Sunday, July 13, 2008

How to Cut Health Care Costs

The rapid growth in health care costs is a major problem facing the U.S. economy. One of the main reasons why more and more people don’t have health insurance is because of the high cost of insurance, and efforts to expand insurance coverage won’t be sustainable if health care cost inflation isn’t reduced.

Health care is a regional enterprise, and the region that figures out how to reduce health care spending and make health insurance more affordable will be a magnet for both business and population growth.

The best opportunity to reduce the growth in health care costs, at least in the short run, is by reducing unnecessary hospitalizations. Hospital care represents over one-third of total health care spending, both in Pennsylvania and nationally. Since hospital care is very expensive, even small reductions in hospitalizations could reduce health care costs significantly.

Reducing hospitalizations doesn’t mean restricting people who need hospital care from getting it. Many people have what are called “ambulatory care sensitive conditions” – chronic diseases and other conditions where many hospitalizations can be prevented with the right kind of health care in the community. National data indicate that more than 1 out of every 100 adults ages 40-64 is hospitalized, possibly unnecessarily, for an ambulatory care sensitive (ACS) condition, and nearly 1 out of every 20 adults ages 65-74 is hospitalized for one of these conditions. The biggest ACS categories by far among adults are congestive heart failure, pneumonia, and COPD (chronic obstructive pulmonary disease, which includes emphysema and chronic bronchitis).

Pittsburgh does particularly poorly in preventing preventable hospitalizations. In 2005, among Medicare enrollees (the only population for which national data are available), Pittsburgh had the third highest rate of hospitalizations for ACS conditions among the top 40 regions. Pittsburghers with congestive heart failure and COPD were hospitalized more than twice as often as in places like Denver, Minneapolis, Portland, Oregon, San Diego, and Seattle. So there is clearly plenty of room for improvement in our region.

One of the best places to start is reducing hospital readmissions. Data from the Pennsylvania Health Care Cost Containment Council show that 1 out of every 5 people who go to the hospital for conditions like congestive heart failure, COPD, or pneumonia go back to the hospital within 30 days after discharge, often for the same condition, costing health insurers in our region tens of millions of dollars every year.

Demonstration projects in other parts of the country have shown that hospital admission and readmission rates can be reduced dramatically – by 20-50% or more – through fairly simple improvements in primary care. These include better education for patients about how to manage their disease, better training in how to use their medications, and more frequent contacts to identify problems early before they require hospitalization. Improvements such as these don’t cost much, and they more than pay for themselves almost immediately in reduced hospitalization costs.

So why aren’t all patients with ACS conditions getting this kind of quality care? The biggest barrier is the current healthcare payment system. Most health insurance plans won’t reimburse primary care physicians for providing this kind of care, and they often charge high co-pays for the medications that can keep patients out of the hospital. Fundamental changes in the way we pay for health care are needed in order to make fundamental improvements in the way health care is delivered.

The Pittsburgh Regional Health Initiative ( is leading several initiatives to improve care for people with chronic diseases and to reduce hospital readmissions, and the Pittsburgh Business Group on Health ( ) is pioneering new payment models. If employers, health insurance plans, hospitals, and physicians will support the payment changes and care changes needed to implement these kinds of initiatives, the Pittsburgh Region can be a leader in reducing health care costs.

(This post also appeared in the July 13 Pittsburgh Post Gazette.)


Blogger Denovich said...

Ah... but hospitals know that the government (through Medicare) actually pay their bills.

I used to work for a software company that specialized in Medicare reimbursement. I learned a few things: Dead people don't pay bills (actually, nearly half of private medical bills go unpaid.) We wrote software that would raise the price of medicare reimbursed items to their legal max while reducing the others... The end result was the hospital billed less total, but received more.

Lots of beds and lots of old people in Pittsburgh... no surprise that there are lots of medicare paid hospital stays.

8:26 AM  
Blogger Fifth / Forbes said...

Basic education for healthcare is definitely one important part that many or maybe even most Americans are missing. I would think that helping patients know when they are experiencing a medical emergency is key, as opposed to alternative methods of healthcare. Excellent post.

10:10 PM  
Anonymous Danielle said...

Education is key for Americans to reduce their medical costs. We cant just sit on our hands and complain about healthcare costs. We have to be proactive. Look for a discounted drug plan online, take better care of ourselves so that we dont have to go to the doctor as often. I practice all of these. I also make it a point to be well informed on how much i should be charged for various services. I have recently been using to research what prices i should actually be charged for my dental work and chiropractic. I found out that the price i was quoted was well above the average going rate in my area, and i found a different dentist with more reasonable prices. Arming yourself with information can definitely help you.

1:45 PM  

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