Health Reform and Transformation in San Diego & California

I recently sat down with Kevin Hirsch, MD, President of Scripps Coastal Medical Group* to talk about health reform and transformation in the San Diego region. (See video below.)

Dr. Hirsch’s insights are interesting and timely because California often precedes the rest of the country in adopting new approaches to healthcare delivery and financing problems.  An example of this may be California’s 2006 Hospital Fair Pricing Act, which addressed very high hospital bills for the uninsured. This month’s Health Affairs includes an article that analyzes the impact of this law, and the authors’ findings contrast markedly with Steven Brill’s Time magazine article, “Bitter Pill: Why Medical Bills Are Killing Us.”

The California law is a significant step, and the Health Affairs authors describe it as a “detailed and well-structured approach.” The Act did have  limitations: it only protects uninsured people with incomes under 350% of the FPL, the state has minimal enforcement activities, and it only covers hospital bills and not those from physicians or outside services. (Note: In 2011 the law was expanded to include bills from ED physicians.)

Since the ACA will leave many people without health insurance, the Health Affairs authors conclude, “Policy makers and health planners in other states searching for options to protect the uninsured should be encouraged by our findings and should seek to learn more about California’s approach and determine how they might adapt similar laws to their own state’s health care system.”

(Disclosure: I’ve known Dr. Hirsch for many years – and aside from out obvious East Coast-West Coast attire differences, we continue to share a similar hairstyle and are both working to improve healthcare quality and efficiency.)


*Scripps Coastal Medical Group includes more than 140 family medicine, internal medicine, obstetrics and gynecology, pediatrics, physical medicine and rehabilitation, rheumatology and general surgery clinicians practicing throughout San Diego County, and exclusively provides medical services through Scripps Health, a nonprofit integrated health system, under the Scripps Coastal Medical Centers brand.

Health Reform and Low-Income People in Washington DC

I recently sat down with George Jones, Bread for the City’s CEO, to talk about health reform and the challenges low-income people in Washington DC have accessing healthcare. The video of our discussion is below.  A couple of notes: 1. George’s title changed from Executive Director to CEO about a year ago.  I’ve known George for more than 15 years, so my bad when I introduce him as the Executive Director. 2. Please excuse my verbal stumbles and be impressed by George’s answers – we filmed this in one take in his small, hot office at Bread for the City.  I’m confident there will be improvement in future videos – and of course, your feedback is always welcome!

Health Promotion, Prevention, Wellness, and Government Fiscal Policies

I recently had the opportunity to give guest lectures at Georgetown University and the University of Virginia. At Georgetown I focused on employer’s perspectives on health promotion and disease prevention. (Videos of portions of that discussion are below.) At UVA’s Batten School of Public Policy I discussed fiscal issues and policies for government healthcare programs, e.g. Medicare and Medicaid. (A few slides from that discussion are below….. sorry no video.)

The opportunity to talk with our future clinicians, health system administrators, and policy makers was heartening and a bit terrifying. While the students are eager and passionate, I wonder about their historical understanding of our complex healthcare systems and the policies, programs, and initiatives that got us to where we are today. Too often I’ve seen proposals that are trying to resurrect a failed wheel, or undo something that solved a problem so effectively it no longer has a vocal advocacy. As Edmund Burke said, “Those who don’t know history are destined to repeat it.” And the US healthcare system(s) have enough challenges without spending resources on false paths.

Video Segments: Georgetown Univ. Health Promotion & Disease Prevention Guest Lecture

Part 1:

Part 2:

Selected Slides from UVA Batten School of Public Policy Guest Lecture

US Healthcare Spending 1990-2011US Healthcare Spending 2011US Healthcare Funding Sources - 2011US Health Insurance Coverage - 2011

US Healthcare Spending Distribution Across Population


Health Spending: For What, To Whom, and Where It Is Heading

The data for 2011 US healthcare spending was reported in the January issue of Health Affairs.  Below are some graphs showing how spending was distributed across the different categories of healthcare services in the years 2000, 2007, and 2011, as well as who paid for the spending.  (My analyses and commentary follow these graphs. The source for all graphs is Health Affairs, 32, no. 1 (2013):87-99)

What Healthcare Spending Went For:

Where Healthcare Spending Funds Came From:
Three highlights from the Health Affairs article are:

  • The distribution of healthcare spending for various services and providers has been relatively constant despite significant growth in total and per capita spending. (See chart below)
  • Growth in hospital spending slowed in 2010 and 2011 after bumping up in 2009. (Y/Y increases were 6.7% in 2009, and 4.3% and 3.9% in 2010 and 2011, compared to 3.9% for total National Health Expenditures for each of these years over the prior year.) The Health Affairs article notes that “The growth in use of hospital services remains low, with the number of inpatient days declining by 1.1 percent in 2011, following a decline of 1.6 percent in 2010, and the number of outpatient visits increasing by 0.7 percent, a slowdown from the increase of 1.5 percent in 2010.”
  • The percentages of healthcare spending coming from private businesses and households has decreased. This probably reflects higher government spending for the new Medicare prescription drug benefit and increased Medicaid enrollment during the economic downturn being only partially offset by private insurers shifting costs to individuals.

Effects of Health Reform (ACA)

While only a few of the ACA’s provisions went into effect during 2010 and 2011, there has been much speculation as to how (and how much) the ACA has or will change healthcare spending.  The Health Affairs article includes data about changes in private insurance enrollment from the requirement that companies offer coverage for dependents up to age 26. But it also points out that this age group is relatively inexpensive to insure so it probably didn’t produce great changes in spending.  However, Medicaid coverage and spending did change significantly, with more people in Medicaid programs due to the economic downturn, and the states’ costs increasing with the end of the temporary bump in Federal matching rates.

The Health Affairs authors don’t speculate about is how healthcare providers and organizations are shifting their operations and attitudes in anticipation of various of various new Federal programs, such as the Shared Savings Program for ACOs, value based payments, EMR Meaningful Use incentives/penalties, and penalties for avoidable adverse events. With private payers expanding clinical and economic accountability for healthcare providers through various payment innovations that are aligned with Medicare’s policies, the acceleration of system-wide transformations may be greater than projected – and lead to greater and earlier cost savings.  I have written about the factors that may be moderating healthcare spending growth, and believe that the relatively slower rate in hospital spending  and inpatient days reported in the Health Affairs article are the leading edge of this trend.  However, as hospitals purchase physician practices they may establish local market power that limits competition, and the prices charged to Medicare by these acquired practices could increase as they shift from the category of clinicians’ office to hospital outpatient facilities. Conversely, to the extent that these integrated healthcare systems assume risk for savings and quality performance – probably with payments involving episodes or bundles of care – then these concerns will be diminished, although not eliminated if they can still limit price and quality competition and comparisons.

Looking Forward to Future Health Spending

The Health Affairs article speculates a bit about where healthcare spending is heading in the near future. And, as is typical when trying to predict the future, the article doesn’t completely agree with what others have written. Not to be critical of the Health Affairs authors, (or professionals at the Congressional Budget Office or other organizations), but modeling is hard. To illustrate how difficult this task is – and how it can lead to different predicted outcomes even with lots of historical data to work with – below is a map showing the multiple predicted paths for 2012 Hurricane Sandy.

Communicating the meaning of the latest data can also be confusing. For example, the New York Times and the Wall Street Journal delivered significantly different verdicts on the meaning of the Health Affairs article. The Times’ headline declared, “Growth of Health Spending Stays Low” and quoted the Medicare agency’s chief actuary as saying “’I am optimistic.  There’s lot of potential.  More and more health care providers understand that the future cannot be like the past, in which health spending almost always grew faster than the gross domestic product.’”  Conversely, the Journal’s headline was “Health-Cost Pause Nears End,” and the article noted that the Health Affairs article, “…showed that the amount of spending to treat individuals, as opposed to spending on administration and insurance premiums, began to rise in 2011.” It then concluded that this was “signaling that cutbacks in health spending hadn’t become permanent.”

Predicting the Future is Easy

Predicting the future is easy. Accurately predicting the future is difficult. 2014 will almost certainly bring significant changes to how many people in the US get health insurance, how healthcare organizations deliver care, and how Medicare and Medicaid operate.  Like CMS’ chief actuary, I am optimistic, even though I also recognize that he is also correct in that, “The jury is still out whether all the innovations we’re testing will have much impact.” But I also see his actuarial caution as a reason for optimism because I believe that modeling based upon few precedents causes projections to be overly cautious, which should mean that actual savings will be greater than expected.

Jimmy Buffett Medicare and Healthcare

The title of Jimmy Buffett’s song “Changes in Latitudes, Changes in Attitudes” is a good description of the fundamental changes occurring in the US healthcare system:  Within the Federal Government – and Medicare in particular – widespread “Changes in Latitudes, Changes in Attitudes” are evident in the implementation of the Affordable Care and HITECH Acts, and the overall leadership of the Department of Health and Human Services.  Healthcare leaders in private organizations – and state and local governments – are embracing these changes, which collectively are leading to better healthcare quality and lower costs…. Or at least slower increases in healthcare costs, a.k.a. a bending of the healthcare cost curve.

Changes in Attitude

Traditionally government programs have worked at a long-arms distance from private companies and organizations.  For Medicare, this has meant that changes in rules and regulations were conveyed to healthcare providers and clinicians by publishing them in the Federal Register or as updates to the manuals used by Medicare’s bill-paying contractors. Private payers, (e.g. insurance companies), responded to these changes and updates because Medicare is the largest single payer for healthcare services. Providers and clinicians were thus always responding to a shifting quilt of payment rules and provisions – and more recently an additional layer of quality reporting requirements.

CMS and HHS have repositioned the government’s payment practices to serve an aligning leadership role that is minimizing confusion and complexity for providers and clinicians, while also promoting greater transparency and accountability. The government has accomplishing this by working with private payers (to the extent allowable by sunshine and antitrust laws) to give providers and clinicians more consistent guidance on payment policies and quality metrics, as well as incentives for improving the organization and delivery of care.  An example of this is the Comprehensive Primary Care Initiative (CPCI). The goal of this program is to promote higher quality patient-centric primary care. To determine the CPCI locations, CMS used a bidding process where the seven winning regions were those that committed the highest concentration of insured people, i.e., a combination of private payer, Medicaid, and Medicare covered lives. All the payers in the selected locations agreed to work collaboratively to identify the primary care practices that would get incentive payments for improving the quality and the integration of care – with each payer determining the specific level of financial incentives and support for each of their covered lives in these practices.

The key facets for the CPCI program are:

  • Public and private sector payers are truly aligned for comprehensive healthcare transformation.
  • It is using market forces to promote this transformation.
  • It is a community based initiative that is engaging local leaders, and which requires their buy-in and shared ownership of the process and the outcome.
  • It is structured to seek both quality improvements and costs savings.

Other initiatives from the ACA-created CMS Innovation Center are seeking to partner Medicare with local providers and payers for payment mechanisms that will promote better quality and lower costs, i.e. higher value healthcare that achieves the improvements that people and communities want.  Some of these programs involve bundling of payments around certain conditions, and the Innovation Center has explicitly stated a desire to consider providers’ ideas for new models of care and financing outside of the matrix of models it has already proposed.  (It is doing this through Health Care Innovation Awards.)

At the same time, “regular” Medicare is shifting its attitude about poor quality care. For example, last fall new Medicare rules became effective that prohibit hospitals from receiving a second payment from Medicare if a patient with pneumonia, congestive heart failure, or after a heart attack is readmitted to a hospital within 30 days, i.e. a return to the hospital that is preventable with good post-discharge care coordination and follow-up. This is just one of many new financial incentives – both positive and negative – involving actual quality of care that Medicare is moving forward with based upon various provisions of the ACA. (Private payers are implementing similar quality of care related payment policies.)

Changes in Latitude

While Jimmy Buffet was talking about geographic lines of latitudes, Medicare and HHS have exhibited changes in latitude for the requirements placed on many healthcare providers and clinicians – particularly those participating in programs designed to deliver higher quality care.  In addition to the Innovation Center examples cited above, Medicare’s new Shared Savings Program enables Accountable Care Organizations (ACO) to be structured in a wide variety of ways as long as they meet certain requirements and commitments.  And one area where they are permitted full autonomy is how an ACO distributes any shared savings (or other financial incentives) to the healthcare professionals and provider groups within or connected to the ACO.  While Medicare wants to be informed about these internal incentive structures – presumably to guide the development of future value-promoting programs – Medicare is not dictating this crucial facet of an ACO’s operations.

This attitude for considering such wide latitude of ideas illustrates the sea-change shift that has occurred within the government bureaucracy that has traditionally sought to evaluate “new ideas” primarily by comparing differences in existing care delivery models across the spectrum of the US healthcare system. However, CMS’ Innovation Center does not have full autonomy for conducting Medicare demonstration projects since it is required to focus on new models for paying healthcare providers, e.g., doctors and hospitals.  Because of this limitation (and related anti-kickback laws) the Innovation Center cannot do demonstrations that alter benefit structures, or empower ACOs to create new financial incentives for patients by changing co-payments or other cost sharing requirements. In contrast, private payers are implementing financial incentives to prompt patients to use certain providers, select primary care physicians to help guide them through complex care situations, or adhere to medical therapies for chronic conditions, etc. Perhaps in the future, (either directly or as part of the latitude for accountable healthcare systems), Medicare will be able to test modifications of beneficiaries’ cost-sharing to expand how patients are engaged for improving the quality of care and sharing cost savings.

Storms Ahead

While the changes occurring within CMS, private payers, and healthcare deliver organizations across the country are very exciting and have great potential, not every initiative or transformation will be 100% successful.  This is to be expected, and it will present the opportunity to learn from whatever shortfalls occur – as well as organizations that exceed expectations.  This knowledge will be important for creating new initiatives and modifying existing ones as they move forward.  Hopefully, other organizations committed to improving care and lowering costs in the public’s interest will be on board with CMS’ new attitude, support the inevitable challenges that law ahead, and seek to calm the waters of public discourse rather than whip the storms like Thor.

Health Reform is Right On Target

Support for the Patient Protection and Affordable Care Act (aka ACA or “the health reform law”) has never been very high since it was signed into law on March 23, 2010. As can be seen in the Kaiser Family Foundation’s Tracking Poll interactive graphic below (assuming the embedded link is working) the percentage of individuals with favorable and unfavorable opinions of the law have remained relatively close.

Public policy is often said to be in the right place if approximately equal numbers of people agree and disagree with the implementation of new laws and programs. The Heartland Monitor Poll described in a December 8th National Journal article paints a slightly more complicated picture of the health reform law, i.e. a 3-way split:

“On the impact of health care reform, Americans sort almost exactly into three camps, with about one-third each saying Obama’s plan will improve the system by increasing access and lowering costs, hurt the system by disrupting it, or not doing enough to change it.”

(Note – In the Heartland poll, those responding “not doing enough to change it” are likely split between the favorable and unfavorable groups in the KFF poll because of how the question is worded.)

These two polls indicate that the landmark health reform law – despite all the harsh politics surrounding it – is in the right zone of change that will make significant improvements without creating major disruptions.  In the world of politics, this creates potent ammunition for all sides to use in their rhetorical battles, but from a policy perspective, it’s pretty close to coordinated clusters of laser guided missiles….. if missiles built or improved things instead of blowing them up.

Cutting Employer Healthcare Costs

Over the past 20+ years larger companies have tried many tactics to control the growth of their healthcare spending, including HMOs, consumer-directed healthcare, wellness programs, value-based insurance design, selective contracting for high-cost procedures, personal health assessments, etc.  While some of those efforts temporarily reduced employers’ healthcare spending, they did not change the long-term trends, in part because they only targeted employees and did not focus on high or very high cost individuals – many of whom are not active workers. [A recent Health Affairs article analyzing conditions associated with employee healthcare spending reflects this “searching under the streetlamp” phenomenon.]

Company Health Benefit Costs Do Not Equal Employees’ Healthcare Spending

The cost of providing health benefits for most larger companies includes not only the health benefits for employees, but also costs for retirees, and spouses and dependents of active workers. In addition, these “other” groups represent a disproportionate amount of health benefits costs because they are generally older and/or in poorer health. The importance of this factor is depicted in the chart below that illustrates how healthcare spending is not uniform across a group of people, e.g., all the individuals covered by a company’s health plan, or Medicare beneficiaries. While the actual spending per person changes significantly depending on the specific group, the general shape of the curve remains the same with about 5-10% of the people accounting for 20-40% of all the spending. For companies’ health benefit programs – as mentioned above – retirees, spouses and dependents make up a disproportionate share of individuals in the yellow and red zones.

[Y-Axis = Percentage of spending;  X-Axis = Percentage of people in the group]

In addition, these high cost individuals are also the people who have the most complicated (and usually chronic) healthcare problems, and thus whose healthcare quality and health status can be improved the most.

Challenges in Targeting High Cost Individuals

Companies have typically focused health improvement and wellness initiatives on active workers because they were the individuals the company had the greatest direct interaction with, i.e., they were the people seen in the workplace. This situation reflects the analogy about potential analytical biases where a person will search for dropped keys under the streetlight because that is the only visible area, i.e. information about what is outside the arc of the streetlight is unavailable.*

[Source: “Fixing the US Healthcare System,” 2008 – Unpublished]

While some employers are starting to focus initiatives on high and very high cost individuals, they face several challenges in creating and implementing these programs.  For example, since these individuals are more likely to be spouses, dependents or retirees under the age of 65, it can be more difficult for companies to reach them.  Other challenges that companies’ health benefits programs face in interacting more closely with these people are:

  • HIPAA privacy concerns.
  • For retirees under the age of 65, expecting that they will soon by on Medicare, and thus the company may not see any economic benefits.
  • Lack of potential benefits to the company by improving health and productivity for people who are not active workers. (However, improving the health of high cost dependents and spouses of active workers can reduce the employees’ absenteeism by decreasing the time they spend providing caregiving and care-assisting help to their family members.)

How to Improve Health Delivery and Control Spending for High Cost Individuals

Controlling healthcare spending for high cost people is not easy, nor is it inexpensive. Actions to control spending for these individuals generally involves making care more efficient and reducing errors and complications – which also improves the individual’s health status, i.e. it is a Win-Win situation with improved clinical and economic outcomes.

Specific actions to control spending for high cost individuals includes initiatives such as:

  • Case management e.g., nurse case management and/or tele-medicine
  • Team based care e.g., patient-centered medical homes
  • Integrated care e.g., quality monitoring and fiscal incentives for quality and economic performance

The common theme among these actions is that they are all designed to ensure that nothing falls through the cracks leading to very expensive cascades of poor clinical outcomes and complications. An additional benefit is that these initiatives can also help direct care for people with costly chronic conditions towards the places/locations/providers that are more efficient and higher quality – and often less costly. (Some companies are doing this for elective surgeries, and incentivizing individuals to use specified providers by offering reduced or zero cost sharing, as well as paying their travel costs.)

Does Better Care for High Cost Individuals Pay Dividends?

Financial calculations can quantify the direct value of these efforts. For example if high and very high cost individuals are costing the company more than $10,000 or $25,000 per year, an investment of $1,000, (such as for intensive case management), that reduces spending by 10% provides at least a break-even ROI.  Spending reductions of this magnitude are very achievable for people with complicated diabetes or congestive heart failure. And some healthcare innovations have been shown to reduce spending by 20-30% for people with those conditions. However, not all “case management” or “disease management” programs are the same. As a general rule, “you get what you pay for,” i.e., programs that are less expensive and/or not integrated into the patient’s healthcare team-flow, tend to not benefit individuals with serious chronic illnesses – or deliver a positive ROI. (This was evident in the Medicare Case Management Demo I referenced in a 2009 article on this blog.)

Of course, not all people who fall into the high cost category can have their spending easily controlled through better case management or integrated team-based care. Thus, companies will not see a positive ROI through better healthcare management for all high cost individuals. Some diseases and conditions are just unexpected, inherently expensive, or have long lag times before positive benefits are seen. For example, cancer rates (and spending) can be reduced through exercise, nutrient and smoking cessation – as well as early detection – but the timeframe for those improvements can be long.

Accidents outside the workplace are also frequently cited as high cost medical cases that cannot be prevented. However, alcohol (or abuse of other substances) and/or mental health conditions are often contributing factors for accidents – factors which can be addressed through the healthcare system.  Unfortunately, because of the fuzziness of the ROI calculations, privacy issues, or other concerns, these areas have not generally been a focus for employers.  In addition, in some professions, these medical problems can lead to loss of employment or advancement opportunities, making them especially difficult to address as part of a person’s comprehensive medical care.

Identifying High Cost Cases

Before value-producing interventions can help high cost individuals, these people need to be identified so that they can be engaged to participate in these programs. Fortunately, there are increasingly sophisticated and efficient ways to identify high cost people:

  • Claims analysis conducted by the employer’s insurance company.  (Having the insurance company analyze the claims data creates an important information firewall to address HIPAA privacy concerns. Because of privacy issues, an insurance company – or managed care company – is also in a better position to directly contact and engage individuals for participation in any programs.)
  • EMR database analysis by individual health systems or large provider groups.
  • Asking physicians to identify their medically fragile and high utilizing patients, and then engaging/enrolling them in the appropriate care management programs.  (However, this approach works best for community-wide initiatives rather than individual employer populations since it could be inefficient and unusual for physicians to separately analyze or engage their patients by employer.)

Preventing High Cost Situations

A related set of challenges is identifying people who are not yet high cost individuals, but are sliding toward that end of the scale, (e.g., pre-diabetes, unrecognized diabetes, high blood pressure, smokers, etc.), and preventing them from becoming high cost cases. Some individuals may be easy to identify, (particularly with a high quality EMR system that can do practice-wide analyses), but changing an individual’s potential healthcare trajectory is hard. Changing community norms and expectations for smoking, exercise, and nutrition can be effective foundational actions – and are good initiatives for reaching non-workers such as retirees and spouses.  However, changing personal behaviors on a shorter time frame generally requires one-on-one engagement and encouragement.  This can start with the person’s medical care team, with a non-physician clinician, (such as a diabetic educator, nurse specialist, or health coach), who can provide on-going support as well as referrals to services and resources in the community through organizations such as the YMCA.


Controlling the long term growth of the cost of employers’ health benefits programs, (i.e., bending the “cost curve”), requires focusing on individuals who are costing the most, as well as preventing individuals who are smoldering with early-stage or unrecognized conditions from exploding into expensive complex chronic disease situations.  For self-insured companies, investing in disease and case management programs, tools, and services requires resources, spine, and compassion, but the financial and human-value returns (including company loyalty and appreciation) can be significant. Few smaller companies can marshal the time and resources for these programs, but as technology improves and health insurance markets become more efficient, these services should become more readily available through purchased insurance products – including those offered through the ACA created state-based insurance exchanges.  This should happen with the next 2-5 years since, “it’s where the money is.”


* The parable about looking for lost keys on a street at night illustrates the pitfalls of operating with limited information while trying to solve a problem.  The tendency is to look under the streetlights because that is the only place where you can easily see, i.e., this is where there is easy access to the “data” about what is on the ground to see if the keys are there or not. However, it is also possible that the keys are outside of the corona of the streetlights.  But looking outside those circles takes both imagination to realize that the street exists outside the circles of light, having access to data about what lies outside the circle of light, (possibly with “technology” such as a flashlight), and making the effort to seek and understand this “new” data. [Source: “Fixing the US Healthcare System,” 2008 – Unpublished]

Doctors are Not Terrorists, But…….

Changing behavior is very complex.  Many management books, philosophical tomes, and academic psychology articles have been written on this subject, so I’m going to simply and quickly get to the connections among doctors, terrorists, and health reform.

1. Changing people’s behavior requires appealing to basic motivating factors. Different individuals have different motivators, but everyone has them.

2. Physicians are a key part of the healthcare system.  Improving quality and controlling healthcare spending will require physicians to do some things differently – particularly how they work with other clinicians (i.e., in teams), prescribe treatments, order tests, make referrals, and interact with patients and their families.  (Physicians receive about 20 cents of every healthcare dollar, but control about 80 cents. And an old axiom is that the most expensive piece of medical equipment is a pen in a physician’s hand – although soon it may be their hands on a keyboard.)

3. Money is a key motivator for many people…. But it’s not the only one. For many clinical thought-leaders and decision-makers, money may be of secondary concern.

Physicians, and Terrorists, and Everyone are Motivated By Specific Factors
I’ve long believed that aligning non-financial motivators is crucial for successful health reform because success will require changing individual attitudes and actions. But I didn’t realize how broadly powerful non-financial influencing factors could be until I read “Counterstrike,” the recent book by Pulitzer Prize winning journalist Eric Schmitt and his co-author Thom Shanker. This book describes how, in the mid-2000s, US anti-terrorism organizations saw markedly greater success by shifting their strategy from prioritizing “find-capture-kill” operations to taking actions that pivot potential terrorists’ motivational forces – in part by similarly pivoting the support potential terrorists receive from their families, communities, and religious leaders.  Some of these non-financial factors are:

  • Personal reputation
  • Personal glory
  • Network cohesion and dependability
  • Well-being of their family

As can be seen from this list, some of the factors that influence terrorists are similar to what could also motivate physicians, i.e. professional recognition, influence within their organizations, community status, etc.

Desired Outcomes
The face of successful health reform will be physicians enthusiastically doing things differently because they recognize that their actions are making their patients and communities healthier, making their own lives better, and also easing the “economic dragooning” that the healthcare system was imposing on society.

Successful Health Reform = Changing Physician Behaviors
Achieving these outcomes will depend upon changing physician behaviors, as described in #2 above. And while financial incentives* supporting those behavior changes are being incorporated into new delivery models – such as Medical Homes and Accountable Care Organizations – the organizations that successfully build these new models will utilize other motivating factors in their quest for higher quality, lower costs, and better care experiences for both physicians and patients.  As I noted in the opening paragraph, many pages have been written on changing behaviors, but the fundamental elements were described in general terms by Everett Rogers in his book, “Adoption of Innovation”:

  1. Relative Advantage
  2. Compatibility (with existing or connected practices and actions)
  3. Simplicity
  4. Observability
  5. Trialability

These principles are important because changing behaviors is synonymous with adopting innovations, e.g., using an ATM rather than a bank teller, writing on a computer rather than a typewriter, inhaling insulin** rather than injecting it. And thus, achieving successful behavior changes and producing our desired three aims will require change leaders to incorporate these elements – and both financial and non-financial factors – into their strategies for motivating physicians, patients, and all groups who make up the healthcare system.


*These incentives are generally described as rewarding value and quality rather than volume of services, and include pay-for-performance, shared savings/risk, bundled payments, and capitation.

** Not all innovations are successful – at least in their first iteration.

8 Variables Fueling Increasing Healthcare Costs

At a recent meeting about implementing the Accountable Affordable Care Act, Karen Ignagni, (President and CEO of the America’s Health Insurance Plans), listed 8 variables that are fueling increasing healthcare costs – and thus need to be addressed to “bend the cost curve”:

  1. Prices of services (Not insurance premiums, which mostly reflect input prices, i.e., the cost of healthcare services and products.)
  2. Variations in care delivery practices and how that impacts safety (She also suggested that transparency and reporting measurements for 10-12 key conditions would significantly help reduce care variation – which can improve quality and drive down costs)
  3. Measurement (Alignment between public and private sector reporting requirements to make #2 more feasible for healthcare delivery systems already struggling with data collection, analysis, and reporting.)
  4. Value Based Benefits (Particularly getting people with chronic conditions into stable, care coordinating systems)
  5. Impact of consolidation – both horizontal and vertical (See the recent Synthesis Project Brief on this topic)
  6. Scope of practice (Enabling clinicians at all levels to practice at the top of their capabilities, which will help address growing clinician shortages)
  7. Building and Construction (Other people at the meeting noted the problem with building and infrastructure.  Don Berwick noted “stranded capital” is a challenge for delivery systems, and another speaker noted that most healthcare organizations were literally designed and built to maximize revenues under the volume incentivizing fee-for-service system rather than prioritizing value or community health status)
  8. Power of States (Non-Federal government officials and regulations are important determinants of public health activities, clinicians scope of practice, and collaborations among local stakeholders)

Karen’s list – like Don Berwick’s list from my previous post – is a very valuable tool that I’ll keep in mind when evaluation local, regional, and national proposals for controlling healthcare spending.

I’ve known Karen for about 20 years, since she was the health lobbyist for the AFL-CIO and we were on a panel taking about how to improve primary care. The discussion mostly focused on how to increase the number of primary care clinicians and access in the era of emerging managed care. I particularly remember that part of the discussion involved the hazards of calling primary care clinicians “gatekeepers v. “care coordinators.” It all sounds a bit familiar doesn’t it?

Why Healthcare Spending is Slowing – A New Normal?

The growth in healthcare spending has slowed in recent years.  Many experts and pundits have sought to explain why – while also worrying, (or predicting), that this slowing is only temporary, i.e. past performance will predict the future.

Healthcare Delivery and Financing are Dynamically Evolving

The future will be significantly different than the past because our healthcare system, society, and economy are evolving into what might be called a “New Normal” state.  Assuming current priorities and pressures continue, public and private sector organizations at all levels will increasingly emphasize value¹ in their decisions about spending and preferences for healthcare services – including choices about substituting one treatment option for another.  For public entities, these choices involve coverage and budgeting for programs ranging from Medicare, Medicaid, and Veterans’ healthcare, to benefits for government employees – as well as rules for insurance exchanges. For private organizations, these choices range from health insurance benefits provided by large employers to the decisions individuals make for their insurance coverage – as well as the clinical and lifestyle choices individuals make inside and outside doctors’ offices.

While those choices will collectively mold our future healthcare system, many changes have occurred in the last five years that are creating a new environment for making these choices and pushing us into a “New Normal” state, i.e., these evolutionary forces have already started bending the cost/spending curve.  This progress towards more value oriented healthcare will continue unless the driving forces are hampered, hindered, or blocked by future actions.

The Times They Are a-Changin”
                             Robert Zimmerman

Listed below – in my estimated rough order of importance – are reasons why healthcare spending has slowed and will continue to be less than had been projected.

  1. Dipping Economy: The economic slowdown has decreased the amount of healthcare people are seeking – as well as creating a temporary disruptive environment for making other changes in stakeholders’ attitude and latitudes of practice. Whether the decrease in healthcare utilization is because people have mostly declined or delayed unnecessary or truly discretionary healthcare services and treatments, or are foregoing many important preventive actions and therapies – which will lead to higher costs and morbidity in the future – remains to be determined.
  2. Private Insurance Benefit Design Changes: People with private insurance have shifted to higher deductible plans², (a.k.a. consumer directed plans), which have lower monthly premiums and higher deductibles, and sometimes increased co-payments/co-insurance.  This change has been in both employer sponsored plans – where individuals may not have a choice – as well as for people (and families) buying insurance as individuals or through small business plans.  Like #1 above, economic incentives have led people to be more selective in what healthcare services and products they are using, but the wisdom of these choices and their long-term effects on costs and quality of care (and life) are not yet fully understood.
  3. Medicare Outpatient Prescription Drug Benefit: The Medicare outpatient prescription drug benefit, (a.k.a. Part D), started in 2006.  If the general premise that prescription medicines are the most clinically and cost-effective form of healthcare is correct, then the greater use of prescription medicines by Medicare enrollees should be reducing spending growth in other Parts of Medicare, e.g. hospitalizations and doctor visits.
  4. Mindset Changes for Patients and Clinicians: The economic downturn, various provisions of the Accountable Care Act, and changes in healthcare benefit design – particularly more high deductible health insurance plans – are making patients and clinicians more attuned to the economic implications of healthcare choices and the value of integrated, multidisciplinary, (a.k.a. team-based), care delivery. Resistance to shifting to such integrated care from the old one-patient/one-doctor Marcus Welby, MD-esque mindset will impede progress in some areas – particularly the adoption of EMRs and regional health information systems, which require up-front spending, and where the long-term benefits are derived from providers participating in such team-based care paradigms.
  5. Change to Healthcare Delivery System:
    1. Integrated care delivery systems and the purchase or affiliation of physicians’ practices;
    2. Geographically uneven changes;
    3. Accountable Care Organizations (ACOs);
    4. Patient Centered Medical Homes (PCMH);
    5. Concierge medical practices;
    6. Greater use of tele-medicine for remote monitoring, management, and consultations;
    7. Greater use of non-physician clinicians, community based healthcare coordinators, and home care services – including more old-fashioned house calls.
  6. Change to Financial Incentives: (Besides high-deductible insurance plans)
    1. Pay for Reporting (P4R) – usually tied to quality metrics, but also used for EMR capabilities;
    2. Pay for Performance (P4P) – similar to P4R, but for actually performance, not just reporting;
    3. Global or bundled payments, e.g. ACOs shared savings and risk sharing arrangements with Medicare and private payers;
    4. Non-payment for “never events”.
  7. Trans-Fat Labeling: FDA regulations have required food labels to list trans-fats since 2006, which has had a two-fold effect which should be driving down long-term health spending: Making people more aware of trans-fats as an unhealthy choice, and inducing food companies to both remove trans-fats from their products and advertise that fact. The results have been significant. Earlier this year the CDC reported that blood levels of trans-fats have declined from 2000 to 2009: “The 58 percent decline shows substantial progress that should help lower the risk of cardiovascular disease in adults”. I suspect that CBO or others didn’t project savings to Medicare or Medicaid from the food labeling requirement.  However, shifts to healthier lifestyles will need more environmental changes like these, e.g. bike sharing programs; walking paths; programs connecting individuals with shared goals; healthier food options at cafeterias, restaurants, and grocery stores, etc.
  8. Price Transparency and Accountability for Outcomes: More transparency about prices and quality of care delivered by individual clinicians and providers is placing greater pressure on healthcare prices. In addition, since healthcare prices in the US are higher than in other countries, globalization will increasingly create downward pricing pressure – especially for products and services where people, (or their specimens), can easily travel to other countries, such as for elective surgery, or DNA testing. [Note – accountability for quality, accuracy, and fraud prevention will be necessary to ensure that foreign services with lower prices represent higher value rather than just greater waste and harm to patients.]
  9. Innovations – Better Therapies, Diagnostics, and Prevention:
    Healthcare innovations range from biopharmaceuticals, genetic tests, HIT/tele-medicine, to validated best practices including checklists and clinical decision support.  Some innovations increase costs. Some improve clinical outcomes. Some do one but not the other. Some do both.  As metrics demonstrating the value of innovations become more granular and can be determined more rapidly, clinicians and providers will be under greater pressure to demonstrate – and be accountable for – the outcomes they are delivering. However, this will only occur in a balanced way as long at patient-centric quality outcomes are measured alongside economic outcomes.  The danger is that clinical outcomes will only be determined on a population basis, but then applied to patient care decisions without considering individual patient characteristics or priorities.
  10. Smoking Restrictions.  Restrictions on smoking in public places is reducing exposure to second-hand smoke.  Some studies have shown rapid declines in heart attacks for people working in restaurants and bars after smoking in those workplaces was prohibited.  (FYI – LEED certified residential buildings treat second-hand cigarette smoke as a pollutant and often prohibit smoking inside the entire building – including people’s apartments, as well as outside doors and windows. And the DC Department of Health has been publicizing the toxic nature of second-hand cigarette smoke from adjacent apartments.)
  11. Tougher Enforcement Against Fraud and Abuse. Cracking down on fraud and abuse may be reducing healthcare spending by deterring such criminal activity.  These efforts have been aided by improvements to healthcare IT – and this will only improve in the future.
  12. There certainly should be a 12th reason – since all good lists have 12 items – but I can’t think of one right now…. Any suggestions?

Not a Simple Picture

The dynamic interactions among many of the factors listed above makes it very difficult to determine the contribution each one makes to reducing healthcare spending for a particular condition, population, or US healthcare spending overall. For example, improvements to healthcare IT are enabling improvements to delivery system operations and financial incentives – which are also linked to each other.  Each of these also affect the mindsets of  patients and clinicians, i.e., HIT systems are elevating patients’ and clinicians’ expectations for better information about treatment options and less waste. And financial incentives are evolving to support the use of such information to achieve better outcomes. Together these and other changes are altering patients and clinicians attitudes and actions towards the entire healthcare system to be accountable for delivering greater value. This hyper-cross-connected situation is analogous to the biomedical research field of systems biology, which is seeking to understand how multiple physiological systems cause specific diseases – and how combination therapies may be needed to treat such complex illnesses.


1. Value in healthcare can be a tricky concept, but it generally encompasses the clinical and economic outcomes produced by the intervention compared to the total costs, risks, and potential adverse effects of the treatment option.
2. Haviland A., et. al., “Growth Of Consumer-Directed Health Plans To One-Half Of All Employer-Sponsored Insurance Could Save $57 Billion Annually,” Health Affairs, May 2012 31:5,1009-1015