The article in this issue of ONCOLOGY, “The Cost of Cancer Care: Part II,” has examined a broad swath of issues that are relevant not only to oncologists but to all physicians. This brief commentary will address two of these issues: why the US spends so much and what is (and is not) being done about it.
The answer to “why” is embedded in a narrative that goes something like this: The US spends twice as much on healthcare as other rich countries, yet its outcomes are among the poorest. This is due in part to higher prices and administrative costs but mainly is the result of “America’s distorted fee-for-service system that rewards quantity over quality and creates a gigantic incentive for inefficiency and waste.” The Institute of Medicine (IOM) estimates this waste at about 30% of health spending—$750 billion. Waste has become the mantra of healthcare reform,[3-5] and it is one of the few issues upon which Republicans and Democrats agree.
Having identified “waste” as the principal cause of high healthcare spending, policy experts have mounted a “war on waste.” In waging this war, Republicans look principally to market forces, while Democrats look to the Affordable Care Act (ACA). According to the Brookings Institution health economist Henry Aaron, the ACA includes “virtually every cost-control idea that anyone has come up with.” Their intent is to redirect care from high-cost specialists to low-cost primary care physicians; to reorganize care into medical homes and accountable care organizations; to restructure reimbursement from fee-for-service to value-based purchasing and bundled payments; and to utilize incentives and penalties to reward providers who attain quality benchmarks, adhere to designated clinical guidelines, reduce hospital readmissions, adopt electronic health records, and counsel patients concerning certain preventable conditions. This entire portfolio is supported by an expansive regulatory framework and subject to future actions by an Independent Payment Advisory Board.
The ostensible goals of the “war” are to shift the emphasis from volume to value and to reduce the growth of spending. Yet few of the “cost-control ideas” were validated before being adopted, and recent studies indicate that few are achieving their stated purposes.[7-10] Indeed, some have added costs with no parallel benefit. Nonetheless, providers feel they must respond, and are rechanneling their efforts from identifying innovative solutions to satisfying regulatory standards.
Whether or not the ACA’s cost-saving goals are achieved, the “war” will decisively move the locus of control from physicians to regulators and administrators. As Berwick predicted, “no longer will physicians, paternalistically committed to their patients, be the driving force in medical care. Health care has become an industry, with numerous loci of authority well beyond the doctor’s office.”
It is not difficult to identify wasteful practices. Indeed, addressing them is a continuing professional responsibility. The question is whether they account for as much as 30% of healthcare spending. While several authoritative “guesstimates” claim that they do,[4,5,13] the quantitative basis for believing so comes from studies of geographic variation in healthcare by Dartmouth Atlas researchers, who identified a portion of the variation that is “unexplained,” attributed it to waste and inefficiency, and pegged it at 30% of spending.[14,15] However, although widely cited, these studies are deeply flawed.[16,17] Indeed, in an op-ed in The Washington Post, I warned that the Dartmouth Atlas was the “wrong map for healthcare reform.”
What, then, explains the “unexplained” variation? The answer resides in population health. It is well known that disease prevalence is greatest among individuals who are poor, poorly educated, often minorities, and usually residing in poor neighborhoods. Healthcare utilization among them is much greater than in wealthy populations. Yet their outcomes are poorer. Moreover, because poverty is geographic, their increased utilization follows geographic patterns.
Manhattan in New York City is a good example. Because healthcare utilization there is among the nation’s highest, Manhattan is seen as wasteful and inefficient. But it is a patch-quilt of wealth and poverty. Utilization in the low-income Bowery is double the rate of the affluent Upper East Side and Upper West Side, and utilization in Harlem, the poorest area, is more than triple (unpublished data). Without either, Manhattan’s utilization is among the lowest in the nation, lower even than Grand Junction, Colorado, whose healthcare system was held out by President Obama as a model for the nation. But like Grand Junction, the Upper East Side and Upper West Side of Manhattan have few African Americans and no poverty ghettos.
How much does the extra care in poor neighborhoods add to overall utilization costs within a region? The best estimate is 20% to 25%. Yet, tragically, this fact is ignored—indeed, denied. For example, Dartmouth researchers mock the fact that “some physicians believe their hospitals or regions spend more because their patients are sicker and poorer” and declare, “regional differences in poverty explain almost none of the variation.” In a similar manner, Nicholas Kristof, a columnist for The New York Times and an advocate for the poor globally, labeled as “opponents of health care reform” those who attributed poor outcomes to “America’s large underclass.” In fact, poverty explains virtually all of the regional differences in utilization, and “America’s large underclass” accounts for virtually all of the differences in outcomes between the US and other nations.
Real healthcare reform would address these socioeconomic realities. Instead, the US is waging a regulatory “war” on exaggerated measures of waste, one that shows little promise of reducing costs or increasing quality but will assuredly crush “needed innovation by practicing physicians, who best understand the delivery of care.” Moreover, because there are no risk adjusters for poverty, physicians whose low-income patients fail to meet federal utilization and quality norms will suffer financially, and hospitals whose poor patients have high readmission rates will be penalized. All the while, the “war on waste” will distract policymakers from building the social infrastructure that could lower the high healthcare costs of poverty. These are no ordinary times. For the first time, physicians and their patients are caught in the crosshairs of the “war on waste.”
Financial Disclosure: The author has no significant financial interest or other relationship with the manufacturers of any products or providers of any service mentioned in this article.