Many patients take their first look at a hospital bill, only to go into sticker shock. A single aspirin for $25? Newborn diapers for $100? Why is it that products we purchase for pennies at the local drug store end up costing so much more in the hospital?
The culprit behind these high costs is our reimbursement structure.
Public programs do not fully pay for the cost of care. The latest figures estimate that hospitals lose $35 billion a year on Medicare, Medicaid and other forms of government reimbursement. For specific procedures, the picture can be even bleaker.
Take note, because this money isn’t lost – you pay the difference. Unable to absorb these losses, the bill gets passed to commercial insurers and employers that purchase health plans for their employees. Hence the itemized charges of $25 for an aspirin or $100 for diapers that are paid by insurers today, and by you and me tomorrow in the form of higher premiums and co-pays. And it’s only going to get worse as our population ages and more of us call Medicare our insurance provider.
One way to get a handle on runaway costs is to become a smarter purchaser of medical devices, which account for 40 percent of the total cost of any procedure. Every year, high-end devices such as pacemakers, artificial knees and spinal discs are introduced. While the new model always arrives with a higher price tag, there is little data to suggest it offers a clinical improvement. Complicating matters is the fact that although these devices are ordered by physicians, hospitals foot the bill, creating few incentives for physicians to factor costs into their decision-making process.
Executives, physicians, medical directors and supply chain representatives at the Arizona- based Banner Health decided to tackle the device issue by more closely scrutinizing what they were buying. And they got physicians on board by using the evidence to determine whether these products were doing what they claimed they were – improving outcomes in patients. Looking at the data, Banner discovered that surgeons were using an abdominal adhesion barrier in up to 61 percent of all Caesarian sections. It compared that rate to top performers across the country, and discovered that peer hospitals only use that intervention in about 1 percent of cases, with no difference in patient outcomes. In essence, the adhesion barrier was having no effect, and every case that used it was a waste of money. Now discontinued in C-sections, Banner continues to have top-quality outcomes, but is saving $1 million a year on this single supply.
Another approach to containing medical device costs calls on clinical leaders to become more aggressive purchasers, insisting on products that meet real clinical demand.
Consider an example from Cincinnati Children’s Hospital. Statistics show that up to 65 percent of premature infants develop an infection during hospitalization because their skin and membranes are underdeveloped. To get a better outcome, Cincinnati Childrens worked with a manufacturer to design a new “positioner” for preemies using new materials that prevent skin breakdowns that lead to these infections. This collaboration produced a new product that reduced skin breakdowns by 68 percent, at two-thirds the cost of the old model. The end result is win-win: a better outcome and a better price.
A third approach involves changing the way we pay for healthcare. Last year, Medicare announced a program that would allow for “bundled” payment. The approach would require providers to bid as a team for fixed price reimbursement for treatments, including those that require pre- and post-hospital care such as heart surgery or hip and knee replacements. The bids are required to be cheaper than the price paid today, and any money left over from the bundle can be kept by the care team as added payment.
In this way, Medicare is injecting price sensitivity into a market that traditionally has lacked it. With a fixed price, doctors, hospitals and other care providers are incented to keep an eye on cost, while still keeping the quality high. And it’s been proven to work. A heart bypass bundled payment demonstration saved $42.3 million, or roughly 10 percent of expected costs, and reduced patients’ insurance costs by $7.9 million while improving care and lowering mortality rates.
This is what the future needs to look like. Rather than address the issue of costs in a sensible way, we’ve been limping along, robbing Peter to pay Paul, which has created myriad known pitfalls for consumers, not to mention the federal budget. There are answers to the cost question out there. But we need to deploy these solutions in a much more systematic way. We simply can’t afford not to act.
Mike Alkire is COO for the Charlotte-based Premier healthcare alliance.