Brian Klepper
Hospitals [and surgeons], if they wish to be sure of improvement...must analyze their results, to find their strong and weak points, [and] must compare their results with those of [their peers]...[They should] make this information publicly known so that the future patients might make informed decisions. -- Ernest Codman, 1914
Perfect Information - a term used in economics to describe a state of complete knowledge about the actions of other players that is instantaneously updated as new information arises. -- Wikipedia, 2006
Nearly 100 years after Dr. Codman's famous advice, health care "transparency" efforts finally are proliferating around the nation. It's not a moment too soon. American health care is becoming a case study in the excesses and economic disruptions that can occur when a market-based system lacks transparency, and a culture of opportunism takes root. And yet, just in the nick of time, transparency has become all the vogue, irresistible as a virus.
A Crisis of Health Care Cost
As I write, American health care continues its long, accelerating descent into deep crisis. Unrelenting cost growth is pricing increasing percentages of mainstream purchasers out of the market for care and coverage. Between 1999-2004, the inflation of health care premiums, where costs converge from the continuum of care, grew a spectacular 5.5 times general inflation, 4.0 times workers earnings, and 2.3 times the growth of business income.
Employers, who fully or partly subsidize the coverage of more than half of all Americans, are retreating. The US Bureau of Labor Statistics reported that, by 2003, only 45 percent of private sector workers had health benefits, down from 66 percent just 13 years earlier. That number was eroding by 4.5 percent per year, double the annual erosion rate, 2.3 percent, experienced during the 1990s.
Employers who still offer health benefits have cut back, with narrower coverages. They have also shifted more financial burden to their employees by requiring higher contributions to premiums and significantly higher out-of-pocket expenses. In real terms, premiums are higher for less coverage, so actual inflation rates are even higher than the numbers cited above.
The human toll of this crisis is harrowing and well-publicized. Hospital emergency departments are overwhelmed by uninsured and underinsured people seeking primary care. Patients are experiencing unprecedented levels personal debt and bankruptcy due to an inability to pay health care bills.
But the economic prospects of the crisis are equally daunting. Demand for health care services continues to grow, but fewer people are buying coverage, which means that fewer dollars are available to pay for health care products and services. Fueled by skyrocketing costs, the intensifying mismatch between demand and resources threatens to destabilize the health care marketplace. And because health care is the nation's largest economic sector - one seventh of the US economy and one eleventh of its job market - instability in this sector could cascade to and disrupt the nation's larger economic stability.
The Structural Roots of the Cost Explosion
Why has health care's cost explosion been uncontrollable? Because its deepest roots lie in three structural defects. First is a fee-for-service (FFS) reimbursement system, the current paradigm, which pays for procedures without considering quality or appropriateness. This not only encourages unnecessary care. It discourages adjusting practice to obtain the best possible clinical and financial results.
Next is an inability to identify problems and opportunities as they occur because, at least until now, the infrastructure and processes to track pricing and performance were unavailable to most of us. The invisibility of corporate and professional conduct has cultivated an opportunistic culture throughout health care. Without the information that regulates vendors' behaviors in most markets, health care's players have freely pushed ahead, constantly pushing the envelope on both utilization and pricing.
Of course, none of this is lost on an entrepreneurial health care industry that knows a good thing when it sees it. The combination of FFS reimbursement and a lack of transparency has created a well-funded, broadly-distributed power structure that, intent on maintaining the status quo, has shaped American health policy for its own purposes for decades.
Taken together, these problems are a recipe for a perfect economic poison pill. More services translate to more money, so inappropriate and unnecessary procedures have come to dominate every nook and cranny of America's vast health care continuum, from the supply chain to care delivery to finance. While luminaries like Donald Berwick MD, CEO of the Institute for Healthcare Improvement and John Wennberg MD, author of the Dartmouth Atlas of Health Care, insist that a third or more of health care is wasted, so far we haven't been able to easily see what things actually cost or how effective our practitioners and institutions are.
Leveraging Claims Data for Transparency
Until now, the health system's most powerful counterweights to the health industry - employer and government purchasers - have resisted mounting the efforts that would be required to effect change. Health industry lobbies have, for the most part, effectively neutralized government initiatives that might compromise short-term profitability, and employer interests have been focused elsewhere. But faced with health care costs that threaten their bottom lines, their employees and the larger marketplace, new transparency projects are afoot, sponsored by employers and government.
In fact, for several years most large employers have used sophisticated analytical tools to evaluate their health plan claims data. Most large corporations are self-funded for their health coverage, and so they have every incentive to identify ways to tweak and improve their health plans' operations.
Claims analysis tools perform several important functions. Most importantly, they "group" all the data associated with each clinical episode, gathering claims from the entire continuum of care – e.g., physician offices, hospitals, laboratories, diagnostic centers, pharmacy - pertinent to a specific patient, condition and time.
These tools also apply one of several commercially developed algorithms to "risk adjust" the claims, based on the severity of the patient's condition. This function permits apples-to-apples comparisons of the performance or experience of physicians, hospitals, or employer groups.
The resulting reports allow managers to identify problems and opportunities in their health plan experience. For example, analysts can easily and credibly identify:
Patients with chronic disease who should be managed,
Patients with emerging acute care conditions,
High- and low-performing physicians and hospital services;
Average costs of care for specific conditions, specialties and providers; and
Much more.
While these tools are powerful, they generally have been applied by individual employers, who have analyzed and adjusted their plans in isolation. But even the largest employers cannot muster the claims data sample sizes to credibly evaluate all the health care vendors in a region. (Many commercial health plans have large, statistically credible data sets, but have typically considered their data proprietary.) By sharing and analyzing aggregated data, though, employers can.
Even better, if they choose to publicly report the results, they can have several impacts. In an increasingly high deductible health plan world, consumers might use that information to make wiser purchasing decisions, identifying better doctors, hospitals and diagnostic centers. That said, the jury is still out on whether consumers are inclined to actually use the information available.
Better candidates for using the data are the purchasers from employers and government, who are very likely to avail themselves of information that can help shape improved health plan performance.
But the evidence so far suggests that health care itself would likely be most responsive to public reporting of pricing and performance information. Nobody wants to be publicly known as a poor performer.
Transparency: The Best Driver of Market-Based Reform
This new transparency information will precipitate tremendously positive changes in America's health system. Readily available health care pricing and performance data will likely accelerate the transition away from Fee-For-Service and to Pay for Performance reimbursement, which will tie payment to results. Establishing targets for higher payment should reduce unnecessary and inappropriate utilization (and cost), should improve outcomes, and should encourage physicians and other providers to become more efficient by joining larger practices and investing in better management tools.
Together, these changes can break the cycles that have held American health care captive for years, and lay the foundation for a more stable and sustainable health system that adheres to market-based principles.
Disrupting The Drivers of the Health Care Crisis
Chapter, Innovation-Driven Health Care, Edited by Richard Reece MD
Sunday, April 1, 2007
