Forum Examines Specifics of Bending the Cost Curve

Richard Pan has seen health policy from all sides — as an Assembly member (D-Sacramento) and new chair of the Assembly Committee on Health, as a member of the Center for Healthcare Policy and Research at UC-Davis and as a practicing pediatrician in Sacramento.

So when he talks about some of the hidden hurdles facing successful implementation of health care reform in California, it’s pretty safe to say it’s an informed opinion.

“We have a tremendous opportunity before us to create the political will to make these changes,” Pan said at a recent forum of health care stakeholders in Sacramento.

“But the thing is, all of us in this room, we have succeeded in the current system. And many of us who are successful are afraid to say there is that big opportunity here, because there is also the possibility of failure here,” Pan said. “So a lot of the players [in the health care community] may retreat, even if they think it’s good, even if they think reform is an opportunity, they may step back and wait.”

It was a striking message at a forum designed for industry leaders to examine ways to bend the cost curve of health care while also improving the quality of that care. The forum was presented by NEHI (formerly the New England Healthcare Institute), a health policy research institute based in Cambridge, Mass. The event was part of the institute’s campaign to encourage states to focus on a series of specific actions that NEHI officials say could reduce national health care spending by more than $500 billion. 

A variation of Pan’s concern had been voiced earlier in the forum by Diana Dooley, California’s health and human services secretary. Dooley also chairs the Health Benefit Exchange board, as well as a new statewide task force aiming to make California the healthiest state in the country.

One of her broad concerns about health care reform, Dooley said, is that it may be tough to take the arcane pieces and spare parts of the current system and jerry-rig them into a smoothly running machine — especially with so many competing self-interests.

“Every single dime spent in health care goes into someone’s pocket,” Dooley said. “And getting those dimes out of those pockets is not an easy task.”

Even when reforming the system could result in financial benefits for the current health care players in California, she said, there is a tendency to wait just outside of the reform effort.

“The inclination is to hoard,” Dooley said, “to get a little cushion so they can weather the storm they see as coming. There is a natural inclination to hold back, or even to grab a little more.”

That attitude — natural as it may be — is one of the unspoken factors that could compromise the state’s effort for reform, she said. “We need to figure out how to move beyond all of our own self-interests and get something done for the greater good of the health care system,” Dooley said.

Specific Steps To Bring Costs Down

That message tied in perfectly to NEHI’s presentation of possible health care solutions.

“Health care costs are growing about 2% faster than the national economy has been growing every year for the past decade,” said Pam Kehaly, president of Anthem Blue Cross. “At the end of the day, if health care cost is unaffordable, people can’t get it. You know, with national health spending, it’s easy to rattle off how bad it is, but we have some ideas for solutions as well.”

According to Wendy Everett, president of NEHI, health care spending has now hit 18% of the nation’s gross domestic product and could climb as high 25% by 2025. However, the climb can be stopped, she said.

“We’ve identified seven of the top drivers of waste in health care spending — seven things that account for more than $500 billion in waste,” Everett said.

In California, NEHI conducted a series of case interviews, looking at successful attempts across the state to control costs. According to NEHI, in California the top seven areas of concern are:

  1. Medication adherence: The largest chunk of savings could come with better medication adherence, according to Everett. She said, “There are 187 million people [nationally] who take multiple medications, and 50% of them don’t take them as prescribed.” That dramatically hikes up the number of hospital and emergency department visits, she said. The estimated overspending: $290 billion a year.
  2. Overuse of antibiotics: Antibiotic overuse came in second, at a cost to the nation of $68 billion a year. Besides the waste of prescription antibiotics that aren’t needed, overuse of antibiotics can create drug-resistant infections, and that ends up being extremely costly over the long run, Everett said.
  3. Underuse of vaccinations: Third was vaccination underuse, at a cost to the country of $53 billion. The cost of vaccinations, she said, is nothing compared with the financial and human cost of hospitalization, sickness and death.
  4. Overuse of emergency departments: Inappropriate visits to the ED costs an extra $38 billion a year, Everett said, which could be limited by better access to primary care services, improved chronic disease management and five other measures, she said.
  5. Hospital readmissions: One in five discharged Medicare beneficiaries goes back in the hospital within 30 days, wasting about $25 billion every year, Everett said.
  6. Unnecessary hospital admissions: Treating conditions that can be safely monitored and managed, such as diabetes, on an inpatient basis hikes health care costs by $31 billion a year, Everett said.
  7. Medication errors: Reducing medication errors could save as much as $21 billion a year, according to the NEHI report.

“We’ve looked at this at the policy level, the national level, and now at the state level,” Everett said. “We looked around and found people who have figured out solutions to these problems, and then we identified what policy decisions need to be made to remove barriers to those solutions.”

NEHI highlighted successful cost-bending programs in California like the one at La Clinica de la Raza in Vallejo that managed to control overuse of emergency departments.

Allowing Change ‘Very Important’

Assembly member Pan said creating a system that allows change may be one of the most important steps of reform. 

“That kind of environment is very important to make innovation happen,” Pan said. “We hope to create through legislation the environment to make innovation happen, but it also takes the players to say, ‘Yes, we want to innovate.'”

According to forum panelist Arnie Milstein, medical director of the Pacific Business Group on Health, all of the talk about improving quality is terrific, but setting up a system that rewards value doesn’t go far enough to be fully effective, he said.

“Simply paying for value will not be enough,” Milstein said. “It has to be moving patients where value is higher.”

In part, that means changing the thought that higher cost equals better quality, Milstein said. “Spending more, that makes it a better thing, that’s the American way of thinking,” he said.

Pan said the health care industry is unlike any other business and needs a different approach to quality reimbursement.

“In my experience, quality measures don’t seem to drive patient choice much. No one says, ‘I want to go to this hospital versus that hospital,’ based on quality,” Pan said.

“In any other business, if you develop better quality, you make money — but that’s not necessarily the case in health care,” Pan said. “Sometimes it gets frustrating to invest in quality, but it seems like that money never gets back to you.”

If providers could get the resources to set up rewards for higher quality in a practice setting, Pan said, “that’s how we’ll get into a more positive spiral or curve.”

The key to successful reform, Dooley said, is to recognize how health care is unique.

“We are building on the chassis of a private market that exists,” she said, adding, “it is fundamentally a market-driven entity. So we need to change the incentives to reflect that.”

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