Spinal Surgery as a Barometer of Health Care Cost Increase

This week’s Journal of the American Medical Association (JAMA) has a study showing that Medicare patients have had (we might say suffered) a more than 15-fold rise in spinal fusion surgery in the last eight years.   Simple laminectomies have declined slightly.  Complications are substantially higher with the more complex surgery; life-threatening complications increase from 2.3% (decompression alone) to 5.6% (complex fusions).  Rehospitalizations were higher in the complex surgery groups, and hospital charges were over $80,000 per patient (compared to under $24,000 for simple decompression laminectomies.  It’s unfortunate the authors used hospital charges, rather than actual Medicare payments.)

The authors and an accompanying editorial note that it’s unlikely the proportion of Medicare beneficiaries with the severe pathology requiring complex fusion increased over this time.  There is no evidence that the complex surgery has better outcomes for those with less severe disease; the rate of complications suggests that it is frankly worse.   

So – why did neurosurgeons do so much more complex fusion?

1)       Techniques and tools have improved – so complications are not as high as they once were

2)       Payment is higher

3)       Medical device makers see substantial profits from implanted hardware from the complicated surgery – and they market very effectively.  The major orthopedic device makers have entered into consent decrees and paid fines over recent years for their marketing to physicians

4)       Patients are not in a good position to demand the less invasive surgery when they are in agony and their surgeon suggests what he or she feels is best

What’s the answer to this?

Like most problems in health care cost, there are probably multiple answers – and no single one will magically make everything better.

è More price transparency with patients bearing incremental cost:  If patients knew they would face a $50,000 personal bill for the complex fusion, they would pressure their surgeons for less invasive therapy.  Of course, they might pressure their surgeons for less invasive surgery even in the instances where the more complex surgery is genuinely beneficial.  Further, most plans would (and should) have far lower out-of-pocket maximums 

è Better provider reporting.    What is the complication rate for each surgeon?  This could discourage surgeons from performing more risky surgery where it wasn’t absolutely necessary

è Disclosure (or frank prohibition) of medical device company payments to surgeons.  Minnesota, Vermont Massachusetts and other states have passed laws mandating this type of disclosure.  The embarrassment factor alone should change some behavior. Surgeons don’t believe that pharmaceutical or medical device company lunches, junkets, and honoraria have any impact on their clinical practice, but there is substantial evidence that this marketing expense does change provider behavior

è Decrease in the fee schedule for more complicated surgery.  Higher margin procedures generally are overutilized – so decreasing the margin for this surgery could help.  Japan  has an interesting approach – when a procedure’s utilization jumps, payment is slashed.  That’s why Japan has $100 MRIs – presumably, Japan would also have less of a reimbursement difference from simple laminectomy to complex fusion.

è Bundled payment or capitation – which would leave groups of  providers to decide whether to fund the more expensive surgery themselves.  The provider community is often not arrayed to accept these types of payment methodology – but in general bundling payment leads to much lower utilization of higher cost procedures. 

This JAMA study caused one day of headlines; we’ll see if this will lead to genuine change.

Unit Cost vs. Utilization As Reason for Health Care Cost Increases

The Massachusetts Attorney General published a final report about two weeks ago showing the impact of unit price increases compared to utilization increases for the three major regional health plans in Eastern Massachusetts.    As you can see, over recent years the overwhelming reason for increased overall health care costs was increase in unit cost - not increase in utilization.  

You can click any of these to enlarge - or go to the full report

California Provider Leverage Drives Health Care Cost Increases

I blogged yesterday about health plan powerlessness to control cost per unit – the major driver of excess health care costs in the US compared to other developed OECD countries. 

As if on cue, Health Affairs published an article from the Center for Health System Change pointing out that this is exactly what has happened in California.  A combination of public demand for full provider choice and consolidation of hospitals and physicians has left health plans with little power to control overall costs.

A direct quote:

“Physician overlap in two prominent health plan networks was 97–98 percent. This reality weakens the position of health plans. If plans cannot exclude providers from their network because of customers’ demands for broad networks, they cannot credibly threaten network exclusion. That fact undermines their ability to resist providers’ demands for higher payment rates.

Although it doesn’t seem possible that prices could have increased even faster, it turns out that providers sometimes don’t wield all available leverage power in negotiations. In effect, they leave “money on the table” because

-          Hospitals and big physician groups worry that raising prices too high will chase business away from the local geography

-          Hospitals and big physician groups worry that raising prices for smaller health plans might increase health plan concentration

-          Kaiser Permanente in Northern California has large market presence and drives costs down in that market.

I am convinced that more integration of provider groups can lead to higher quality of care – and more cost-effectiveness, too.   This quote from a physician who had moved from Fresno, a non-integrated market, gives me pause:

“The good thing about the systems not being highly integrated and coordinated [in Fresno] is that premiums are lower. Why are those hospitals and physicians [integrating]? It wasn’t for increased coordination of care, disease management, blah, blah, blah—that was not the primary reason. They wanted more money and market share.”

Many observers have commented on the importance of vigorous enforcement of antitrust regulations.  However, this article points out that some characteristics that make a hospital a “must have,” high-leverage facility, such as reputation and provision of unique services, are not addressed by antitrust enforcement. 

The authors conclude that policy makers should consider price caps and all-payer rate setting.  Of course, all-payer rate setting would likely require Medicare and Medicaid to pay substantially higher rates.  Since Medicare is already woefully underfunded and the states are chafing at Medicaid costs, no one will be enthusiastic about an approach which increases Medicare and Medicaid liabilities.

The market helped control prices when hospitals and care delivery systems genuinely competed against each other. In the current environment, where health plans must have a contract with all providers, hospitals (and delivery networks) have become akin to utilities. Utilities are usually subject to price regulation.

More on Cost Per Unit in the US

Health care costs come from utilization and cost per unit.  We’ve given a lot of attention to variation and the many pockets of overutilization in this country – and these are a real issue.  However, as Uwe Reinhardt has said, “It’s the prices, stupid.”

Ezra Klein of the Washington Post did an excellent two-part interview with George Halverson, the CEO of Kaiser Permanente, and linked to slides from the International Federation of Health Plans showing that the cost of units of service are much higher than in other countries. 

When we’re thinking of how to lower health care costs, we’ll need to address the issue of cost per unit if we want to achieve affordable health care.