Notes from Eric
December 2011
America can’t control health costs it doesn’t understand
Deliberations over health care’s future continue to be divisive. The U.S. Senate “super committee”—deadlocked over deficits linked largely to health care spending—has thrown in the towel. The Affordable Care Act is headed for the U.S. Supreme Court. Medicare chief Don Berwick has resigned after Congress failed to confirm his appointment. And pundits predict next year’s presidential election will be yet another referendum on health reform.
Here’s a proposal that could lead to positive change, not just for politics, but for patients, providers, purchasers, and policymakers: Uncover and share information on the true costs of care. Coupled with knowledge of health outcomes, this information can provide common ground for understanding the value of various approaches to care—something that’s missing in today’s debates.
In September’s Harvard Business Review, Harvard Business School professors Robert S. Kaplan and Michael E. Porter explained why facts about health care costs are so elusive: Most health care organizations focus only on how much the government and insurers spend, not on the costs health care providers actually incur. Why? The health care system is so complex and uncoordinated that accurate cost information is difficult to find. And costs are often shifted from one type of service or provider to another, or to the payer or patient. The result proves a management axiom: What isn’t measured can’t be improved—or even managed.
“Poor costing systems have disastrous consequences,” Kaplan and Porter write. Providers and payers don’t link cost to process improvements or outcomes, so instead of choosing systemic and sustainable cuts, they make simplistic across-the-board cuts in areas like pricey services, compensation, and staffing. The consequences? Marginal savings, higher total system costs, and poorer outcomes. Introduce high copayments on expensive drugs, for instance, and clinic costs may soar as patients stop drug treatment and get sicker.
What’s the fix? Focus on patients and their conditions—not departmental units, procedures, or services—as the fundamental unit of analysis for measuring cost and outcomes, say Kaplan and Porter: “Account for the total costs of all the resources” that individual patients use as they traverse the system.
We must understand the cost of the patient's full care experience—from the first sign of a health problem to recovery or death. We need cost data related to all of the patient’s providers (primary care doctors, specialists, nurses, therapists, etc.), all tests, drugs, equipment used—and any home health care or phone or e-mail consultation. How much is needed for administration and other overhead including facility costs, plus the cost of managing insurance coverage?
Where in our nation’s fragmented health care system can we gather such patient-focused information? Right here: For Group Health members who get their care within our own medical centers, we have a comprehensive view of nearly all activities linked to the cost, outcomes, and value of services provided. Still, there have been challenges. Before the 1980s, Group Health collected very little data on cost. Because purchasers paid a flat fee for coverage and services per person, without fees per service, the cost of discrete services may have seemed irrelevant.
But over time, Group Health has become increasingly interested in understanding the cost and outcomes—and therefore the value—of care provided within the system. That understanding, coupled with Lean management, aids our mission to provide “affordable excellence.”
Some cost information is still hard to come by, though—especially for Group Health members who get care outside of our integrated group practice and facilities. Rates set for other insurers and Medicare largely determine these services’ prices.
Still, Group Health and other integrated systems provide a terrific environment for achieving better awareness of the cost and outcomes of care. Collaborating with Group Health managers, researchers can compare the relative value of various approaches, both inside and outside Group Health. We can also partner with institutions across the nation to conduct even larger studies to provide facts needed to design a less expensive, higher-quality health care system.
Our aim is to build a better foundation of knowledge about costs. We must accept the challenge to measure and manage cost and outcomes, creating better value for Group Health members. In so doing, we can take better care of our patients and contribute to a U.S. health care system based more on the light of evidence—and less on the heat of politics.
—Eric
Read Harvard Business Review article, “The Big Idea: How to Solve the Cost Crisis in Health Care” by Robert S. Kaplan and Michael E. Porter.