Cost Variations - What Are They From?  by Ken Thorpe

Wednesday, June 17th, 2009

If one looks closely at the over 300 hospital referral regions pulled together by the Dartmouth researchers, a couple of notable things jump out. Yes, spending varies by over 60 percent between the lowest quintile and highest quintile regions. But what are the characteristics of these high cost regions? They really fall into two generic groups.

The first are large urban areas with large concentrations of teaching hospitals and low income patients.  Major metropolitan areas such as New York (including New Jersey), Boston, Baltimore, Chicago, San Francisco and Detroit-Ann Arbor are among the highest spending areas in the country.  These areas also have little system integration that, combined with the substantial base of academic teaching institutions and cost of these urban areas, all contribute to the spending disparities.

Under the Medicare payment system, teaching hospitals and those serving uninsured patients (and thus receiving a disproportionate share adjustment) receive substantial (and likely legitimate) add-on payments for treating the same patient in a non-teaching hospital with higher income patients. These add-ons can be substantial—for many hospitals adding over 50 percent to the Medicare hospital payment for the same patient treated elsewhere.  To make the point,  the share of teaching hospital beds in the highest quintile spending areas are over 2.7 times higher than in the lowest quintile spending areas.

But what accounts for the high per capita spending levels in the second group, less urban areas like Louisiana and Texas? Well, if you overlay the familiar CDC map of obesity by state, you will find both states have among the very highest rates of obesity in the country. The prevalence of diabetes, hypertension and pulmonary disease among others is very high here and it is reflected in their high rates of overall use of health care. In contrast, the lowest cost areas—Colorado, Montana, Utah and the mountain west — have very low rates of obesity and relatively lower rates of chronic illness. And yes, this is reflected in their lower rate of use of services.

Does this mean the current proposals to reduce variation are doomed to fail? No. It just means that in addition to unit payments, and the lack of system integration, there are other factors in play that need to be addressed. Primary prevention and care coordination are essential and needed through community health teams or other approaches to be a central component of a broader Accountable Health Organization. Reviewing payment policies toward academic teaching centers and the sheer volume of beds in these urban areas will also attract attention. Finally, innovative approaches for reducing obesity across the board and, with it, the rising tide of chronic illness, will serve as an important tool for slowing the rise in spending and reducing the variation in Medicare spending across the country.

WSJ Misses Point on Prevention by Ken Thorpe

Friday, June 12th, 2009

The Wall Street Journal has published an article today that questions the cost savings benefits of prevention. It notes that prevention has broad and bipartisan support in Washington but argues that “the rewards often fail to match the costs.” Obviously, many people would disagree with this assessment.

There are a few major points that the Journal misses, which are key to understanding why prevention has such support and is at the center of health care reform.

First of all, when we say prevention, what we are really talking about is delivery system reform—not just screenings. So when President Obama, Kathleen Sebelius, Nancy-Ann DeParle and Congress talk about incorporating prevention into the health care system, they’re not talking about adding select preventive care efforts onto an already costly system. They’re talking about changing the entire delivery system towards better care coordination and higher quality, which includes prevention and disease management.

There’s a difference.

Secondly, the Journal fails to mention some of the key proof points for why prevention is cost-effective and in some cases cost-saving.

1.     By orienting the system to slow the growth of disease, we can reduce costs (see RAND, Univ. of Florida studies). When we prevent disease or obesity, these are costs that would never be incurred to the system. For example, were obesity still at 1987 levels, Medicare spending would be $40 billion per year lower than it was in 2006.

2.     Prevention does not mean universal screenings — no one suggests we should test all healthy people for diabetes, as mentioned in the article. However, the health and financial benefits of targeted rather than universal prevention—such as the colorectal screenings and diabetes screening for patients over 65 with hypertension—are well-established (see Woolf and Cohen et al).

3.     Effective prevention is individual- and risk-specific (see Design Matters). By lumping primary, secondary, and tertiary prevention into one big category, it blurs the important distinctions essential for effective policy and planning.

4.     There is increasing evidence from both the public and private sectors that this works in reducing cost. (See Asheville Project, North Carolina Community Care, and Medicare Physician Group Practice demonstration project, as well as many others). What policymakers are attempting to do right now is figure out how to take small private or community-based models of prevention and wellness efforts that work and scale them nationally.

The article mentions Medicare– today’s Medicare program is a perfect example of how costs can remain high and outcomes poor without more effective care coordination and disease management and prevention.  Patients with one or more chronic diseases account for 96% of Medicare spending, and two-thirds of the rise in Medicare spending since 1987 is due to chronic diseases. 

As I wrote in the Huffington Post this week, by better managing these diseases, we avoid the need for costly procedures, such as amputations or surgeries that arise from untreated or mismanaged conditions. By preventing diseases, our system can avoid some costs altogether. This is what policymakers are hoping to do by investing in an infrastructure that includes prevention and disease management—to eliminate costs, not just shift them to another part of the system.

Kenneth Thorpe - Financial Impact of Chronic Disease on Healthcare Coverage, Presidential Advisor

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