Monday, January 07, 2013

How to Save $5 Billion in Healthcare Spending for Employers and Taxpayers

In all of the many discussions about how to control healthcare costs, there’s one topic that you almost never hear about: maternity care.

Maternal and newborn care together represent the largest single category of hospital expenditures for most commercial health plans and state Medicaid programs.  That means that if there are ways to reduce maternity care costs,  insurance premiums for employers could be reduced and  Medicaid coverage could be more affordable for taxpayers.

Nobody wants to cut spending on maternity care if it’s going to harm mothers or babies, but there is at least one aspect of maternity care that’s not only expensive but bad for both mothers and babies, and that’s the high rate of Cesarean sections.  One-third of the 4 million babies born in the U.S are delivered by C-section rather than vaginal delivery.  That’s a 50% increase in the past decade.  In some states, the C-Section rate went up by 70 or 80%.

How much do all those C-sections cost?

A lot.  If the rate of C-sections were reduced back down to 15% (the rate recommended by the World Health Organization), it would save about $5 billion, based on data in a new report released today called The Cost of Having a Baby in the United States.   For commercially insured patients, the report shows that the average cost of a birth by C-section was $27, 866 in 2010, compared to $18,329 for a vaginal delivery.  Medicaid programs paid nearly $4,000 more for C-sections than for vaginal births.

The report also shows that there is significant variation in costs for each type of delivery both within states and across states, which means there are additional opportunities for savings.  The average payment by commercial insurers for a vaginal birth (not including newborn care) was $10,318 in Louisiana and $11,692 in Illinois, but payments were nearly 50% higher in California ($15,259) and Massachusetts ($16,888).  The average payment for a c-section was $13,943 in Louisiana and $15,602 in Illinois, but $20,620 in Massachusetts and $21,307 in California. There is also significant variation in costs for births even within individual states.  For example, although the average maternal cost for vaginal birth in Massachusetts was $16,888, 25% of vaginal births cost more than $19,000 and 25% cost less than $13,000.  (Although the study was not designed to determine the causes of this variation, other studies have shown that variation is due to different prices charged by different hospitals and clinicians as well as different needs of women and babies.)

Other findings in the report include:

  • Increases in the cost of care.  The cost of maternal care (not including newborn care) increased by over 40% between 2004 and 2010 for commercially insured women.
  • High costs for newborn care.  Total commercial payments for care of newborns were $5,809 for babies delivered vaginally and $11,193 for cesarean births.  Total Medicaid payments for newborn care were $3,014 for vaginal births and $5,607 for cesarean births.  Reducing the rate of prematurity among infants could significantly reduce these costs.
  • High charges for the uninsured.  Uninsured parents could be charged over $50,000 for a baby born by c-section and over $30,000 for a baby born by vaginal birth.  Average provider charges for a c-section in 2010 were $51,125, but commercial insurance plans only paid $27,866, 55% of what an uninsured patient could be asked to pay.
  • High costs of hospital-based delivery.  The largest share of all combined maternal-newborn costs goes to pay for hospital or other facility costs regardless of the type of birth.  59% of total maternal and newborn care costs for vaginal births are used to pay facility fees, and 66% of costs for c-sections are for facility fees.  Similarly, the hospitalization phase of childbirth consumed from 70% to 86% of all maternal and newborn care costs, depending on payment source and type of birth.  (Consequently, increasing the use of birth centers for women who want to use them can greatly reduce procedure use and healthcare spending while improving quality.)

There are many examples of physicians, midwives, hospitals, and birth centers around the country that are reducing maternity care costs in ways that improve quality and outcomes for both mothers and babies, a win-win for both payers and patients.   However, a major barrier to changes in care delivery is the current healthcare payment system.  Instead of being on what achieves the best outcomes for mothers and babies, payments today are based on what specific procedures were used.  Fortunately, there are better ways to pay for maternity care, such as paying a single amount for a delivery (regardless of the method used).  More information on payment reform and delivery redesign opportunities in maternity care are available from CHQPR’s website, and comprehensive information on how to improve maternity care is available from Childbirth Connection’s Transforming Maternity Care website.

Improving maternity care should be a priority for every state and region in the country.  It will both save money and improve outcomes for hundreds of thousands of mothers and babies every year.  What bigger win-win opportunity could there be?


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Monday, December 08, 2008

Win-Win-Win Solutions in Healthcare Quality Improvement

It’s obvious that in any environment where there are multiple stakeholders, “win-win” solutions are more likely to be successful than “win-lose” approaches.   In healthcare, there are three key categories of stakeholders — patients, payers (e.g., health insurance plans), and providers (hospitals, doctors, etc.).  So an important question about any healthcare quality improvement effort is whether it’s a “win-win-win” for all three groups.

All efforts to improve healthcare quality are presumably “wins” for the consumer/patient, assuming that quality is measured appropriately in terms of patient outcomes.   (Sometimes simply providing more healthcare services is represented as “higher quality,” but that is marketing, rather than true quality.)

However, not all quality improvements are “wins” for both payers and providers.   In many cases, providers argue that they need more money to improve quality, with no assurance to payers that costs will be reduced elsewhere.   Such initiatives may be win-wins for the patients and providers, but losers from the viewpoint of the payers.  For example, the challenge that many initiatives to implement the patient-centered medical home are facing is that they are framed as asking payers to spend more money for primary care delivery in order to improve quality for patients.  From the payer’s perspective, it’s win-win-lose, not win-win-win.  (As noted in a previous post, it doesn’t need to be that way.)

At the other end of the spectrum, there are quality improvements that are clear wins for both patients and payers.  For example, reducing hospital-acquired infections is good for the patient, and often avoids extra payments to cover complications.   However, in many cases, because of the way current payment systems are structured, hospitals lose money by preventing infections — they don’t just lose revenue, but since their revenues go down more than their costs go down, their operating margins also get worse.   (The new policies prohibiting Medicare payments for infections won’t solve this — more on that in a future post.)   So these are also win-win-lose propositions, but this time from the provider’s perspective.

Are there win-win-win solutions?  Yes, but only if the right kinds of changes in payment systems are made.  For example, a hospital that reduces infections and other adverse events should be paid more for the successful cases than it is today, but nothing for the cases with adverse events.  Under that kind of payment structure, it has both a financial incentive and a quality incentive to reduce the adverse events.   Why does it have to be paid more for the successful cases?  Because before, the failures were actually subsidizing the successes.  With better quality, the hospital’s fixed costs will be spread over a smaller number of cases, increasing the average costs of care.   That’s why the hospital can be worse off financially if it reduces infections — the payments it receives would go down more than its costs would decrease.

But won’t higher payment for the successful cases increase healthcare spending?  No, not as long as the higher payment rate for the successful cases is offset by the reduction in spending for the unsuccessful cases (since they will no longer receive additional payment).   The payer can still spend less than it did before (just not as much less as it would have if the infections were reduced under the current payment system), but the provider’s losses are reduced or eliminated.  That enables a win-win-win solution for all three.

The importance of finding win-win-win solutions is why quality improvement needs to be coupled with reforms in healthcare payment systems.


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Sunday, December 07, 2008

Reducing Healthcare Spending Without Rationing

Many people are convinced that the only way to significantly reduce healthcare costs is by some type of rationing — limiting the kinds of services that health insurance will pay for.  But there are ways to significantly reduce healthcare spending without taking away anything that consumers want.

A perfect example is hospital readmissions.   Research studies and quality-reporting initiatives around the country show that 15-25% of people who are discharged from the hospital will be readmitted to the hospital within 30 days or less.  Many of these readmissions are for a complication or infection arising from the initial hospital stay.  In many other cases, they are simply a repeat of the same situation that led to the first hospitalization — for example, a patient with a chronic disease such as asthma, chronic obstructive pulmonary disease (COPD), or congestive heart failure who doesn’t understand how to manage their condition properly.

The patients certainly wouldn’t mind having fewer hospitalizations.   Billions of dolllars in spending on hospital stays could be saved if these hospitalizations could be avoided.    In other words, reducing readmissions is a win-win for both cost and quality, without a hint of rationing.  And study after study has shown that very simple, low-cost interventions, such as patient education about chronic disease management, can dramatically reduce hospitalizations. 

So what’s standing in the way of success?  Answer: the broken healthcare payment system.   In many cases, health insurers won’t pay for the services that would keep patients out of the hospital, even though they will pay every time they go in to the hospital.   (Many people believe that hospitals don’t get paid for readmissions, but in the vast majority of cases, they do get paid by both Medicare and commercial payers.)  And because of that, both hospitals and doctors would see their revenues decrease if hospital readmissions rates were reduced. 

Medicare and some commercial payers are now discussing whether to reduce or eliminate payments to hospitals for readmissions in order to create an “incentive” for them to reduce readmissions.   But this assumes that the cause of the readmission is under the control of the hospital.  In some cases it is, but in many cases it is not.  That doesn’t mean the readmission isn’t preventable, but rather that the change in care has to happen outside the hospital — often in the primary care practice.   And unfortunately, the payment system is broken there, too.

The solution?  Marrying the Patient-Centered Medical Home and Readmission Reduction.  More on that in a future post.


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