To Control Health Care Costs, Trace the Spending

[Guest guest]

To Control Health Care Costs, Trace the Spending

March 12, 2010, By UWE E. REINHARDT Today's Economist

Uwe E. Reinhardt is an economics professor at Princeton.

In last week's post on fraud in our health system, I did not assert that there

is little fraud that system. Rather, I stated that, based on my tenure on the

boards of both a for-profit and a nonprofit hospital system, " I very much doubt

that any hospital board or any hospital executive in the country would even

dream of knowingly defrauding the United States government. " It is a conjecture,

rather than an assertion of fact.

I also noted, however, that much of the billing of hospitals and of other

providers of health care takes place under the authoritative signature of a

physician, who either performs the procedure or orders it to be performed by

others, or merely certifies that it is medically necessary.

Thus, if there really is widespread fraud against public or private health

insurers in our health system, the clinical decisions of physicians will be the

key to understanding its nature.

Deploying undercover agents that pose as patients, as recommended by Senator Tom

Coburn, Republican of Oklahoma, may be one approach to this problem. An

alternative approach, however, and one that should precede any such intrusion

into the health care sector, should be statistical research.

It is an approach recommended by the New Jersey Commission on Rationalizing

Health Care Resources, of which I was privileged to be chairman and which

reported its findings and recommendations in a final report submitted in January

2008.

In its research for the report, the commission had asked researchers of the

Dartmouth Atlas Group to provide data on the average Medicare spending per

beneficiary in the last two years of life in New Jersey's various hospital

market areas. The following table, based on these data, became part of the final

report (see Chapter 6 – Hospital Economics 101).

In this table, the average for the United States as a whole is set to one for

every column. Thus, when " Inpatient Reimbursements " for a particular New Jersey

hospital market area is 2.50, it means that in that market area, Medicare spent

2.5 times as much per beneficiary in the last two years of life than it did

spend, on average, in the United States as a whole.

When confronted with these data, hospital executives argued that they had little

control over their hospitals' costs, as these were driven mainly by the practice

style and order entries of physicians for supplies and hospital services.

Unlike in most other countries, American physicians typically are not employees

of the hospital in which they do their work. They merely are " affiliated " with

hospitals as self-employed professionals. In that role, they can use the

hospital for their own patients as a more or less free workshop.

Naturally, hospital executives have far less control over affiliated physicians

than they would over employed physicians, for several reasons.

First, affiliated physicians channel patients to the hospital and thus are key

sources of hospital revenue. For that reason alone, hospital executives would be

loath to offend an affiliated physician.

Second, for many patients hospitals can still bill insurers a fee for service

for whatever physicians ordered, in which case the costs of a physician's

expensive practice style are passed on with a profit margin to the payer of the

bill.

Third, denying a physician hospital affiliation over the economics of the

physician's practice style can easily lead to expensive litigation over what is

decried by physicians as " economic credentialing. "

Given that hospital executives openly declared themselves effectively impotent

as controllers of hospital costs, the commission recommended, as a first step,

that all hospitals be required to install a new data system. The system would

electronically capture the order entries for supplies and services by every

affiliated patient for every medical case. (Software for such data systems

exists and can be had from a variety of sources.)

Electronic capture of these data would permit the development of total

hospital-cost profiles by type of medical case by individual physician,

statistically adjusted for how sick incoming patients were. (Software to make

those adjustments has long existed as well.)

The idea then would be to mandate that the physicians affiliated with a

hospital, by clinical department, periodically sit together in one conference

room to examine their relative total costs per risk-adjusted diagnostic case,

and to explore why, say, Physician A spends 70 percent more per risk-adjusted

medical case of a given diagnosis than the average for all physicians in the

room.

It can be accomplished in a way that reveals the physician's identity only to

himself or herself, and not to others in the room, for the idea is not to shame

physicians. The idea is to prompt a common, professional and collegial search

for most cost-effective clinical approach to given conditions. Prior research

has found remarkable and inexplicable intra-hospital variations in costs among

affiliated physicians.

Because half or more of a typical hospital's revenue now comes from public

sources, however, we also recommended to the governor that these physician

profiles be accessible to the governor's office for sustained monitoring.

As agents of taxpayers who ultimately pay these bills, public insurance programs

should have solid information showing precisely what they are paying for. Having

these profiles would permit comparison of physicians across hospitals and

against national benchmarks.

In my view, any wholesale effort at better cost control in United States health

care should start with this type of transparency and statistical monitoring. The

technology for doing so has long been in hand. It is merely a matter of will on

the part of both public and private insurers to insist that it be used.

http://economix.blogs.nytimes.com/2010/03/12/to-control-health-care-costs-trace-\

the-spending/