My weekly TOC from the New England Journal of Medicine (NEJM) contains some interesting articles about cost containment in health care, including some discussion about what Obamacare might or might not do to contain costs, based on lessons from Massachusetts (RomneyCare?). Apparently the Affordable Care Act contains some quite innovative and also potentially punitive measures to force hospitals to reduce rates of readmission after discharge, but has missed some other opportunities in the mix. The NEJM has clearly moved on from debate about whether Obamacare is a good or bad thing, and debate about whether it’s going to be constitutionally viable, to discussion about how it will change the health industry. I wonder if this is going to make the NEJM (the world’s top medical journal) look stupid in about 6 months’ time…?

The first article in the NEJM contains a discussion of the problems facing the health system in Massachusetts, which famously introduced a version of Obamacare a few years ago. This system essentially forces people to take up a health insurance plan, penalizing those who don’t, on the assumption that such a model will improve equity and reduce costs through expanding the risk pool. Unfortunately, it appears that the plan hasn’t led to any serious levels of cost containment – according to the NEJM article, costs have risen significantly since 2006. The basic cost for a “bronze” package is $275 per month, which I’m pretty sure is significantly higher than my “silver” care package in Japan, and is $100 higher than it was just a year or two ago. The article claims that this is because of problems in the payment system in the Massachusetts system: it’s not the insurance plan per se, but the way in which hospitals are paid for providing services. Hospitals have been paid under a fee-for-service plan, and this encourages providers to charge for extra services and make extra money. Massachusetts is solving this problem in two ways: by moving to “global health payments” and by forcing people into “accountable care organizations” (ACOs). The former is a system of payment based on the expected total cost of a person’s illness, rather than the services provided within it, designed to penalize providers (i.e. hospitals) who fail to deliver the required care within the expected cost framework associated with any given disease. The latter are large organizations charged with taking responsibility for the care of a group of patients (similar, I think, to the NHS’s clinical care commissioning), and composed of large numbers of amalgamated insurance purchasers. Essentially, “global payments” are an attempt to exit from the fee-for-service system towards a payment system that discourages over-servicing, and ACOs are an attempt to merge small healthcare providers together to give them more negotiating power (as an example, all public employees are going to be combined in one ACO). These two reforms in tandem look suspiciously like an attempt to force the Massachusetts system towards something that looks like the NHS. There’s a hint here as to a basic fact – on the commissioner (health insurance) side, cost containment is best achieved by consolidating commissioners in order to achieve greater bargaining power with providers, and the maximal example of this is the government-run single-payer system. It appears that Obamacare is likely to have a lot in common with this system.

The next article describes Medicare’s attempts to reduce costs through reducing readmissions, and describes some initiatives in Obamacare to reduce readmissions in order to contain costs. Reducing readmissions is something of a holy grail in healthcare cost containment, because readmissions are a theoretically avoidable source of significant healthcare costs – you got your operation, left hospital but had to come back for some kind of medical complication, so you represent a hospital admission that can be prevented through hospital-focused quality control (rather than lifestyle change). Reducing these leads to reductions in overall costs, and better patient experience (no one wants to go to hospital). The article includes a fascinating discussion of what Obamacare aims to do to reduce readmissions – penalizing the worst offenders – but also discusses why for many hospitals reducing readmissions is not a viable financial goal:

Unless they are at maximum capacity, hospitals face two major economic disincentives to reducing readmissions for the specified diagnoses: the direct costs of the program itself and decreased revenues resulting from successful interventions. Interventions to create and sustain reductions in readmissions typically average $100 to $200 per discharge and often have spillover effects, decreasing hospitalizations for nontargeted diagnoses and reducing readmissions from any cause even outside the 30-day window and across payers. Although these effects are desirable outcomes for patients and payers, they detrimentally affect hospitals’ finances.

This is an interesting and often-overlooked aspect of the private healthcare market: it’s not in the interests of hospitals to reduce rates of illness, since they get paid by insurers to treat sick people. And for hospitals that don’t have outrageously high rates of treatment failure, a little bit of treatment failure is (financially) a good thing[1]. This kind of concept just does not apply in the publicly-run systems of the UK and Australia. The article goes on to introduce the concept of a “warranty” rather than a penalty, under which hospitals have to provide care for a condition at a given price and as part of that care have to offer a warranty – so readmission to hospital gains them no financial benefits, since they have to correct any post-surgical complications without extra payment. This forces hospitals to get it right the first time.

Unfortunately it’s not that simple. A third article in the NEJM challenges the idea that reducing readmissions is a worthy goal. It points out that, although numbers of readmissions may vary substantially, rates may not (and rates are what it’s all about in this business). Furthermore, there is evidence that readmissions, although apparently preventable, are often outside hospital control:

The growing body of evidence suggests that the primary drivers of variability in 30-day readmission rates are the composition of a hospital’s patient population and the resources of the community in which it is located — factors that are difficult for hospitals to change.

There is also evidence that readmission rates may increase when service improves, or that patients may be happier when readmission rates improve, because good quality continuity of care may identify additional health care needs:

whereas some studies have shown that sustained efforts can reduce readmission rates somewhat, others have shown that interventions aimed at improving care coordination and access to follow-up care actually increased the rate of readmissions, presumably because of improved access to needed care, with commensurate improvement in patient satisfaction

The authors of this article also point out that in focussing on readmissions the system privileges cost containment over quality of patient experience (i.e. productivity), which is a kind of cost containment in itself, though perhaps less quantifiable in a fee for service system:

over the past decade, we have seen very little improvement in patient safety, and although mortality rates have declined for a few conditions, they remain high for most others. Many of these deaths are preventable. Yet we are focusing tremendous resources on preventing rehospitalizations for three conditions that account for approximately 10% of all hospital admissions in the Medicare population.

They suggest that we should focus on patient safety, and if we’re going to focus on avoidable readmissions we should focus on very narrow time frames (3 or 7 days), the conclusion being that hospital readmissions are not where we are going to find our savings. I think this is another example of how “efficiency gains” never materialize in health – regardless of the health care system you are experiencing, when you hear politicians talk about “efficiency gains” you should think “oh! a wanker speaketh!” Especially if they talk about sacking back office staff (but a statistician would say that).

The thing I think is most fascinating about these three articles is what they imply about the state of knowledge of health care systems today. Despite 100 or so years of development in health insurance and health systems, modern health care theory is incapable of working out exactly what we want from healthcare. Even worse, modern healthcare markets are constructed without any real understanding of what kind of product we’re buying when we participate in them – we know we want “health” but we don’t know whether being readmitted to hospital is a good or bad thing, and people buying health care (insurance companies) and selling it (hospitals) not only can’t agree on a mechanism for setting prices, but the hospitals are profiting from selling (in some cases) a product no one wants to buy, but are forced to buy the hospitals’ own mistakes (hospital readmissions). What kind of private market works under these conditions? It’s not an information asymmetry, it’s an information fuck up. Also noteworthy is the gradual movement of the Massachusetts system towards a form of NHS-lite, in order to reduce costs. Is that telling us something?

The NEJM is holding a fascinating debate on health system performance and planning, within the (admittedly limited) context of the US system. As this debate plays out it gives the rest of the world a fascinating insight into how weak the theory underlying privatized markets for health care really is. It’s not that market systems are fundamentally right or wrong – it’s more that we haven’t worked out how to price health care, so price signals just don’t work. Can such a thing be done? And if so, would an entirely private market in health care work? All my posts to date claim that an entirely private market is a disaster and an impossibility – but is the problem not the notion of a private market per se, but that we don’t yet have a sophisticated enough understanding of health (and, conversely, of markets) to be able to construct such a thing in the first place?

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fn1: obviously a lot of treatment failure gets you shut down and your managers charged with negligent homicide, so it’s a bad thing[2]

fn2: no one, however, is suggesting that hospital administration are maintaining such a balancing act. What they *are* doing is prioritizing what they consider to be more important issues, like quality of patient care (see article three).