Controlling Health Care Costs

Pockets where breakthrough successes have occurred suggest there are ways to contain the spiraling cost of health care.

January 25 2013 by Jennifer Pellet


As a whole, the cost of our cobbled-together national health care system is an enormous and growing strain on the American economy. The numbers tell the story. Health expenditures in the U.S. closed in on $2.6 trillion in 2010, more than 10 times the $256 billion spent in 1980 and 17.9 percent of the nation’s GDP. While the pace has slowed, that cost has continued to grow, rising by an estimated 3.9 percent in 2011. Projections call for it to account for nearly one-fifth of the U.S. economy by 2021.

What’s more, shouldering this huge and growing expense does not seem to translate to improved quality of care. In fact, some argue the opposite. According to a recent study, Americans die far more frequently than their peers in other developed nations due to preventable or treatable conditions, such as bacterial infections, screenable cancers, diabetes and surgical complications. Furthermore, health care-associated infections—or infections patients get while receiving medical treatment—are among the leading causes of preventable deaths in the U.S. and are associated with a substantial increase in health care costs each year, according to the U.S. Department of Health and Human Services.

Despite these dire figures and facts, there are areas where progress has been made, both in curbing costs and boosting the quality of care. Business leaders who gathered for a Chief Executive roundtable discussion held in partnership with Accretive Health sought to identify practices and protocols that, if shared more broadly, will squeeze out inefficiencies, generate cost savings and improve quality of outcomes.

Mary Tolan, founder and CEO of Accretive Health, cited CareMore, which serves 70,000 seniors in California, as an example. Through an innovative approach to health care—one that focuses on preventing illnesses and managing chronic conditions—CareMore has succeeded in providing better care at a lower cost. In August, CareMore was acquired by Wellpoint, which will likely look to replicate its success within the Blue Cross and Blue Shield plans it operates across the country. “CareMore lowered the length of the average hospital stay by 38 percent [for its patient base],” notes Tolan, who adds that organizations like New York’s Universal American and California’s HealthCare Partners Medical Group report similar achievements. “This raises a couple of key questions: What are the common aspects of these breakthroughs? What are the barriers preventing scaling these breakthroughs [across health care]—and how can we lift them?”

Pockets of Progress

One of those barriers is a lack of alignment, notes Stuart Levine, who was the medical director at HealthCare Partners before joining Blue Shield of California as vice president of quality and vendor management of external clinical programs. Like CareMore, HealthCare Partners, which recently merged with the kidney disease treatment company DaVita to form DaVita HealthCare Partners, had success providing quality care while controlling medical costs. The company achieves that success partly through a “risk-stratification process” that uses a predictive modeling tool to identify patients at high risk for hospitalization or readmittance to a hospital and matches those patients with appropriate clinical intervention. The approach led to the lowest readmission rates in the organization’s history, says Levine, who cautions that putting such a system in place is a significant and multifaceted undertaking.

“You have to coordinate outpatient care, high-risk programs, long-term care, long-term care prevention and so on and pull them into a system that matches patients with the best level of care they can attain,” explains Levine. “You also need a new incentive program that rewards individual affiliated doctors for producing excellence and adopting [a coordinated care] model.”

For companies like HealthCare Partners, whose patient base includes Medicare Advantage members, commercially insured individuals and “dual eligibles,” a term referring to patients who are eligible to opt out of Medicare, ultimately the system must also satisfy patients. “Unless they’re satisfied, patients will vote with their feet and opt out. It’s the same with doctors,” warns Levine. “So it’s about putting those pieces together and making it into a system.”

While innovations like these are at the heart of overcoming transformation challenges, the first step of the process is for organizations to commit to pursuing them, noted Craig Samitt, a physician who serves as CEO of the Wisconsin-based, integrated health care provider Dean Health System. “My personal [view] is that all of the tools HealthCare Partners has implemented will become commodities—tools that organizations will be able to package, sell and implement,” he says. “But the foundational elements that truly transform health care organizations are things like a vision to truly embrace value—which we define as delivering the best possible care at the lowest possible cost. The reason we haven’t seen more transformation is that most organizations are still rewarded for volume.”

“Unless you take the perverse financial incentives out of medicine, none of this is going to work,” agreed Michael Sedrish, a physician and director at the Medisys Health Network in New York. “You have to take the financial incentives of fee-for-service from doctors, from hospitals and from all providers.”

Drivers of Change

While organizations like those cited above are making proactive moves to realign incentives around delivering value, others will be forced to do so by competitive forces, asserted several CEO roundtable participants. The Affordable Care Act (aka Obamacare) calls for providing financial incentives for Accountable Care Organizations (ACOs)—or groups of health care providers who work together to deliver coordinated patient care—to lower health costs while meeting performance standards on quality of care. ACOs failing to meet quality standards risk sacrificing the ability to share in program savings and over time, being held accountable for failing to meet performance goals.

Pressure will significantly intensify when the health insurance exchanges Obamacare calls for come online in 2014, adds Samitt. “Payers were already beginning to change their relationships with providers to force alignment, incentives and adoption of risk,” he asserts. “Once the exchanges are readily available, there will be complete transparency of information about service, quality and cost. Accordingly, organizations a) are going to be paid differently very quickly and b) will not succeed and gain share in the future world of health care unless they can prove in a public marketplace that their quality is better, their service is better and their cost is lower.”

Price variation is one area likely to come under scrutiny as a result, notes Ron Fontanetta, practice leader for the firm’s Perrin Health and Welfare practice at Towers Watson. “There is a great deal of price variation across the U.S. in health care,” he notes. “Our prices in this country are also multiples of what we see around the world, so there’s a keen interest in solving for that. In the coming year, there will be a much greater awareness and level of interest around trying to grapple with the value proposition.“

At the same time, health care is not a mass market commodity, points out Herb Pardes, executive vice chairman of New York Presbyterian Hospital, which has been aggressively pursuing cost-cutting initiatives that have already yielded several hundred thousand dollars in cost savings. “There are variations among populations, among socio-economics and among the nature of the medical care,” he notes. “We’re dealing with people, not screws and hammers. So, yes, try to find the efficiencies and take out the cost extravagance, but at the same time, we must maintain or, better yet, improve the quality of care.”

Can Better Care Lower Costs?

While concern over escalating costs spawned the health care transformation imperative, cost and quality of care are now irrevocably intertwined—even, some would say, interdependent. “In the past, people running health systems have worked very hard on being efficient, but it’s been about reducing unit costs,” says Accretive’s Tolan. “This new paradigm is really about how to [cut costs] by keeping a population healthier. That’s changing the framework a bit.”

In Connecticut, the Greenwich Healthcare System is seeking to meet that goal in part by investing $250 million in electronic medical recordkeeping. “Having one patient record where all the different consultants can see everything that’s going on, as well as all the demographics and where the system can help you, as a practitioner, minimize errors can only be good for patient care and safety,” says Frank Corvino, CEO of Greenwich Hospital and executive vice president of the Yale New Haven Health System. “We think the investment will pay off in terms of higher quality and safer health care.”

However, while initiatives around electronic medical records and collaborative management of care clearly have the potential to deliver lower costs and better care, rolling them out to a fragmented health care marketplace will be a formidable challenge. Systems that work well for organizations with a large, geographically concentrated patient base will not necessarily be appropriate for smaller or more specialized health care providers.

The Challenge of Scale

“Disease management, utilization management or whatever you decide to call it is really geared for a population base,” explains Ike Nicoll, CEO of Cancer Clinics of Excellence (CCE), a network of practice-owned, physician-driven, community-based oncology practices spread over 15 states. Encompassing 250 medical oncologists, CCE was formed with the goal of delivering higher-quality cancer care with greater consistency at a lower cost. Cancer patients represent a small portion of the population but generate significant healthcare costs.

“The problem is that when you get into sub-disease categories, there are a small number of patients; and in our case with oncology, [there are] very [individualized] treatments,” explains Nicoll. “We’re not geographically concentrated and each practice is very small and offers very [individualized treatments]. For payers, going practice to practice and attempting to implement many of the changes we’re talking about is untenable. You can’t do it, so the question we’ve been struggling with is: How do we bridge a group of individual physicians, who very much want to participate in change, with a large health system?”

“Stepping back from 100,000 feet, this industry is completely unprepared to do transformational innovation,” agrees Michael Cline, chairman of Accretive. “There are fantastic institutions that can deliver very good care—Sloan Kettering, for example—but the system is not designed to be efficient. For some weird, Darwinian reasons in the marketplace, models where physician leadership was overlaid with information and achieved alignment and vision emerged. Now, you have to replicate those pockets in different places, and one of the dilemmas is that three out of the four payers in every market are not paying attention to helping get that done.”

Consumers Can Tip the Scales

End consumers can play a part in overcoming that hurdle, notes Traver Hutchins, CEO of ASAP Urgent Healthcare and Remedy Healthcare. “I think educating consumers on their health care choices is what will drive the change we need,” he says. “We’re all talking about how our models need to change, but the consumers are ultimately going to make a decision—as they did with Apple—as to where they will go. As they begin paying more for their care—through higher co-pays or however—that will be a big change agent.”

“If we don’t get the patient population attentive to [its] role in driving up health care costs, we will never really make the kind of changes we need,” agrees Pardes. “That’s a tough issue. We did it with smoking; but in obesity, which leads to diabetes, it’s actually getting worse. [Consequently], patient engagement and consumer education are critical.”

In the meantime, transforming additional pockets of the population and expanding those pockets that exist can promote progress. “In my view, you scale the islands by building more islands,” adds Accretive’s Cline. “There is no systematic thing you’re going to do to cut across all these different organizations. If you really want to change this system, it will not get changed from the top. You will have to expand the islands of innovation until, eventually, market forces begin to take over.”

In fact, rather than a single, cohesive program, true health care reform may well be the sum of many efforts, large and small, that come together to gradually revolutionize the way we view, practice and consume health care. “If you think about our national challenges, this is a very interesting time,” sums up Tolan. “There was a generation that had to solve the Cold War and its aftereffects, and I think it will be up to this generation to figure out the affordability and sustainability of health care with every bit of the same level of national imperative.”