The IOM, Infographics, and Demogoguery

Today’s Managing Health Care Costs Indicator is $55

The Institute of Medicine has a new report out, “The Healthcare Imperative: Lowering Costs and Improving Outcomes: Workshop Series Summary.”  The book is available for free download.

The report is based on a series of meetings held in 2009, and it’s 852 pages long.  I’ve looked through  the table of contents and glanced at some of the articles.   This looks like this could be the textbook I’ve always wanted for my course “Managing Health Care Costs,” although it’s mighty hefty.

The IOM has produced some infographics to highlight the increase in health care costs, and this has been picked up by Ezra Klein and others.  Infographics can be demagogic, and an egg should not go up in price at the same rate as dramatically improved cancer therapy.  In fact, the current infographic posted at the IOM website doesn’t include this screenshot above - which suggests that if egg prices rose like health care, a dozen would be $55.

Health care isn’t the only thing that has increased its share of my family’s budget.  For instance, we paid under $40 a month for telephony and nothing for television or internet in 1990 – but we now pay over ten times that for 4 cell phone accounts, internet service, a residual land line, and more channels of cable than I care to think about. 

I like the infographics, though – they draw our attention to this important issue today.  

KFF published its findings on the (large) increase in the cost of health care.  More after I absorb this.

IOM Birth Control Decision: No Increased Medical Costs

Today’s Managing Health Care Costs Indicator is Zero

This week’s recommendation by the Institute of Medicine that birth control should be covered by health plans without patient cost-sharing is bound to cause political fireworks.  Groups that oppose abortion will object because some forms of birth control (IUDs and ‘morning after’ pills) interfere with uterine implantation after conception.  Religious groups will object that mandating that they cover birth control violates their religious doctrine.  Those who believe that patients should pay at least something for services to be sure they value them appropriately will object to birth control having no cost share at all.

I expect we’ll also hear complaints that this is an unfunded mandate – and one more way that health care costs will be increased by the Affordable Care Act.

However, these potential complaints appear to be unfounded. 

The HR consulting firm Mercer did a study in 2000 that showed that medical claims costs went down when employers covered contraceptives.  That’s because pregnancies and abortions are expensive – and oral contraceptive pills are not.  This study was done when many commonly-used birth control pills had not yet gone generic.    

The Washington Business Group on Health (now the National Business Group on Health) also did a study in 2001 suggesting that the direct and indirect cost of plans that did not cover contraception was 15-17% higher than plans that did.   This is because of short term disability claims due to pregnancy.

The federal government’s Office of Personnel Management found no increase in total cost of the federal Employee Health Benefit Plan when it started to cover birth control in 1999. 

These studies have all been cited extensively by those advocating for the IOM to recommend full coverage of birth control, including the National Women’s Law Center and the Guttmacher Institute.

Most mandates do increase the cost of health care.  Covering birth control, though, does not appear to raise overall medical claims cost.

Contraception and Medical Costs

Today’s Managing Health Care Costs Indicator is 3.68

Today the NEJM  published on the web an article likely to incite a political argument.  Researchers from Princeton point out that the medical claims cost associated with unwanted pregnancies far exceed the medical claims costs for voluntary contraception.

In fact, they say that the public sector’s family planning costs are $1.9 billion annually, and medical savings (not including savings from other social programs) are $7 billion. That’s a return of investment of 3.68!

The authors argue that the Institute of Medicine should declare contraceptives to be part of the comprehensive range of preventive health services available to women at no charge under the Affordable Care Act.  The financial argument isn’t their only argument; they note that many women don’t use some of the most effective long-acting reversible contraceptives such as implantable devices and intrauterine devices, because they are expensive up front, even though they are very effective and cost less over time.  As a result, many women seeking to avoid pregnancy will choose either condoms, which are less reliable for pregnancy prevention, or oral contraceptives, which cost less up front but more over five years, and have more potential medical complications.

We should provide coverage for the full range of women’s health needs, and we should decrease barriers to the safest and most effective forms of contraception. This can prevent unwanted births, as well as prevent abortions.  The financial savings in medical claims are real – but they’re not the main reason to provide this coverage. 

Maryland Inpatient Price Controls – Cost Saving, or Cost Shifting?

Today’s Managing Health Care Costs Indicator is $875 Million

Robert Murray, the executive director of the Maryland Health Services Cost Review Commission, triumphantly declared in the September, 2009 issue of Health Affairs: 

Maryland’s rate-setting system is one of the most enduring and successful cost containment programs in the United States….The state’s all-payer system has kept hospital cost growth well below the national trend.

Murray went on to suggest that similar price controls across the country could have led to $1.8 trillion dollars in savings from 1976 to 2007.

With these kind of savings, you’d expect hospitals to look very different in Maryland.  There might be less granite or marble, and hospitals might purchase less new equipment.   There would certainly be fewer cranes building new towers!  However, I’ve asked my hospital friends whether Johns Hopkins (Baltimore) looks like it has faced substantial economic hardship, they consistently say “no.”

The recent data released by the Institute of Medicine suggests that while Maryland’s fee schedule regulation has restrained growth in commercial (under age 65) costs, those costs have instead been borne by Medicare.  The state has a Medicare payment waiver that has meant Medicare pays the same hospital rates that commercials payers pay.  In most states, Medicare pays substantially below commercial rates—often dramatically below.

It turns out that the Medicare waiver is paying Maryland Hospitals at a rate much higher than Medicare pays most other states (New York,  California, and Massachusetts are also higher than average, but each has substantially more graduate medical education).

In fact, Maryland has more admissions in its Medicare population compared to national averages ( 22.4% vs. 21.5%), and pays much more per admitted patient ($19,737 vs. $12,811, using the standardized data to adjust for illness and demographics).   Maryland only has price regulation on inpatient care; inpatient care represents over 44%  of total Medicare standardized costs in Maryland, compared under 33% nationally.

While Murray claimed savings of $40 billion over this 32 year period, Medicare paid $875 million extra to Maryland Hospitals in 2009. (excel spreadsheet posted here) 

Price regulation might indeed be a good thing, and if hospitals are functioning as utilities, price regulation might be necessary.  This is a lesson that when we control one price, we should look carefully to see what happens to other prices. Cost shifting is much easier than genuine cost saving.

Annual statewide cost - calculated from 2009 IOM data.  Click to enlarge

Late addendum:

This fall, an alert reader pointed (Christina Daw) pointed out that CMS has not separated out indirect medical education costs- which means that Maryland inpatient costs as I've calculated above are overstated.  I've printed the email below -and will update this when adjusted figures are available.

The indirect medical education payments are 5.5% increase in inpatient payment for every 10% increase in residents - but it's not easy to calculate total impact.

Thanks

====================================

Regarding blog of Sunday, March 13, 2011 "Maryland Inpatient Price Controls..." -- 

Can you clarify how do your findings specifically address the following comment in the Methods section of the IOM document?

Limitations of Maryland Data: The state of Maryland has a unique waiver that exempts it from Medicare’s prospective payment systems for inpatient and outpatient care.  Maryland instead uses an all-payer rate setting commission to determine its payment rates.  Medicare claims for hospitals in other states break out additional payments for indirect medical education (IME) costs and disproportionate share hospital (DSH) adjustments, and we removed those amounts when we standardized payments in those states.  We also eliminated the effects of the adjustment for the hospital wage index.  However, the claims for Maryland’s hospitals do not identify IME or DSH payments, and the only adjustment that we made to those claims was to eliminate the effects of the hospital wage index.  As a result, both the standardized and standardized, risk-adjusted spending figures for Maryland are overstated. CMS is currently working with Maryland’s rate-setting commission to more accurately adjust the state’s spending data and make it more comparable to the rest of the United States.

Thank you.

Variation Redux: The IOM Weighs In

Today’s Managing Health Care Costs Indicator is 45%

Click to enlarge image 

The Dartmouth Atlas, as highlighted by the 2009 Atul Gawande article reviewing the high utilization of high margin services in McAllen, Texas, has focused attention on the high level of variation in Medicare spending in different hospital referral regions across the country

The Affordable Care Act offers higher Medicare fee updates to physicians practicing in areas of low utilization, and diminished fee increases for those practicing in high utilization areas.

A number of academics have long been suspicious that the Dartmouth methodology overstated differences, and have complained that the Dartmouth researchers

•     Used only Medicare data
•     Did not do substantial risk adjustment
•     Did not adjust for Medicare geographic payment differentials 

The Institute of Medicine just released a long-awaited study of variation of Medicare costs with this additional adjustment completed. Costs of 45 percent of all hospital referral regions changed by at least 10%.

Honolulu remains the lowest cost HRR, and Miami remains the highest.  But the cost in Miami drops from 200% of average to 135% of average.  As you see in the graphic above, the Bronx (NY) drops from 55% higher than average cost to 10% lower than average cost after reasonable adjustment for payment differences, illness and demographics.

This highlights the difficulties of using apparent variation to lower overall health care costs.


Addendum: Thanks to reader MarilynMann - I have fixed the last link.