increase administrative efficiency. However, no previous studies have examined computerization’s cost and quality impacts at a diverse national sample of hospitals.

DISCUSSION

We used a variety of analytic strategies to search for evidence that computerization might be cost-saving. In cross-sectional analyses, we examined whether more computerized hospitals had lower costs or more efficient administration in any of the 5 years. We also looked for lagged effects, that is, whether cost-savings might emerge after the implementation of computerized systems. We looked for subgroups of computer applications, as well as individual applications, that might result in savings. None of these hypotheses were borne out. Even the select group of hospitals at the cutting edge of computerization showed neither cost nor efficiency advantages. Our longitudinal analysis suggests that computerization may actually increase administrative costs, at least in the near term.

The modest quality advantages associated with computerization are difficult to interpret. The quality scores reflect processes of care rather than outcomes; more information technology may merely improve scores without actually improving care, for example, by facilitating documentation of allowable exceptions.

Why has information technology failed to decrease administrative or total costs? Three interpretations of our findings seem plausible. First, perhaps computerization cannot decrease costs because savings are offset by the expense of purchasing and maintaining the computer system itself. Although information technology has improved efficiency in some industries (eg, telecommunications ), it has actually increased costs in others, such as retail banking.

Second, computerization may eventually yield cost and efficiency gains, but only at a more advanced stage than achieved by even the 100 “Most Wired” hospitals.

Finally, we believe that the computer’s potential to improve efficiency is unrealized because the commercial marketplace does not favor optimal products. Coding and other reimbursement-driven documentation might take precedence over efficiency and the encouragement of clinical parsimony. The largest computer success story has occurred at Veterans Administration hospitals where global budgets obviate the need for most billing and internal cost accounting, and minimize commercial pressures.

CONCLUSIONS

Whatever the explanation, as currently implemented, health information technology has a modest impact on process measures of quality, but no impact on administrative efficiency or overall costs. Predictions of cost-savings and efficiency improvements from the widespread adoption of computers are premature at best.

http://www.amjmed.com/home

PNHP press release:
http://www.pnhp.org/news/2009/november/projections-of-savings-from-health-it-are-baseless-harvard-researchers-say

VA’s VistA:
http://www.innovations.va.gov/

As currently implemented, health information technology (HIT) has no significant impact on administrative efficiency or overall costs, even in the “100 Most Wired” hospitals. Members of Congress should quit pretending that expanding HIT will produce savings that will help pay for the increased spending called for in their legislation.

This should not be interpreted as a blanket condemnation of HIT. The system used by the Veterans Administration hospitals has improved quality, though their system was designed specifically to enhance patient care. Profitable, proprietary, commercial HIT systems are usually designed to improve billing and cost accounting (and to make money for the vendors), whereas patient care information management in these proprietary systems is designed to mesh with these business functions that are given a higher priority.

We should really think about whether we want to continue to use our public funds to promote private, entrepreneurial HIT systems that have a business orientation, or if we should use those funds for further development of less expensive, open-source HIT systems designed specifically to enhance the quality of patient care, just as the VA health system has done. Their award-winning system, VistA, is available for use in the private sector (VA’s VistA – link above). Isn’t it more logical to look at a system that actually works, and one that that’s already paid for and that we own?

The following is from the PNHP release (link above):

Dr. Steffie Woolhandler, professor of medicine at Harvard and study co-author, said several factors may explain why health IT has failed to reduce administrative costs.

“Any savings may have been offset by the costs of purchasing and running new computer systems,” she said. “In addition, most software is designed around the accounting and billing needs of hospitals, not the clinical side.”

She noted that a computer success story in recent years has been at the Veterans Administration, where global budgets eliminate most billing and internal cost accounting, allowing physicians to focus instead on delivering care.

“The VA system now has our nation’s highest quality and patient approval ratings,” Woolhandler said. “Congress should take note: to get the most benefit from our health care dollars and from health IT, we should adopt a single-payer, Medicare-for-all program. Nothing short of that will allow us to reap the full potential of computerization or to provide comprehensive, quality and affordable care to all.”

In a tough year, employers hold the line on health benefit cost increases

Mercer
November 18, 2009

* Employers hold cost growth to 5.5 percent in 2009, the lowest increase in a decade

* Growth in use of wellness or health management programs accelerates as large employers look to hold down cost without cost-shifting

* Small employers added consumer-directed health plans in 2009, helping to push up enrollment in these high-deductible plans to 9 percent of all covered employees

However, benefit cost growth outpaced inflation in 2009 by a widening margin.

The ongoing workforce health management (or “wellness”) movement gained considerable momentum in 2009, as offerings of virtually every type of health management program – from health risk assessments to disease management programs to behavior modification programs – rose significantly. While not conclusive, survey results suggest these programs are having an impact: Medical plan cost increases in 2009 were about two percentage points lower, on average, among employers with extensive health management programs than among those employers offering limited or no health management programs. And nearly three-fourths of employers that have measured the return on their investment in health management programs say they are satisfied with the year-over-year savings, lower utilization rates or improved health risks. However, only about a third of all large employers have formally measured ROI.

“A lot more employers were willing to place their bet on health management in 2009,” said Linda Havlin, a worldwide partner and Mercer’s global health and benefits intellectual capital leader. “But they will want to see continual gains. Measuring health management ROI is inherently challenging and continues to evolve.”

Small employers held down cost increases by sharply raising deductibles for in-network PPO services. Consistent with past years, employers kept premium contributions relatively stable, choosing to keep the cost of coverage affordable while shifting the burden to those who use health services.

While growth in CDHP offerings in 2009 was evident only among small employers, the plans are still more common among larger employers: CDHPs are offered by 20 percent of employers with 500 or more employees, and 43 percent of those with 20,000 or more employees.

http://www.mercer.com/summary.htm?idContent=1364345

In their just released 2009 report on employer-sponsored health benefit programs Mercer seems to be celebrating the fact that this year employers have held the line on benefit cost increases. Is their optimism warranted?

Overall, the cost growth for 2009 is 5.5 percent, the lowest increase in a decade. However that increase outpaced inflation by a widening margin. The gap means that health care continues to consume an increasing percentage of wages, whether paid by the employee directly or through forgone wage increases.

Mercer cites two mechanisms for slowing cost increases: 1) small employers simply shifted more costs to the employees by raising deductibles, and 2) larger employers expanded their wellness and health management programs.

Since high deductible plans have lower premiums, small employers were able to avoid the full increases in health care costs, but their employees were further burdened by greater out-of-pocket expenses. Many large employers already offer high deductible plans and have been benefiting from this cost shift to the employee. Although Mercer frames this as being beneficial since it slows the increase in employers’ costs, it is detrimental for their employees since it expands the incidence of underinsurance.

Mercer suggests that wellness programs may have been the primary reason for the slowing of costs for large employers, but is that a valid conclusion? Most wellness interventions would demonstrate benefits in the out-lying years, but the early impact would be negligible on changing the need for health care services. Although many employers express satisfaction with these programs, most of them have not made any effort to measure the actual impact.

There is a far more logical explanation for the two percentage point advantage that they report in their health care costs. The health insurance underwriting cycle is a pattern of repeated larger gains and smaller gains that are due in part to periods of aggressive marketing by the insurers to gain greater market share. In those aggressive years, lower returns are the trade off. Once market share is established, premiums are pushed up to provide greater profit margins.

Insurers and plan administrators have found a new niche in wellness services. They are heavily marketing these products now and so are expected to be in the trough of the underwriting cycle. Once the market for these products stabilizes, we can expect the cycle to move into a peak, catching employers off guard when their health benefit program costs sharply increase in spite of having instituted these wellness programs. It is likely that the response of the employers will be to change their benefit designs which inevitably will result in even more underinsurance.

The point is that health care costs are continuing to increase at intolerable rates and that the purported slowing noted in this report is merely an artifact of the underwriting cycle combined with an expansion of underinsurance.

In an improved Medicare for all program underinsurance and underwriting cycles wouldn’t even exist, but Congress is insisting that we build on our current dysfunctional financing system, in spite of its perversities. How smart is that?

Letter to President Barack Obama urging four elements be included in health reform legislation to control costs

By Alan M. Garber, Victor R. Fuchs, Kenneth J, Arrow

November 17, 2009

President Barack Obama
The White House
Washington, DC 20500

Dear Mr. President,

As the full Senate prepares to debate comprehensive health reform legislation, we write as economists to stress the potential benefits of health reform for our nation’s fiscal health, and the importance of those features of the bill that can help keep health care costs under control. Four elements of the legislation are critical: (1) deficit neutrality, (2) an excise tax on high-cost insurance plans, (3) an independent Medicare commission, and (4) delivery system reforms.

Including these four elements in the reform legislation – as the Senate Finance Committee bill does and as we hope the bill brought to the Senate floor will do – will reduce long-term deficits, improve the quality of care, and put the nation on a firm fiscal footing. It will help transform the health care system from delivering too much care, to a system that consistently delivers higher-quality, high-value care. The projected increases in federal budget deficits, along with concerns about the value of the health care that Americans receive, make it particularly important to enact fiscally responsible and quality-improving health reform now.

In developing our analysis and recommendation, we received input and suggestions from Administration officials, including the Office of Management and Budget and others, as well as from economists who disagree with the Administration’s views.

The four key measures are:

* Deficit neutrality

Fiscally responsible health reform requires budget neutrality or deficit reduction over the coming years. The Congressional Budget Office (CBO) must project that the bill be at least deficit neutral over the 10-year budget window, and deficit reducing thereafter. Covering tens of millions of currently uninsured people will increase spending, but the draft health reform legislation contains offsetting savings sufficient to cover those costs and the seeds of further reforms that will lower the growth of spending. Deficit neutrality over the first decade means that, even during the start-up period, the legislation will not add to our deficits. After the first decade, the legislation should reduce deficits.

* Excise tax on high-cost insurance plans

The Senate Finance Committee’s bill includes an excise tax on high-cost health insurance plans. Like any tax, the excise tax will raise federal revenues, but it has additional advantages for the health care system that are essential. The excise tax will help curtail the growth of private health insurance premiums by creating incentives to limit the costs of plans to a tax-free amount. In addition, as employers and health plans redesign their benefits to reduce health care premiums, cash wages will increase. Analysis of the Senate Finance Committee’s proposal suggests that the excise tax on high-cost insurance plans would increase workers’ take-home pay by more than $300 billion over the next decade. This provision offers the most promising approach to reducing private-sector health care costs while also giving a much needed raise to the tens of millions of Americans who receive insurance through their employers.

* Medicare Commission

Rising Medicare expenditures pose one of the most difficult fiscal challenges facing the federal government. Medicare is technically complex and the benefits it underwrites are of critical importance to tens of millions of seniors and Americans with disabilities. We believe that a commission of medical experts should be empowered to suggest changes in Medicare to improve the quality and value of services. In particular, such a commission should be charged with developing and suggesting to Congress plans to extend the solvency of the Medicare program and improve the quality of care delivered to Medicare beneficiaries. Creating such a commission will make sure that reforming the health care system does not end with this legislation, but continues in future decades, with new efforts to improve quality and contain costs.

* Delivery system reforms

Successful reform should improve the care that individual patients receive by rewarding health care professionals for providing better care, not just more care. Studies have shown that hundreds of billions of dollars are spent on care that does nothing to improve health outcomes. This is largely a consequence of the distorted incentives associated with paying for volume rather than quality. Health care reform must take steps to change the way providers care for patients, to reward care that is better coordinated and meets the needs of each patient. In particular, the legislation should include additional funding for research into what tests and treatments work and which ones do not. It must also provide incentives for physicians and hospitals to focus on quality, such as bundled payments and accountable care organizations, as well as penalties for unnecessary re-admissions and health-facility acquired infections. Aggressive pilot projects should be rapidly introduced and evaluated, with the best strategies adopted quickly throughout the health care system.

As economists, we believe that it is important to enact health reform, and it is essential that health reform include these four features that will lower health care costs and help reduce deficits over the long term. Reform legislation that embodies these four elements can go a long way toward delivering better health care, and better value, to Americans.

Sincerely,

Dr. Henry Aaron, The Brookings Institution
Dr. Kenneth Arrow, Stanford University, Nobel Laureate in Economics
Dr. Alan Auerbach, University of California, Berkeley
Dr. Katherine Baicker, Harvard University
Dr. Alan Blinder, Princeton University
Dr. David Cutler, Harvard University
Dr. Angus Deaton, Princeton University
Dr. J. Bradford DeLong, University of California, Berkeley
Dr. Peter Diamond, Massachusetts Institute of Technology
Dr. Victor Fuchs, Stanford University
Dr. Alan Garber, Stanford University
Dr. Jonathan Gruber, Massachusetts Institute of Technology
Dr. Mark McClellan, The Brookings Institution
Dr. Daniel McFadden, University of California, Berkeley, Nobel Laureate in Economics
Dr. David Meltzer, University of Chicago
Dr. Joseph Newhouse, Harvard University
Dr. Uwe Reinhardt, Princeton University
Dr. Robert Reischauer, The Urban Institute
Dr. Alice Rivlin, The Brookings Institution
Dr. Meredith Rosenthal, Harvard University
Dr. John Shoven, Stanford University
Dr. Jonathan Skinner, Dartmouth College
Dr. Laura D’Andrea Tyson, University of California, Berkeley

Letter:
http://iis-db.stanford.edu/pubs/22739/Economist_Letter_to_the_President.pdf

The source of the letter:
http://bit.ly/13omUB

OECD Tax Database (Table 0.1):
http://www.oecd.org/document/60/0,2340,en_2649_34533_1942460_1_1_1_1,00.html

Bundled payments and ACOs:
http://www.pnhp.org/news/2009/november/rand-and-br-on-savings-through-bundled-payments

For socially conscious health care reform advocates, the primary goal of reform is to see that every individual receives the health care that he or she needs, But what has really driven the reform process has been the concern over the very high costs of health care that have challenged individuals, employers and the stewards of our government health programs.

In this late phase of the reform process many have expressed doubts over the adequacy of the various policies in the reform proposal that allegedly are designed to control health care costs well into the future. In response, twenty-three of the nation’s most distinguished economists have signed on to this letter addressed to President Obama expressing support for four elements that they believe are of critical importance and should be included in the reform legislation. Let’s look closer at these four elements.

* Deficit neutrality

The economists call for budget neutrality initially, to be followed by deficit reduction. Of course they are referring only to the federal government budget and not to private sector spending. The great risk of limiting consideration to public spending is that, in the absence of effectively controlling actual health care costs, the government budget can be controlled only by shifting the costs to the private sector. Individuals and businesses certainly do not want to see an increase in their health care spending, especially while the government is reducing its spending in the later phase, that of deficit reduction.

Isolating health care spending for budget neutrality while continuing with deficits in other government programs (war, financial institution bailouts, interest on the debt, expanding our prison population, etc.) does not seem just. Appropriate use of debt is fundamental to any business, and there is no reason that reasonable debt should not be a part of the government’s management of its financial obligations to health care.

That said, our total government debt is the result of prior devious efforts to reduce revenues (i.e., taxes) in order to force the reduction in funding of government programs. With inadequate revenues and with exploding debt, deficit hawks in Congress can be relied upon to underfund crucial programs such as health care, but theirs is a pathological process since they only look at spending and refuse to consider revenues.

Those who argue that taxes collected for government health care spending remove money from the economy are flat out wrong. Health care is one of the most important and beneficial components of our economy, constituting over 17 percent of our GDP (Gross Domestic Product). Those taxes are moved back into our economy.

Those who scream that we are being taxed to death need another dose of reality. The average total tax revenues of OECD nations (Organization for Economic Cooperation and Development) was 35.9 percent of GDP in 2006. For the United States, the total tax revenue was 28.0 percent of GDP, placing us near the bottom of OECD nations. (OECD Tax Database – link above)

Suppose we increased our tax revenues to the average of OECD nations, which would still be far, far short of those nations with more highly socialized systems. At 7.9 percent (35.9 average minus 28.0 U.S.) of our GDP of about $13.8 trillion, that would increase government revenues by about $1.1 trillion in a single year, ten times the amount they are considering for health care reform. Our entire federal spending is under $3 trillion. We could eliminate entirely the deficits and provide surpluses while keeping tax revenues at well below the OECD average, if only the deficit hawks would look at the revenue side of the ledger.

* Excise tax on high-cost insurance plans

Why would any health insurance plans have very high premiums? One reason is that insurers use medical underwriting to assess high premiums for individuals with preexisting disorders. It would be unfair to tax those premiums for an individual with other burdens, but with adequate regulatory reform medical underwriting should be eliminated anyway.

The more common reason for high premiums is that the plan covers other services and products such as dental care, eye care, maternity benefits, mental health services, and pharmaceuticals. Applying an excise tax to these premiums would result in eliminating such benefits from the plans and shifting these expenses to the individual in the form of greater out-of-pocket spending. The proposals under consideration place a cap on out-of-pocket expenses for covered services, but that cap is unaffordable for many, and these expenses would not apply to the cap. Thus they would impose an even greater financial burden.

Since the excise tax would discourage access to these important health care services, it should be rejected as the flawed policy concept that it is.

* Medicare Commission

Although the Medicare Commission purportedly would be to improve quality and value, its primary purpose would be to limit spending within the Medicare program. Medicare has already served as a leader in innovations to reduce health care spending, with the private insurance industry following. In fact, many providers believe that Medicare has been too aggressive, often resulting in lower reimbursement rates than in the private sector. Granting the Commission more power to use newer innovations to further reduce spending will inevitably increase the animosity held towards Medicare by the providers. A decline in willingness to accept Medicare beneficiaries could further impair access.

This is not to say that the concept of a commission is a bad idea. If the commission worked with the entire health care delivery system in applying potentially beneficial innovations, higher quality and greater value are possible. If the commission became too aggressive, the push-back by providers and their patients would moderate their excesses.

If the power of the Medicare Commission were limited only to Medicare, then there is a potential that cost-cutting aggressiveness might threaten to convert Medicare into a quasi-welfare program not unlike Medicaid, a transformation that would not please our Medicare beneficiaries. It is more likely that the Commission simply would be enmeshed in studies of relatively ineffectual measures that would have little net impact on costs.

We would need a universal Medicare for all program for the Commission to have a real impact that would be both beneficial and cost saving.

* Delivery system reforms

These economists recommend that we reward health professionals for providing better care. The problem is that we don’t know how to do that. They recommend funding research into what tests and treatments work and which ones do not, as if that isn’t what research has been all about anyway. Maybe it would be helpful to directly compare expensive patent drugs to generics, but the overall spending impact will be modest since this year’s patented drugs are next year’s generics.

They also recommend bundled payments, accountable care organizations, plus penalties for re-admissions, hospital acquired infections and other PACs (potentially avoidable costs). In my message two days ago I already discussed the reasons why these measures cannot be relied upon to reduce health care costs (Bundled payments and ACOs – link above).

Is this really the best that these noted economists can come up with? They have made the same mistake as the politicians. Their perception of reform is to build on our existing dysfunctional financing system (an egregiously flawed concept that you would think our leading economists would understand).

If we had an improved Medicare for all we could have 1) deficit neutrality through global budgeting, 2) rational tax policies that are equitable, 3) public administration using the guidance of commissions as appropriate, and 4) our own beneficent monopsony that can realign incentives to promote the delivery system reform that we need. And, oh yes, every single person would be included. It doesn’t take an economist to understand that.

Downwardly Mobile – The Accidental Cost of Being Uninsured

By Heather Rosen, MD, MPH; Fady Saleh, MD, MPH; Stuart Lipsitz, ScD; Selwyn O. Rogers Jr, MD, MPH; Atul A. Gawande, MD, MPH
Archives of Surgery
November 2009

The Centers for Disease Control and Prevention estimate that in 2004, there were 112 012 deaths related to unintentional injuries alone in the United States. Unintentional injury is within the top 10 causes of death for every age group and is the leading cause of death among persons aged 1 to 44 years.

Uninsured trauma patients in the NTDB (National Trauma Data Bank) had a statistically significant higher adjusted odds of mortality compared with insured trauma patients. Our subgroup analyses strongly corroborated these findings. In younger patients (aged 18-30 years), the adjusted odds of mortality after trauma remained higher for uninsured patients compared with insured patients, indicating that the differences persist in a relatively healthy cohort. In the subgroup analyses of head-injured patients and those with 1 or more comorbidities in the NTDB, the adjusted odds of mortality in the uninsured population remained significantly high.

Most recent research has concentrated on decreased (or lack of) access to care as a result of being uninsured. However, we found that, even after admission to a hospital, trauma patients can have worse outcomes based on insurance status. This concerning finding warrants more rigorous investigation to determine why such variation in mortality would exist in a system where equivalent care is not only expected but mandated by law.

We can only speculate as to the mechanism of the disparities we have exposed; the true causes are still unclear. Although the lack of insurance may not be the only explanation for the disparity in trauma mortality, the accidental costs of being uninsured in the United States today may be too high to continue to overlook.

http://archsurg.ama-assn.org/cgi/content/short/144/11/1006

Uninsured trauma patients are more likely to die than insured patients in spite of the fact that treatment is mandated by law. This study did not explain the reasons for the differences.

Delay? Different care? Lower health literacy? Or was there simply less enthusiasm on the part of the providers of care once it was realized that they would not be compensated for their efforts?

This study and several others have demonstrated that death can be a consequence of being uninsured. But there are other important consequences as well. Access to health care that can maintain or improve quality of life is impaired, with consequent adverse outcomes. Financial hardship is almost a given in uninsured individuals with significant health problems.

Instead of searching for alternative explanations for adverse outcomes in the uninsured, we should admit that being uninsured is bad for your health and bad for your finances, and then do something about it. Individual responsibility alone is not enough. Social solutions are required.

Health Care Reform: Creating a Sustainable Health Care Marketplace

By Hewitt Associates
Business Roundtable
November 2009

Payment Bundling

Establishing bundled payments would create more incentives for efficient treatments and could be adjusted based on outcomes. Health care reform proposals are moving toward bundled payments. Both the House and the Senate include provisions that focus on improved quality of care and patient outcomes.

The pilot program may cover the following services: acute-care inpatient hospitalizations; physician services delivered inside and outside of the acute-care hospital setting; outpatient hospital services, including emergency department visits; services associated with acute-care hospital readmissions; home health; skilled nursing; inpatient rehabilitation; and long-term care. The episode of care established in the pilot program would start three days prior to a qualifying admission to the hospital and span the length of the hospital stay and 30 days following the patient discharge.

The pilot program’s bundled payment would be made to a Medicare provider or another entity composed of multiple providers to cover the costs of acute-care inpatient and outpatient hospital services, physician services, and post-acute care. The bundled payment for each of the eight selected conditions would be based on the average hospital, physician, and post-acute-care payments made over the hospitalization period for the patient.

CBO does not score savings for this provision, mainly because the language above suggests that Medicare will pay the same as it would otherwise have paid, instead of some lower amount per episode. Over time, however, we believe substantial savings can be achieved by both removing the financial incentive to provide marginally effective services, as well as through the active management of the rate of increase in the bundled reimbursement rate.

http://www.businessroundtable.org/sites/default/files/Hewitt_BRT_Sustainable%20Health%20Care%20Marketplace_Final.pdf

And…

Controlling U.S. Health Care Spending — Separating Promising from Unpromising Approaches

By Peter S. Hussey, Ph.D., Christine Eibner, Ph.D., M. Susan Ridgely, J.D., and Elizabeth A. McGlynn, Ph.D.
The New England Journal of Medicine
November 11, 2009

We identified 8 options that evidence suggests have the potential to reduce spending and are broadly applicable to the United States. For these options, we developed high and low estimates of cumulative cost savings over 10 years. The graph (clink on link below) lists the options, ranked according to their savings potential, and shows the percentage change in spending that we estimate could be achieved if that policy alone were implemented.

Among the most promising options are those related to changing the payment methods for health care services. (In the graph, bundled payment stands out as the option that would have by far the greatest impact in reducing spending.)

A “bundled-payment” approach would provide a single payment for all services related to a given treatment or condition, causing providers to assume risk for preventable costs; this approach has proved effective in limited demonstration projects. Bundled payment provides a mechanism for reducing both the volume of services and the prices charged for them. We estimate that under optimistic scenarios and with broad use of the Prometheus model of bundled payment for six chronic conditions and four acute conditions or procedures requiring hospitalization, national health care spending could be reduced by 5.4% between 2010 and 2019. This estimate assumes that providers can achieve a reduction of 25 to 50% in the costs associated with avoidable complications by providing higher-quality, more collaborative care.

http://healthcarereform.nejm.org/?p=2301&query=home

And…

Building a Bridge from Fragmentation to Accountability — The Prometheus Payment Model

By François de Brantes, M.S., M.B.A., Meredith B. Rosenthal, Ph.D., and Michael Painter, J.D., M.D.
The New England Journal of Medicine
September 10, 2009

Most experts agree that some sort of bundled, episode-based payment would help to move the system in the right direction. Our own approach, the Prometheus Payment model, for instance, bundles services and provides a budget with three components: evidence-informed base payment with patient-specific severity adjustments and an allowance for potentially avoidable complications.

The model encourages two behaviors that fee for service discourages: collaboration of physicians, hospitals, and other providers involved in a patient’s care; and active efforts to reduce avoidable complications of care (and the costs associated with them). It accomplishes these goals by paying for all the care a patient needs over the course of a defined clinical episode or a set period of management of a chronic condition, rather than paying for discrete visits, discharges, or procedures.

When incentives are used to drive changes in behavior, it is important that people and organizations are held accountable only for the variables that are actually under their control. That’s why, in designing the Prometheus model, we decided to focus on the potentially avoidable costs of patient care. We separated the costs attributable to patient-related factors from those attributable to providers’ actions. These latter costs are critically important in terms of accountability. In Prometheus, these potentially avoidable costs are called PACs and are recognized as the result of “care defects” — problems necessitating technical care that are under the professionals’ control and that, with the best professional standards, could have been avoided. PACs might include the cost of hospitalization of a patient with uncontrolled diabetes or the readmission for a wound infection of a patient who had recently been discharged after cardiac bypass surgery.

Unlike the current payment system, Prometheus provides larger profit margins for providers who can eliminate these complications, since they keep any unused PAC allowance — they profit by delivering optimal care, not a greater volume of care.

One lesson from our pilots is that hospital-centric provider organizations can expect increased internal tension when they implement an episode-of-care payment system. Prometheus does provide a sort of bonus to the hospital and physicians for working together to avoid readmission. However, physician groups that are paid under the model for managing chronic conditions have substantial opportunities to increase the profits that come from avoiding expensive hospitalizations. This incentive can highlight potential conflicts between the financial interests of physicians and those of hospitals and cause us to question the proposition that hospital-centric provider organizations will deliver the best results for the country.

The Prometheus model, by contrast, can be implemented in a fragmented, largely fee-for-service delivery system if the payer retains the role of financial integrator. Over time, as providers collaborate to improve patient care and optimize their margins, they could more formally integrate into accountable organizations. However, it will and should be their choice to do so.

http://content.nejm.org/cgi/content/full/361/11/1033

Peter Hussey and his colleagues at RAND, in their NEJM article, try to make the case that a “bundled payment” approach would be one of the most promising options for controlling health care spending. The Prometheus model of bundled payment, described the other NEJM article cited above, would shift the risk for preventable costs from the payer to the providers of health care services.

Here’s how it would work. The payer (e.g., Medicare) would determine what the costs of all services would be for a given clinical problem under the current system (fee-for-service plus DRGs). All services would be bundled under a single fee that would be discounted by about five percent. That discount represents current preventable costs such as “excessive” days of hospitalization, “unnecessary” imaging studies, “preventable” complications such as wound infections, and “unnecessary” re-hospitalizations for “inadequate” post-discharge followup. If the medical team of professionals and institutions failed to prevent these or other “additional” costs, the team would bear the loss.

Well fine. But how many of these costs are truly preventable? At the time that services are rendered, almost all decisions are clinically appropriate. It is only in retrospect that an occasional decision might have been changed, but most would not have been. Then there is the fallibility of the human mind. Just as no person could be expected to have a perfect score on every exam taken throughout life, no health care professional can be expected to have a perfect score on all clinical decisions, especially when the perfect response is often still an unknown.

Another problem is that bundling requires organizing individuals and institutions together based on a single clinical entity. The composition of the team would vary depending on the nature of the clinical problem. The team would accept the one bundled payment but then internal disputes over the distribution of the funds certainly would be inevitable. Although the payer is relieved of the administrative services of allocating these funds, the process does not bode well for creating a harmonious, collaborative environment for high quality patient care. Those who believe that these arrangements could evolve into “accountable care organizations” are delusional.

In spite of RAND’s optimism, “bundling payments” will not reduce costs. It will only reduce prices, while actually increasing costs by introducing yet greater administrative complexity.

Purists in written composition might contend that I’ve overused “quotation marks” in my comments. My defense is that health care reform should not be based on “quotation marks” and a “wink.” It should be based on sound health policy science (no quotation marks).

Republicans: Get out of the way of progress

Letters
North County Times
November 13, 2009

I am a retired lifelong conservative Republican, planning to change my registration to Independent. Why? Because of obstructionist practices of the Republicans, such as Saturday night’s vote in the House. Only one Republican voted for the House Bill 3962. All the rest played strict partisan politics.

We need change in our broken health insurance system in America. The best change would be a switch to single-payer — but in the interest of making progress, I implore my Representative, Darrell Issa, to stop playing partisan politics.

I also implore my senators, Dianne Feinstein and Barbara Boxer, to vote in favor of health care reform in the upcoming Senate votes. Again, single-payer is the best way to go, but any change from the present system will be welcome.

We have the most expensive health care system in the world, but our health outcomes are well down among developed nations. Why do our politicians not respond to their constituents? Are some in the pockets of the insurance and pharmaceutical companies? Do the wishes of majorities not count with them?

Edgar Grube
Oceanside

http://www.nctimes.com/news/opinion/letters/article_a335d2e8-dfa1-54bb-8b48-612690807f79.html

And…

Estonia: health care reforms

European Federation of Public Service Unions

In Estonia public health insurance is a social insurance and relies on the principle of solidarity. The purposes of health insurance are to: cover the costs of health services provided to insured people, prevent and cure diseases, finance the purchase of medicinal products and medicinal technical aids and provide benefits for temporary incapacity for work and other benefits. The health insurance is organised by the Health Insurance Fund (EHIF), which covers the costs of health services required by people in the event of illness, regardless of the amount of social tax paid in respect of the person concerned. The Fund uses the social tax paid for the working population also to cover the cost of health services provided to people who have no income from work activities. Employers are required to pay social tax for all people employed, at a rate of 33% of the taxable amount, of which 20% is allocated for pension insurance and 13% for health insurance.

http://www.epsu.org/a/2242

How about that! A conservative Republican who has decided that single payer is the best way to go. Wow!

So how did he arrive at his conclusions on single payer?

I must confess that Ed Grube is a close personal friend of mine. When we met many years ago, he described himself as being to the right of Genghis Khan, whereas I was to the left of Norman Thomas. We had no pretenses that we could change each others ideology, so we dispensed with the useless rhetoric.

We frequently escaped with our mates on camping trips in spectacular locations, free of the cares of our very busy lives back home. During our hikes the ladies would enjoy the things that really count – the flowers, the vistas, the fauna, etc. – whereas Ed and I would discuss government, free markets, regulation, and other topics that were inappropriate when you are in paradise. But men… you know.

I think that both of us were surprised on how much we agreed, particularly on regulation. We could see the terrible injustices resulting from the move to deregulation, especially since 1980. Recent events have only further solidified our views.

Being the compulsive that I am, I couldn’t leave out the topic of health care reform. Since we had dispensed with silly ideology disputes, we could discuss reform quite rationally. He agreed that the status quo was totally unacceptable, and that there are some very legitimate arguments that support public financing of a private health care delivery system. I agreed that we could have health care justice without the requirement of a government owned health care delivery system.

With the downturn in the economy, Ed decided to shut down his business and retire – a wise decision, except that he was too young to qualify for Medicare. I don’t need to go into this part of the story except to say that he certainly recognized the injustices of overzealous medical underwriting and age discrimination. More than ever he could see the advantages of a single payer system.

But there is more to this story. I am not going to pretend that my smooth talking converted a conservative Republican into a single payer supporter, although I may have given him some of the substrate to frame his thoughts. No, it was much more than that.

Ed, who is Estonian by heritage, met the love of his life – Juta – while visiting the land of his roots. After marriage, they lived together in Estonia long enough to be able to recognize the sharp contrasts on moving back to California. Amongst the most notable differences are our health care systems.

“In Estonia public health insurance is a social insurance and relies on the principle of solidarity.” Juta simply takes that as a given. And now, so does Ed – or at least he passionately believes that it should be a given.

Health savings? No one knows

By Carrie Budoff Brown
Politico
November 11, 2009

Barack Obama ran for president on a promise of saving the typical family $2,500 a year in lower health care premiums.

But that was then.

No one in the White House is making such a pledge now.

It’s one of the most basic, kitchen-table questions of the entire reform debate: Would the sweeping $900 billion overhaul actually lower spiraling insurance premiums for everyone?

Jonathan Gruber, the favorite economist of the White House, said the bill “really doesn’t bend the cost curve.”

Reminded that Obama demanded a bill that lowers health care spending, Gruber said: “That is what he would like to do. But he’s not doing it.”

If premiums are the benchmark by which reform is judged, “we are setting ourselves up to fail,” Gruber said.

http://www.politico.com/news/stories/1109/29421.html

From the very start, the two most important goals for reform allegedly were to cover everyone and to control health care costs. But the precondition that reform be based on an expansion of private health plans within our dysfunctional, fragmented financing system immediately eliminated universal coverage as a goal. It proved to be impossible to balance all of the variables in this dysfunctional system to ensure that everyone would be covered. So they gave up.

Efforts were then directed to creating policies that would slow the growth in health care costs, again with the precondition that the role of private insurers would be protected and expanded. This led to the profusion of magical thinking – pretending that numerous vague innovative concepts included in the bill would somehow slow the growth in health care costs. Since the Congressional Budget Office does not have a data base on magical solutions, they were unable to score any of these innovations as effective instruments to control costs. As Jonathan Gruber said, the bill “really doesn’t bend the cost curve.”

So they decided to forget about universal coverage and to forget about total costs, but they still had a problem unique to our financing system based on private health plans. In a high cost system like ours, how do you make premiums affordable?

More magical thinking. Pretend that there is a “basic” level of insurance that will take care of all of our basic health care needs. Gold, or platinum, or Cadillac tiered health plans should be made available for wealthier individuals who want more comprehensive plans and are willing to pay for them. But do those more comprehensive plan cover services that the rest of us really don’t need?

It is almost impossible to sort out health care products and services based on whether or not they are essential. For a person with a disabling osteoarthritis of the hip, is a hip replacement essential? Or should the surgery be reserved for those with platinum plans? A wheelchair for gold plans? A walker for the silver plans? And for the bronze plans, an instruction sheet on how to carve a cane out of a stick of wood?

Since they really couldn’t establish tiers based on the specific services provided, they based them on the actuarial value – the percentage of costs that the plan would pay for. Basic plans have been defined in the legislation as having an actuarial value of 65 or 70 percent. The patient is responsible for 30 or 35 percent of the costs. You can see how “basic” these lower tier plans are when you consider that the average employer-sponsored plan has an actuarial value of 80 percent and some are as high as 88 percent.

Designating this basic plan as the standard created two more problems. The premiums would still be unaffordable for the majority of us, and the out-of-pocket expenses would bankrupt those who developed major medical problems. The answer? Subsidize the premiums and the out-of-pocket expenses with two more administratively complex programs that attempt to match the subsidies to ever-changing income levels. Now do that within a $900 billion ten year budget that has to meet many other demands.

It doesn’t work. Low income individuals who would be mandated to purchase private plans (those not qualifying for Medicaid) do not have the discretionary income to pay even the very modest out-of-pocket expenses required. For moderate and moderately-high income individuals, the portions of the premium and out-of-pocket spending would create financial hardships, especially for those with health care needs.

Only the wealthy would fare well, and they’re the only ones who could afford the highest tier plans. The concept of tiered health plans allows the wealthiest of us to eliminate financial barriers to care, protecting the wealth of the wealthy, while leaving the majority of us with financial barriers that have been proven repeatedly to impair access to essential health care services. What a sick concept!

The precondition of building reform on an infrastructure of private health plans has resulted in a fixation of trying to make premiums and out-of-pocket expenses affordable when it is an impossibility under this model.

Even Jonathan “let’s-get-everyone-covered-and-then-figure-out-how-to-pay-for-it” Gruber says that if premiums are the benchmark by which reform is judged, “we are setting ourselves up to fail.”

It’s not too late to do it right. We can strip down the current legislation to the important beneficial features, including ending private insurer abuses, and pass it as a temporary emergency measure, codifying “temporary” and “emergency.”

We can include in the legislation language that the process must move forward immediately with reform that will ensure that health care is universal, accessible, comprehensive, portable, and publicly administered. That would set us up for success.

Over 2,200 veterans died in 2008 due to lack of health insurance

Physicians for a National Health Program
Press Release
November 10, 2009

A research team at Harvard Medical School estimates 2,266 U.S. military veterans under the age of 65 died last year because they lacked health insurance and thus had reduced access to care. That figure is more than 14 times the number of deaths (155) suffered by U.S. troops in Afghanistan in 2008, and more than twice as many as have died (911 as of Oct. 31) since the war began in 2001.

The Harvard group analyzed data from the U.S. Census Bureau’s March 2009 Current Population Survey, which surveyed Americans about their insurance coverage and veteran status, and found that 1,461,615 veterans between the ages of 18 and 64 were uninsured in 2008. Veterans were only classified as uninsured if they neither had health insurance nor received ongoing care at Veterans Health Administration (VA) hospitals or clinics.

“Like other uninsured Americans, most uninsured vets are working people – too poor to afford private coverage but not poor enough to qualify for Medicaid or means-tested VA care,” said Dr. Steffie Woolhandler, a professor at Harvard Medical School. While many Americans believe that all veterans can get care from the VA, even combat veterans may not be able to obtain VA care, Woolhandler said.

Dr. David Himmelstein, the co-author of the analysis and associate professor of medicine at Harvard, commented, “On this Veterans Day we should not only honor the nearly 500 soldiers who have died this year in Iraq and Afghanistan, but also the more than 2,200 veterans who were killed by our broken health insurance system.”

http://www.pnhp.org/news/2009/november/over_2200_veterans_.php

And…

A Word, Mr. President

By Bob Herbert
The New York Times
November 9, 2009

Reforming the chaotic and unfair health care system in the U.S. is an important issue. But in terms of pressing national priorities, the most important are the need to find solutions to a catastrophic employment environment that is devastating American families and to end the folly of an 8-year-old war that is both extremely debilitating and ultimately unwinnable.

If you were to take a walk around one of the many military medical centers, like Landstuhl in Germany or Walter Reed in Washington, your heart would break at the sight of the heroic young men and women who have lost limbs (frequently more than one) or who are blind or paralyzed or horribly burned. Hundreds of thousands have suffered psychological wounds. Many have contemplated or tried suicide, and far too many have succeeded.

“Mr. President,” I would say, “we’ll never be right as a nation as long as we allow this to continue.”

http://www.nytimes.com/2009/11/10/opinion/10herbert.html?hp

How can we continue to support a fragmented, dysfunctional financing system that allows some of our veterans (not to mention tens of thousands of others of us) to die merely because we have placed a higher priority on nurturing the private insurance industry than we have on improving access for everyone through a more effective health care financing system? Our veterans. How can we let them down like this?

On a personal note, Veterans Day has always been a difficult day for me. In August of 1964, when I was driving from California to Texas to report for duty as an Army medical officer, we heard on the radio that our close friend, Dick Sather, was the Navy pilot who was just shot down and killed in the Gulf of Tonkin incident. (The other pilot shot down, Everett Alvarez, was held captive for over eight years.)

I was already a pacifist, but strictly on an ethical and not a religious basis. I believe, like so many others, that war is not healthy for children and other living things. The very worst possible way to negotiate international disagreements is to engage in war. And yet the United States does it over and over again. The school yard excuse, “but they started it,” doesn’t even seem to apply anymore.

After medical officer basic training in San Antonio, my first assignment to season me before being sent overseas, was as a battalion surgeon in Fort Hood, Texas. Yes, that Fort Hood.

Now you understand why I seem to be off message – the combination of my Veterans Day grief, the tragic slaughter that just occurred at my former military base, and now this new report on the unnecessary deaths of so many veterans due to a broken health insurance system.

Veterans Day is a day to think about the impact on not just our veterans but all of us, of record unemployment, war, and the unfair health care system that Bob Herbert writes about. We can fix all of them.

So what are we doing? More government money for Wall Street, and less for jobs. More troops for the war in Afghanistan, instead of withdrawal. More money for private insurers, while health care becomes ever less affordable for patients.

Is this what our veterans were fighting for?

eHealth Views Passage of House Health Reform Bill as “Historic Step Toward Connecting All Americans to Coverage”

CNNMoney.com
November 8, 2009

Health Insurance Exchanges Are Key

The following is (from) a statement from Gary Lauer, chairman and CEO of eHealth, Inc., regarding tonights passage of the U.S. House of Representatives’ health reform legislation:

“eHealth’s experience over the past decade in connecting nearly two million Americans to coverage through our national online marketplace proves that exchanges do work. By employing multiple paths to coverage, including exchanges, and online solutions like ours, we can optimize enrollment and provide the uninsured with the most choices and flexibility.

“The technologies that have been developed by private sector players, such as eHealth, are key to ensuring Americans find and receive the coverage this legislation would mandate.

“eHealth looks forward to being an active partner in implementing meaningful health reform legislation, and is poised and ready to connect the uninsured to coverage quickly.”

http://money.cnn.com/news/newsfeeds/articles/marketwire/0556598.htm

eHealth is “Ready to Connect America to Coverage:”
http://www.ready2connect.org/

And…

H.R. 3962 – AFFORDABLE HEALTH CARE FOR AMERICA ACT

SEC. 305. OUTREACH AND ENROLLMENT OF EXCHANGE-ELIGIBLE INDIVIDUALS AND EMPLOYERS IN EXCHANGE-PARTICIPATING HEALTH BENEFITS PLAN.

USE OF OTHER ENTITIES.–In carrying out this subsection, the Commissioner may work with other appropriate entities to facilitate the dissemination of information under this subsection and to provide assistance as described in paragraph (2).

From paragraph (2): (C) assist Exchange-eligible individuals in selecting Exchange-participating health benefits plans and obtaining benefits through such plans.

http://thomas.loc.gov/

eHealth is ready to become the nation’s broker for private health insurance. Watching the two minute video at the “Ready to Connect” link above will demonstrate just how ambitious their plans are.

This is yet one more reason why the model of reform selected by Congress and the Obama administration is the most expensive of all. With all of the other wasteful administrative expenses, brokers’ fees are added on top, though often hidden in the premium as a commission rather than a fee.

Compare this to Medicare enrollment. The administrative costs for automatic enrollment in Medicare, at that only once in a lifetime, are negligible for the government and its taxpayers.

Imagine the simplicity and efficiency of automatic, lifetime Medicare enrollment at birth for everyone. But Congress won’t go there… not until the nation demands it.

Rep. Weiner Withdraws Single Payer Amendment from Current Health Care Debate

Representative Anthony Weiner
Press Release
November 6, 2009

Today, Representative Anthony Weiner (D – Brooklyn and Queens), a member of the House Energy and Commerce Health Subcommittee, released the following statement on his decision to withdraw his single payer amendment to H.R. 3962, the House health care reform bill:

“I have decided not to offer a single payer alternative to the health reform bill at this time. Given how fluid the negotiations are on the final push to get comprehensive health care reform that covers millions of Americans and contains costs through a public option, I became concerned that my amendment might undermine that important goal.”

“I am going to continue to press the case for health care reform in every venue I can. And I also will continue to press for a smarter, less-expensive, more-comprehensive alternative to the employer-based health insurance system we have today.”

“I’ve discussed the issue with Speaker Pelosi, Chairman Waxman, and agree with them that the health reform bill is so close it deserves every chance to gain a majority.”

http://weiner.house.gov/news_display.aspx?id=1368

And…

Pelosi Statement on Congressman Anthony Weiner’s Single Payer Alternative

Speaker Nancy Pelosi
Press Release
November 6, 2009

Washington, D.C. — Speaker Nancy Pelosi issued the following statement today on Congressman Anthony Weiner’s single payer alternative:

“Within the next few days, the House will vote on the most comprehensive health care legislation in our history. Our bill will provide affordability to the middle class, security to our seniors, and responsibility to our children by not adding a dime to the deficit. While our bill contains unprecedented reforms, including an end to discrimination for pre-existing conditions and a prohibition on raising rates or dropping coverage if you become ill, our bill cannot include provisions some strongly advocated. The single payer alternative is one of those provisions that could not be included in H.R. 3962, but which has generated support within the Congress and throughout the country.

“Congressman Anthony Weiner has been a forceful and articulate advocate for the single payer approach and our legislation. His decision not to offer a single payer amendment during consideration of H.R. 3962 is a correct one, and helps advance the passage of important health reforms by this Congress. While single payer, like other popular proposals, is not included in the consensus bill we will vote on this week, Congressman Weiner has been a tireless and effective advocate for progress on health care, and his work has been a vital part of achieving health care reform.”

http://speaker.house.gov/newsroom/pressreleases?id=1438

And…

Chairman Waxman’s Statement on Rep. Weiner’s Single-Payer Amendment

Chairman Henry A. Waxman
Committee on Energy and Commerce
November 6, 2009

Today Chairman Henry A. Waxman released a statement in response to Rep. Anthony Weiner’s decision not to offer a single-payer amendment to the House Democratic health care legislation.

“Rep. Anthony Weiner has been one of the most tireless and effective advocates for health care reform. His decision not to offer his amendment on the floor was a difficult one for him, and for supporters of the measure. I believe Rep. Weiner’s choice will be enormously helpful in passing the health care reform package. His step is a correct and courageous one. I thank Rep. Weiner for it, and look forward to working with him closely. Rep. Weiner deserves a great deal of credit for helping to make quality, affordable health care more available to millions of Americans.”

http://energycommerce.house.gov/index.php?option=com_content&view=article&id=1808:-chairman-waxmans-statement-on-rep-weiners-single-payer-amendment&catid=155:statements&Itemid=55

Comment by Ida Hellander, M.D., Executive Director, Physicians for a National Health Program:

Next steps and interpretation –

1) The fact that single payer got so far along in the House is a testament to the strength of our single payer movement. The huge number of calls by single payer advocates in support of single payer and the Weiner amendment in recent days have been noted by several members of Congress.

2) It appears that nobody, particularly the President, expected our single payer option to be alive in the Congress for so long. As you know, they attempted to keep it “off the table” from the very beginning.

3) The President was directly involved in the decision to not hold a vote on the Weiner single payer amendment, and Weiner will be meeting with him later today. Stay tuned.

4) We need to increase pressure on the Congress and the White House for Medicare for All through lobbying, civil disobedience, media outreach, and grassroots organizing. Sen. Sanders will call for a vote on single payer in the Senate – this could come up anytime in the next month. Encourage your Senator to support the Sanders bill and also an amendment he will offer for a state single payer option. The California Nurses Association/NNOC has already started lobbying visits in the Senate in D.C.

5) We have been asked how to tell members to vote on the House bill. Our response is that the bill is “like aspirin for breast cancer.”