McAllen & El Paso Texas – The Cost Conundrum

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Atul Gawande wrote a long article for the June 1, 2009 New Yorker Magazine titled “The Cost Conundrum – What a Texas town can teach us about health care.  This document condenses some of the highlights from that article.

McAllen versus El Paso Texas

  • McAllen Texas is one of the most expensive health-care markets in the country.  In 2006, Medicare spent fifteen thousand dollars per enrollee here, almost twice the national average.
  • El Paso County, eight hundred miles up the border, has essentially the same demographics.  Yet in 2006 Medicare expenditures in El Paso were $7,504 per enrollee half as much as in McAllen.
  • And yet there’s no evidence that the treatments and technologies available at McAllen are better than those found elsewhere in the country.
  • The annual reports that hospitals file with Medicare show that those in McAllen and El Paso offer comparable technologies.
  • Public statistics show no difference in the supply of doctors.  Hidalgo County actually has fewer specialists than the national average.
  • Nor does the care given in McAllen stand out for its quality.  Medicare ranks hospitals on twenty-five metrics of care.  On all but two of these, McAllen’s five largest hospitals performed worse, on average, than El Paso’s.
  • Something fundamental had changed since the days when health-care costs in McAllen were the same as those in El Paso and elsewhere.

McAllen overuse of medicine

  • Compared with patients in El Paso and nationwide, patients in McAllen got more of pretty much everything more diagnostic testing, more hospital treatment, more surgery, more home care.
  • Between 2001 and 2005, critically ill Medicare patients received almost fifty per cent more specialist visits in McAllen than in El Paso.
  • In 2005 and 2006, patients in McAllen received  
    • 20% more abdominal ultrasounds,
    • 30%  more bone-density studies,
    • 60%  more stress tests
    • 200% more nerve-conduction studies
    • 550% more urine-flow studies
    • And Medicare paid for five times as many home-nurses visits. 
  • The primary cause of McAllen’s extreme costs was, very simply, the across-the-board overuse of medicine.

More Quantity does not mean more Quality

  • Americans like to believe that, with most things, more is better.  But research suggests that where medicine is concerned it may actually be worse.
  • In fact, the four states with the highest levels of spending Louisiana, Texas, California, and Florida were near the bottom of the national rankings on the quality of patient care.
  • That’s because nothing in medicine is without risks.  Complications can arise from hospital stays, medications, procedures, and tests, and when these things are of marginal value the harm can be greater than the benefits.
  • In 2006, doctors performed at least sixty million surgical procedures, one for every five Americans. No other country does anything like as many operations on its citizens.
  • Some hundred thousand people die each year from complications of surgery far more than die in car crashes.
  • Patients in high-cost areas were actually less likely to receive low-cost preventive services, faced longer waits at doctor and emergency-room visits, and were less likely to have a primary-care physician.
  • They got more of the stuff that cost more, but not more of what they needed.

Some places get it right

  • Most Americans would be delighted to have the quality of care found in places like Rochester, Minnesota, or Seattle, Washington, or Durham, North Carolina all of which have world-class hospitals and costs that fall below the national average.
  • If we brought the cost curve in the expensive places down to their level, Medicare’s problems (for the next fifty years) would be solved.
  • Health-care costs ultimately arise from the accumulation of individual decisions doctors make about which services and treatments to write an order for.
  • The most expensive piece of medical equipment, as the saying goes, is a doctor’s pen. As a rule, hospital executives don’t own the pen caps.  Doctors do.
  • Why do [doctors respond] so differently from one place to another?
  • It turned out that differences in decision-making emerged in only some kinds of cases.  In situations in which the right thing to do was well established made the same decisions.
  • But, in cases in which the science was unclear, some physicians pursued the maximum possible amount of testing and procedures; some pursued the minimum. And which kind of doctor they were depended on where they came from.
  • In case after uncertain case, more was not necessarily better.  But physicians from the most expensive cities did the most expensive things.

Medical Schools are not Business Schools

  • No one teaches you how to think about money in medical school or residency.  Yet, from the moment you start practicing, you must think about it.
  • Beyond the basics, however, many physicians are remarkably oblivious to the financial implications of their decisions.  They see their patients.  They make their recommendations.  They send out the bills.
  • Others think of the money as a means of improving what they do.
  • Then there are the physicians who see their practice primarily as a revenue stream.  They figure out ways to increase their high-margin work and decrease their low-margin work.  This is a business, after all.
  • In every community, you’ll find a mixture of these views among physicians, but one or another tends to predominate.
  • The anchor tenants [at shopping centers] that set norms encouraging the free flow of ideas and collaboration, even with competitors, produced enduringly successful communities, while those that mainly sought to dominate did not.
  • [Possibly] anchor tenants play a similarly powerful community role in other areas of economics, too, and health care may be no exception.
  • About fifteen years ago, it seems, something began to change in McAllen.  A few leaders of local institutions took profit growth to be a legitimate ethic in the practice of medicine. Not all the doctors accepted this.  But they failed to discourage those who did.

Medicine first, team approach

  • Mayo Clinic is among the highest-quality, lowest-cost health-care systems in the country.  Among the things that stand out was how much time the doctors spent with patients.
  • There was no churn no shuttling patients in and out of rooms while the doctor bounces from one to the other.  Most of the patients, required about twenty minutes.
  • The core tenet of the Mayo Clinic is The needs of the patient come first not the convenience of the doctors, not their revenues.
  • But decades ago Mayo recognized that the first thing it needed to do was eliminate the financial barriers.
  • It pooled all the money the doctors and the hospital system received and began paying everyone a salary, so that the doctors goal in patient care couldn’t be increasing their income.
  • Mayo promoted leaders who focused first on what was best for patients, and then on how to make this financially possible.
  • The aim is to raise quality and to help doctors and other staff members work as a team. But, almost by happenstance, the result has been lower costs.
  • The Mayo Clinic is not an aberration.  One of the lowest-cost markets in the country is Grand Junction, Colorado, that nonetheless has achieved some of Medicare’s highest quality-of-care scores.
  • Years ago the doctors agreed among themselves to a system that paid them a similar fee whether they saw Medicare, Medicaid, or private-insurance patients, so that there would be little incentive to cherry-pick patients.
  • They also agreed, to meet regularly on small peer-review committees to go over their patient charts together.  They focused on rooting out problems like poor prevention practices, unnecessary back operations, and unusual hospital-complication rates.  Problems went down.  Quality went up.
  • The leading doctors and the hospital system adopted measures to blunt harmful financial incentives, and they took collective responsibility for improving the sum total of patient care.

Someone has to be accountable for total care

  • The question we have to ask is whether the doctor is set up to meet the needs of the patient, first and foremost, or to maximize revenue.
  • There is no insurance system that will make the two aims match perfectly.  But having a system that does so much to misalign them has proved disastrous.  As economists have often pointed out, we pay doctors for quantity, not quality.
  • As they point out less often, we also pay them as individuals, rather than as members of a team working together for their patients.  Both practices have made for serious problems.
  • The lesson of the high-quality, low-cost communities is that someone has to be accountable for the totality of care.  Otherwise, you get a system that has no brakes.  You get McAllen.
  • Expanding public-insurance programs like Medicare and shrinking the role of insurance companies will not make much difference. [Neither will expanding insurance companies role.]
  • The use medical savings accounts and hold high-deductible insurance policies will not work. Who is going to haggle price for a surgery? Any plan that relies on the sheep to negotiate with the wolves is doomed to failure.
  • Providers have to be weaned away from their untenably fragmented, quantity-driven systems of health care, step by step.
  • And that will mean rewarding doctors and hospitals, in which doctors collaborate to increase prevention and the quality of care, while discouraging overtreatment, under treatment, and sheer profiteering.
  • Under one approach, insurers whether public or private would allow clinicians who formed such organizations and met quality goals to keep half the savings they generate.
  • Government could also shift regulatory burdens, and even malpractice liability, from the doctors to the organization.  Other, sterner, approaches would penalize those who don’t form these organizations.
  • Congress has provided vital funding for research that compares the effectiveness of different treatments, and this should help reduce uncertainty about which treatments are best.
  • But we also need to fund research that compares the effectiveness of different systems of care to reduce our uncertainty about which systems work best for communities.  These are empirical, not ideological, questions.
  • And we would do well to form a national institute for health-care delivery, bringing together clinicians, hospitals, insurers, employers, and citizens to assess, regularly, the quality and the cost of our care, review the strategies that produce good results, and make clear recommendations for local systems.
  • Dramatic improvements and savings will take at least a decade. But a choice must be made.
  • Whom do we want in charge of managing the full complexity of medical care? We can turn to insurers (whether public or private), which have proved repeatedly that they can’t do it.
  • Or we can turn to the local medical communities, which have proved that they can.
  • But we have to choose someone because, in much of the country, no one is in charge.  And the result is the most wasteful and the least sustainable health-care system in the world.
  • In the war over the culture of medicine the war over whether our country’s anchor model will be Mayo or McAllen the Mayo model is losing.
  • We face a decision that is more important than whether we have a public-insurance option, more important than whether we will have a single-payer system in the long run or a mixture of public and private insurance, as we do now.
  • The decision is whether we are going to reward the leaders who are trying to build a new generation of Mayos and Grand Junctions.  If we don’t, McAllen … will be our future.

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High and Lowdown of Medicare Costs

Many seniors have become fearful that cutting excess costs means cutting benefits.  Medicare’s own data highlights differences between about 20% of states with the lowest costs and 20% of states with the highest costs.  Cost of living explains some of the differences.  But 71% higher physician and clinical service costs for essentially the same results suggests there are billions of dollars being spent with little or no added benefit.

Rationing or Waste in Healthcare

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Rationing is not getting needed care.  Waste is getting care not needed and causes rationing for those in need. One way to determine if there is waste is to compare large samples of people in areas of highest cost to those in lowest cost.  While some variation will exist because of cost of living factors, larger variations can only be explained by greater use of care in higher areas versus lower areas.

The method used compares selected components of health care.  Each category compares the highest 20% of population with the lowest 20%.  For national data, rankings mean there are two groups of nearly 60 million.  For Medicare and Medicaid, it is over 8 million each.  Age differences among these populations were minimal, though higher cost areas tended to be more urban than the lower cost population.

Differences between the highest and lowest were minor in some cases.  But in a number of categories, differences were huge.  Either millions in the United States are being under-served, or millions are being over-served wasting billions.

For the population as a whole, total health costs in the highest states were nearly 40% higher than the lowest cost states. In hospitals, the spread was slightly over 40%, while physicians were less than 30%.  Highest spreads were nursing home costs that were nearly three times higher.

In Medicare, hospital costs are 30% higher, but physician costs are some 70% higher for similar populations.  With all paying equally into Medicare, rationing already exists.

Despite these higher costs, a number of quality measures suggest that quality is actually better for lower cost states.

Healthcare expenditures for the entire population

In 2006, the U.S. spent over 1.7 trillion dollars on health care. The graph below shows the analysis of expenditures:  37% went to hospitals, 25% to physicians, 7% to nursing homes, 12% to drugs, and 18% to other.

Not only are costs high but they are rising faster than the economy consuming ever more funds that might otherwise go for jobs, education and infrastructure.  The country is also jeopardizing its world competitiveness because other countries are able to offer quality health care at less cost.

The aging of the population is a compounding factor when it comes to Medicare spending.  Here the government plays a greater role at a time when seniors’ health puts greater demands on any healthcare system.  It will be almost 2050 before the baby boomer bubble works its way through and medical costs for seniors stabilize as a % of total spend.

Source: Center for Disease Control – Health, United States 2008 Figure 19.

Cost differences for the entire population

Rather than compare absolute costs, this report focuses on relative costs, high versus low, and for very large samples.  The graph below compares 8 categories comprising over 96% of total health care expenditures. The states included in each group may be different depending on the category.

Total health care spend in the highest states was 38% more than the lowest states. The highest hospitals that comprise 37% of total spend, were 42% above the lowest. Physicians accounting for 25% of spend were 28% higher.

Home health and Nursing home care showed the largest differences, approaching 200% or nearly three times higher than for the lowest cost states. These lowest cost areas may be providing less care than what is considered “enough” and /or have found family sources that help out internally without outside help.

 Source: Centers for Medicare & Medicaid Services, National Health Statistics Group

Medicare, a barometer for the total population

The graph below shows that while government plays an increasing role in the over 65 group, there is still a major portion of costs being paid for by the private sector.  And, after years of steady increase, total costs are accelerating due to the influx of baby boomers into this age group.

Comparing year to year national averages is too broad to draw actionable conclusions. Comparing a single city to another may be too narrow.  Fortunately, the government has in its favor a wealth of statistics for their programs. 

When comparing selected health components for very large populations, costs can only be explained by differences in volume of care.  Other government statistics show little difference in outcomes despite wide differences in service.

Medicare is the biggest government program, and below are some comparisons of interest.

Source: Center for Disease Control – Health, United States 2008 Table 141.

Cost differences for Medicare enrollees

The graph below compares 6 categories comprising over 96% of Medicare expenditures. The drug program Part D did not start in time to be reflected in these 2004 data. The sample is large with 8 million in each group.  States in each group may be different depending on the category.

When compared to the total population, Medicare‘s spread between physician and other professional service costs is far greater while hospital differences are less.

Home health care and nursing home care show similar large differences though the amount spent in these two areas is limited to 10-11% of all costs.  Medicare imposes more restraints in these extended care areas.  That may explain how, with nearly all nursing home residents being seniors, Medicare home and nursing costs are a relatively low proportion of the total.

Source: Centers for Medicare & Medicaid Services, National Health Statistics Group

Cost differences for Medicaid enrollees

The graph below compares 6 categories comprising 92% of Medicaid expenditures. Here there are differences not only in cost (highest cost more than double the lowest) but in the mix. For Medicaid, hospitals and doctors do not play as large a role.  Instead, costs tend more to drugs, nursing home care and other personal care.

This group covers poorer people of all age groups so their needs are more like the broader population in terms of mix with one exception.  Medicaid offers nursing home help with those costs being 19% of total spend.

There is another key difference from Medicare and that is the states contribute significantly to Medicaid, and states cut back some if funds are not available.  This plays a role in the greater difference between the highest and lowest cost states for all categories.  One can fairly assume that the lowest cost states get fewer services.

Source: Centers for Medicare & Medicaid Services, National Health Statistics Group

Hospitalization rate nearly 50% higher

Tracking discharges also tracks admissions and the graph below shows 45% more total discharges in the highest cost states.  Non ambulatory care sensitive (ACS) events have roughly comparable rates of discharge. On the other hand, ACS discharges are more than 50% higher than the lowest cost states.

The number of beds does not appear to be a factor as many lower cost states actually have more beds per capita.  Data is not available as to acute beds, though in any case, it is a doctor admitting a patient.  While higher cost states may have more doctors per capita, that difference is nowhere as high as the difference in admissions. 

One can conclude that there are major differences in how often doctors admit similar patients, especially when you consider some 16 million people in two sample groups.

Source: Kaiser State Health Facts – 50 State Comparison

While reimbursements more than 50% higher 

Of course, for every admission, there is a cost.  Using a still finer “filter”, the graph below shows wide differences depending on what services are performed.

Inpatient short stays are 50% higher.  But long stays are 200% or 3 times those of the lowest states. Diagnostic, laboratory and X-ray services are more than double the costs in the lowest states. Either the first group is getting excess care, or the second group’s care is being rationed.

The biggest difference was in home health and for once, higher may be better as it compare the highest cost states to the lowest cost states.  Home health is a more efficient use of funds than hospitalization or intermediate care facilities, so more may be better.  Or it can simply be more take advantage of the service because it is available.

Source: Dartmouth Atlas of Healthcare – Medicare reimbursement measures

Higher cost states have more specialists per capita

Aside from complaints that insurers make medical decisions there would be no decision to make without a request. In the graph below, the number of primary physicians is about the same with a slight tilt toward lowest cost states.

There is a measurable difference in the number of other physicians, including specialists.  As shown, primary care physicians are outnumbered by specialists.  And with admissions greater for the high cost group, it is logical to assign a greater share of hospitalizations to specialists.

Some people, especially those who are well insured claim that greater hospitalization and its attendant costs are worth it.  Leaving cost considerations aside, one might expect with all this extra care to have a lower mortality rate.  Alas, this is not the case.  More services do not necessarily yield better quality outcomes.

Source: Kaiser State Health Facts – 50 State Comparison

Mortality rate slightly worse in higher cost states

The basis for high and low states is Medicare’s mortality tables.  The data adjust mortality by age so a state with a greater proportion of very old people is not penalized.

As the graph below shows, mortality is consistently higher in more expensive areas.  What is even more interesting is that those without HMO coverage have a higher mortality rate than the total average.  For that to occur, mortality rates for seniors with HMO coverage must be lower than for those without HMO coverage.

For all the cynics who think HMO’s are “too restrictive”, the results for Medicare folks at least, speak otherwise.  And one factor is working in HMO’s favor.  They have a greater tendency to work in teams, and statistics show that better managed providers do work in teams, with perhaps the most familiar name being the Mayo Clinic.

Source: Dartmouth Atlas of Healthcare – 2005 Medicare Mortality Rates

While final services and costs are more than double 

So, did higher mortality result in lower costs? If a person dies, medical care stops.  The graph below compares cost averages in which the patient died.  It tracks costs of that final stay and also costs in the last six months leading to it.

For the highest states, all 7 categories shown costs are more than double those of the lowest states. Remember, this is a sample of 8 million people in each group, from states north and south, east and west. 

The data show that seniors in high cost states are incurring nearly five times the cost of being in intensive care or coronary care units. This applies not only to the final hospitalization but to repeat admissions to ICU/CCU in the six months preceding death.  And despite all that extra cost and effort in the last six months, it does not appear to lead to better quality or lower mortality.

Source: Dartmouth Atlas of Healthcare – State Performance Report

More doctors leads to more utilization

In the previous graphs, there are numerous examples of huge differences between high and low-cost states without a comparable difference in outcomes. That observation alone suggests that cost cutting will not necessarily reduce benefits.  While the majority of spend occurs in hospitals, it is the physicians who make the treatment decisions.

The graph below shows the total number of physicians per population by region.  Though not homogeneous, the New England and Mid Atlantic states tend to include the highest states using different criteria shown in the above graphs. 

And these areas clearly have significantly higher physician ratios than other areas.  True, there is much research occurring here, but only a portion of the difference would be due to those efforts.  In summary, there are numerous areas when cuts could safely occur without losing quality.

 Source: Center for Disease Control – Health, United States 2008 Table 109

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