Integrated Health Systems and Cost: The Price is the thing!

When the Affordable Care Act (ACA) was being developed, much emphasis was put on the effectiveness of integrated health systems as a way to save money but still deliver quality health care. Many studies from various research centers had looked at cost to Medicare and found that places – usually smaller cities – with large integrated health systems spent less on Medicare without noticeable decrements to quality. These systems can have a single provider of both inpatient and outpatient care (such as the Mayo Clinic) or close collaborations, including shared electronic medical records (as in Grand Junction, CO). The presumption of policy makers creating ACA was that Medicare spending, which is much easier to track, would reflect overall spending. However, a recent article from the National Bureau of Economic Research by Zack Cooper, Stuart Craig, Martin Gaynor and John Van Reenen, The Price Ain’t Right? Hospital Prices and Health Spending on the Privately Insured, demonstrates that this assumption was incorrect. Reviewing overall costs in the 306 Hospital Referral Regions (HRRs, developed by the Dartmouth Atlas of Health Care) in the US, they discovered wide discordance between Medicare costs and overall healthcare costs. Indeed, many of the places that were highly-touted for lower-Medicare-costs-but-still-high-quality, notably Grand Junction, CO (which was, for example, cited as a success story by Atul Gawande in his June, 2009 New Yorker article “The Cost Conundrum”) have far higher than average costs overall. (Dr. Gawande has just had a new piece in the New Yorkerdiscussing the implications of this new article.)

The New York Times coverage of this study, by Kevin Quealy and Margot Sanger-Katz, The Experts Were Wrong About the Best Places for Better and Cheaper Health Care(December 15, 2015), includes a terrific feature that allows interactive access to the data collected by Cooper and his colleagues. You can put in a town (really, HRR) and find out where it ranks in terms of both Medicare and private costs. Grand Junction, for example, while ranking 3^rd lowest of the 306 HRRs for per-capita Medicare spending, was the 42^nd most expensive for private insurance spending. Rochester, MN, home of the Mayo Clinic, is another city lauded for its low Medicare costs (14^thlowest), but its private spending is 10^th highest! McAllen, TX, cited by Gawande in 2009 for being #1 in Medicare spending (and now still #4) is only 140^th in private insurance spending. Tucson, AZ, on the other hand, while only in the lower middle (82^nd from the bottom) in Medicare spending, is 7^th lowest for overall costs. The Kansas City region, where I live, was atypically near the middle for both, 142^nd lowest for Medicare and 82^nd  lowest for private costs. New York City is high in both, but it is 2^nd for Medicare and 34^th (quite a bit lower) for private insurance. The map in the article depicts HRRs as low, middle or high for both Medicare and private insurance.

So, what’s up? Were the experts trying to fool us? No, but the flaw  was the assumption that Medicare spending reflected overall spending. The data in this article demonstrates that it does not. It also reveals something about integrated health systems, especially those that dominate their smaller cities, given that some of the “top performers” for Medicare, like Grand Junction and Rochester, MN, were so high for private insurance. The integrated nature of these plans allows them to save money on patients by a variety of methods – they can be seen in ambulatory settings rather than in hospitals or ERs, and they share electronic medical record systems, and thus the information recorded therein, saving money by not having to repeat tests, x-rays, etc. This lower utilization is good for these health systems because Medicare is a relatively low payer, and because they can’t negotiate these rates – Medicare pays what it pays (it is a single-payer system, with minor regional variations). However, the same characteristic – being the dominant player in town – allows such integrated health systems to negotiate much higher rates with private insurers. Thus the mismatch; overall cost is a multiple of price for each service times the number of services delivered. These systems decrease the number of services for people insured by Medicare, for whom they cannot control the price (whether this does or does not decrease quality is a separate question) but they raise the price for services to people with private insurance. That places like Tucson and Kansas City have relatively lower prices for private insurance reflects the absence of a single large dominant system in those cities.

‘“Price has been ignored in public policy,” said Dr. Robert Berenson, a fellow at the Urban Institute, who was unconnected with the research’, in the Times article. Other health policy experts, such as Princeton’s Uwe Reinhardt, have been warning about this for decades. In the effort to pass the ACA, and please both providers and insurers, this point was in fact ignored, and it is the source of most of the common legitimate criticism of the ACA – that in many places decent health insurance policies bought through the health exchanges are unaffordable. With higher prices in these regions, insurers pass on the cost to their customers.  This is illustrated in the NPR story “Obamacare Deadline Extended As Demand For Health Insurance Rises” on December 18, 2015, which documents both the success of ACA measured by the large increase in the number of people signing up for coverage and their frustration at the frequently-high cost of this coverage. Of course, this is completely unrelated to the criticisms leveled at ACA by the Republican candidates for President and their allies in Congress, whose “solution” – abolish ACA – is Marie Antoinette-like. While the French queen is reputed to have said, in response to being told that the peasants had no bread, “then let them eat cake!”, Republicans, hearing that many people cannot afford health insurance on the exchanges even with subsidies, or get Medicaid in states (that they control) which have not expanded it, respond “let them pay out of their own pocket!”

The issues and solutions are clearly laid out by the reliably insightful Dr. Don McCanne is his “Quote of the Day” on this topic. A solution cannot come from a jerry-rigged program that allows either insurers or health systems or both to maximize their profit. It needs to come from a system that starts with price controls, most effectively by a single-payer system such as Medicare. There are, as he notes, still risks – mainly that health systems may under-utilize services when they cannot make profit, leading to lower quality of care. But we can guard against this both on the regulatory end, by measuring quality outcomes and holding providers responsible, and through the market because the incentive to not provide services to Medicare patients because they can be more profitably provided to the privately -insured (the “opportunity cost”) goes away.

The infatuation of both policy makers and providers for integrated health systems is not entirely misplaced. The potential savings from shared data and not repeating tests, and more importantly for caring for people in the most clinically appropriate setting (inpatient, ER, outpatient surgery center, primary care, long-term care) is a real positive feature of these systems. But to the extent that these providers are allowed to use their market muscle to raise prices to insurers which are passed on to beneficiaries, it becomes a real negative.

The key feature of a good health system is that it is not focused on balancing the financial interests of big insurers and big providers, but that it puts the benefits to patients, to the people’s health, first.

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Does prevention save money? Is that the right question?

Does prevention save money? That is, does increasing access to preventive health care, doing more screening tests on a larger number of people, end up saving more money in the long term by reducing the cost of caring for the diseases that are prevented? This is the question asked in “Conventional wisdom clashes with data on health care savings”, by Margot Sanger-Katz in the New York Times on August 7, 2015. Ultimately, she answers “no”; indeed, in the online version dated August 5 that the link above takes you to, the article is titled “No, Giving More People Health Insurance Doesn’t Save Money”. Although it of course depends upon which preventive test we are talking about; “Counseling on contraception is one [of the preventive interventions that actually do save money] because the costs of prenatal care, delivery and pediatric care associated with an unplanned pregnancy are so substantial. But a lot of the preventive health measures that we tend to value a lot — mammography, screening for diabetes — tend to cost more than they save.”

The motivation for this article at this time is clearly the Affordable Care Act (ACA), which not only resulted in more people receiving coverage but mandated that preventive services be covered with no co-pay. President Obama made the case for it in part by talking about cost savings; Sanger-Katz quotes his 2009 address to Congress: “There’s no reason we shouldn’t be catching diseases like breast cancer and colon cancer before they get worse. That makes sense, it saves money, and it saves lives.”  But, in fact, the discussion on the cost vs cost-saving from preventive services is not new; it has been frequently addressed in the literature. I have written about it several times, including two sequential posts on February 2 and February 9, 2009: Prevention and Cost and Economics and Disease Prevention, that cited two important articles on the topic, by Russell in Health Affairs[1]and by Woolf in JAMA.[2]

Sanger-Katz also cites two studies to support the argument, one old and one more recent. The famous RAND health insurance experiment from the 1970s and 80s that examined the impact of providing free (to the patient) access to health care, and the more recent Oregon health insurance experiment, begun in 2008, where poor people who were not already on Medicaid were lotteried into receiving health coverage or not. As she notes, in both studies, people who got free or low-cost coverage used more care, and thus cost more money. This, she notes, is consistent with basic economic theory, and ”…follows the pattern for nearly every other good in the economy, including food, clothing and electronics. The cheaper they are for people, the more they are likely to buy.”

But, while true, this misses the most important point. I have written about both studies before, I discussed the RAND study in Insurance company profits up and patient care down, May 11, 2011, and also refer to it in my discussion of Oregon, The Oregon Lottery: Far from enough, but at least they are doing something, July 19, 2012. In the latter, I quote from a June 22, 2012 New York Times article by Annie Lowrey, “Oregon Study Shows Benefits, and Price, for Newly Insured” that the study “has found that gaining insurance makes people feel healthier, happier and more financially stable,” and that “The insured were 25 percent less likely to have an unpaid medical bill sent to a collection agency and 40 percent less likely to borrow money or skip paying other bills in order to cover their medical costs.” This is the truly important point; people are getting medical care that they need, and are not having to cut back on their other basic needs (remember, these are poor people who don’t have lots of discretionary income) to do so. It echoes the findings of RAND, which were basically: yes, people who got free health care used more care, and indeed used more care that experts considered “inappropriate” (the classic “going to the ER for a cold” trope). But it also found that, and this is the real take-home message, they used more appropriate care; the corollary trope is going to the ER for chest pain, instead of staying home and hoping it would go away because you’re afraid to incur the cost. Free health care not only saved lives, it improved health.[3]

Ultimately, as Sanger-Katz points out, everyone dies. While provision of preventive services may save lives from one disease “…every time you prevent people from dying from one disease, they are likely to live longer and incur future medical expenses. The patient who benefits from the cholesterol screening may go on to develop cancer, arthritis, Alzheimer’s or some other costly illness.” This may seem obvious, but only if you think about it. In the 1980s, I was the only physician student in a class on Health Administration; the other students were planning on being health administrators but did not have a medical background. In one class, a student reported that we were likely to save money in the future because people were adopting healthier lifestyles – eating better, exercising more, not smoking as much. I pointed out that the opposite was true; this would mean people lived longer, and were more likely to develop long-term chronic diseases leading them to, for example, long hospitalizations and nursing home stays. If you truly wanted to save money, you’d encourage a high-cholesterol diet, no exercise, and 2 packs of cigarettes a day, so everyone would drop dead from a heart attack in their late 40s and be done with the cost.

This may sound macabre, but the point it makes is that cost is not the only issue. Examining the cost of providing free health care, as in RAND 40 years ago, or free preventive care, as in ACA, is a legitimate activity, but it is not the only, or even most important outcome. Access to health care, prevention of premature death, and improvement in quality of life are also critical considerations. Cost is important, but cost control cannot be measured in such crude ways as “does prevention save money”? First, as Sanger-Katz noted, different preventive services have stronger evidence behind them, and have a smaller “number needed to treat” (NNT) to have an impact on either cost or lives saved or quality of life (thus a high priority should be expanding access to contraception and contraceptive counseling). Second, there is the expansion of indications (reasons for doing a test), either through providing preventive services to a larger group of people than those shown to have the most benefit in studies, or by ratcheting down the “goal” for things like cholesterol, blood pressure, or blood sugar. These both have the same effect; they decreases the average long-term benefit while increasing the cost (and, not coincidentally, the profits for the manufacturers of the drugs and purveyors of the tests).

Third, and by far the most important in terms of both cost and justice, is the application of different standards to different populations, based on insurance status, wealth, and race. Performing preventive services for people who are unlikely to benefit is a problem, but performing much more expensive interventions for people who almost certainly won’t benefit just because they want them, and they (or their insurer) can pay for them, and because the providers doing them make money, is a far greater issue for cost. In addition, there is the question of “what is a fair price?” for any service, preventive or therapeutic, indicated or not (well, if not indicated, the fair price is zero!). In The high cost of US health care: it's not the colonoscopies, it's the profit, Jul 28 2013, I cited the work of Elisabeth Rosenthal of the New York Times, on this topic; she presents the wide variation in costs for this and other procedures. Thinking of the myriad types of preventive interventions as if they were all the same and of the same value is like thinking of “cancer” as one disease, rather than hundreds; it is simple and it is incorrect.

Ultimately, the cost issue is addressed by equity. Everyone should have access to all interventions that are likely to help them, and no one to those that will not. 

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[1] Russell, LB, “Preventing chronic disease: an important investment but don’t count on cost savings”, Health Affairs, Jan/Feb 2009;28(1):42-45

[2] Woolf SH, “A closer look at the economic argument for disease prevention”, JAMA 4Feb2009; 301(5):536-8. (9th)

[3] Brook RH, et al., “Does Free Care Improve Adults' Health? — Results from a Randomized Controlled Trial”, N Engl J Med 1983; 309:1426-1434

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