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Why are Cost Reduction Efforts Failing in Healthcare?
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Understand where the money is going |
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There are many ways to answer the question but not all of them lead to actionable insights. The popular saying that "80% of the costs go to treating 20% of the sickest patients" or "most of healthcare expenses are incurred during the last 5 years of life" only expresses "too much care, too late" and the regret of missed earlier opportunities to promote good health. On the other hand, recognizing that over 75% of total healthcare costs go to treat chronic and cancer patients, leads to the practical suggestion that timely and effective preventive care may offer the best chance to reduce healthcare costs. |
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Why did the ACA cost reduction efforts fail? |
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During the past 8 years, there has been a feverish effort at bending the cost curve and primary care physicians were the favorite whipping boys for both private insurers and CMS. Accountable Care Organizations (ACOs), shared savings programs and medical homes were at the heart of these efforts, with financial incentives based on the realized savings. These clever ideas were doomed to fail for different reasons.. |
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Calculating savings based on prior year's costs, as ACOs did, was punishing efficient organizations that have low current costs, and rewarding inefficient ones that had plenty of room to cut excessive costs. Not surprisingly, the cost-efficient institutions opted out of ACO programs. |
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In the Medicare "shared savings" program, the preventive care incentives were based on a percentage reduction from benchmarks derived from prior year's costs. Professor Louise Russel (1) of Rutgers had observed the fundamental drawback in this reasoning, that improved care programs will require patients to have more frequent lab tests and office visits, and they will add to operating costs, and so it will be virtually impossible to show any savings. |
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A better formula will recognize that care programs increase short term costs, but will help prevent complications from setting in and avoid future high cost events. In other words, shared savings, to be fair, must take into account estimated future cost reductions. |
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1.Russell LB (2009) "Preventing Chronic Disease: An Important Investment, But Don't Count on Cost Savings.", Health Affairs, vol. 28, no. 1, 42-45. |
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| Copyright 2006, 2011, 2019. Physmark, Inc. Corrales, NM. |
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