Kaiser Family Foundation Archives | Heartland Health Research Institute

Healthcare Waste – It’s About Priorities and Opportunity Cost

Posted on: 12.08.16 By: David P. Lind

We know that healthcare spending continues to grow at an unsustainable rate. Each election cycle, we expect policy makers to find meaningful ways to slow that growth and ultimately reduce spending – while maintaining quality and access.

As mentioned in our previous blog “Time to Move Upstream and ‘Invest’ in our Health” co-authored with Dr. Yogesh Shah, the prudent approach is to simultaneously move upstream and address the social determinants of health. This thinking might sound ‘pie in the sky’ to some, but controlling costs cannot happen without addressing the environment in which we live, learn, work and play.

In addition, there is another culprit that must be eliminated – healthcare waste. If we are successful in eliminating this waste, by most national estimates, we can reduce our costs by 18 – 40 percent. The midpoint of waste is about 30 percent of healthcare costs. Per the Robert Wood Johnson Foundation, this waste comes in many different categories:

Failures in Care Delivery – poor execution or lack of widespread adoption of best practices, including effective preventive care practices or patient safety practices.
Failures of Care Coordination – Fragmented and disjointed care of patients when transitioning from one care setting to another.
Overtreatment – Care that ignores scientific findings, perhaps due to outmoded habits. Defensive medicine is an example, such as unnecessary tests or diagnostic procedures to guard against malpractice lawsuits. Here is just one example.
Administrative Complexity – Having multiple ‘administrators’ with divergent protocols and practices, such as the government, insurance companies or accreditation agencies who create inefficient and overly bureaucratic procedures.
Pricing Failures – This waste is baked in to our healthcare ‘system’ because the price of a service exceeds what would be found in a properly-functioning marketplace. In healthcare, we lack appropriate competition at the right levels and have little transparency on cost and outcomes.
Fraud and Abuse – This is the cost due to fake medical bills and scams, in addition to the cost of inspections and regulations to thwart any wrongdoing.

Iowa Healthcare Component Costs

Based on the population of 3.033 million Iowans in 2009, the cost per capita in Iowa for healthcare was $6,921, totaling almost $21 billion. The largest portion of this cost comes from hospital care, which consumes about 39 cents of every dollar spent on healthcare ($2,713 per capita). This amount includes the total net revenue (gross charges minus contractual adjustments, bad debts, and charity care). Assuming the midpoint waste average in Iowa is 30 percent, and we have little reason to believe it is measurably different from national norms, the total annual amount considered to be wasted on hospital care would be $814 per Iowan.

Using a similar waste factor of 30 percent for each of the nine health components, the total waste per capita would amount to $2,076 (see graph below). Because many of the components are interconnected with one another, it is extremely difficult to cull out the actual waste factor within each component. Some components may have much lower inherent waste, while others may not. Costs such as insurance program administration, research and construction expenses are not included.

The following graph provides the total healthcare costs (in $) for each of the nine components, in addition to the potential wasted spending. Again, using hospital care as an example, if 30 percent of waste was eliminated in Iowa hospitals, the price tag could have dropped from $8.2 billion to $5.7 billion – resulting in a $2.5 billion ‘savings’ – or unnecessary overpayment.

Healthcare Waste of $6.3 Billion

I share this information for a reason. Much like the individual choices made daily in our lives, there are opportunity costs for the choices we make, or fail to make. The notion of opportunity cost plays a crucial role in attempts to ensure that scarce resources are used efficiently. If the midpoint assumption of 30 percent waste occurs in healthcare delivered in Iowa, then overspending $6.3 billion annually (and growing due to increased costs) is a huge opportunity cost for Iowans. Think about it, what other ‘opportunities’ can we invest in and receive much better ‘returns?’

Most Americans detest waste – especially when it affects our pocketbooks and the potential impact it has on our health and well-being.

Waste is anything that doesn’t add value to the end product. In manufacturing, waste can be rooted out by using different proven programs, such as lean manufacturing. Doing so allows the manufacturer to build higher-quality products at a more competitive cost. The same process can be used in healthcare. Having the right kind of incentives to change the willpower and behavior of those providing (and paying) for this care, is crucial.

Community Needs in Iowa

In Iowa, communities have a myriad of health needs that go unmet, but most often have limited resources to address these problems. According to Mid-Iowa Health Foundation’s website, there are many community needs for our youth that require attention and affect the social determinants of our health and well-being:

20 percent of children in Iowa lack adequate food
Roughly 7,000 school age children in Iowa are homeless
Over one-third of Iowa fourth graders read at or above the proficient level
Over 13 percent of youth in Iowa are exposed to drug use in their home
Approximately 12,000 children are victims of abuse and neglect
About 10 percent of central Iowa children say they do not live in a happy home
Almost 13 percent of Iowa youth had serious thoughts about killing themselves in the last year
More than 20,000 children are living below the poverty level in Polk County
80 percent of Iowa children with mental health needs never receive treatment
Only 45 percent of youth in the Des Moines community are hopeful for the future

This list represents just a small sampling of social determinants that eventually affect the healthcare we pay. By smartly eliminating waste in our healthcare system, and thoughtfully re-directing the ‘savings’ in areas that matter most to our communities, we can further stem our healthcare-cost epidemic. Imagine the sizeable dent we make in our communities by culling out billions of dollars annually from the waste we pay. The discussion of displaced healthcare jobs and the potential ‘economic impact’ requires further exploration in a later post.

Following the election, we will continue to debate the fate of Obamacare – who will pay and how much – but this discussion is being made with greatly inflated dollars. We would be well-served to dedicate equal energy to squeeze the waste from healthcare and redirect resources to benefit our communities.

We know the waste is there. But what about our willingness to eliminate it?

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Healthcare Costs and Wages in Iowa
the Faceless and Nameless Among Us

Posted on: 07.12.16 By: David P. Lind

Whether it is a morning jog or perhaps a bike ride, I find great pleasure in determining the measureable progress I have made both in distance and time.

The same can be said about reviewing data from our past studies that cover a longer period of time. Doing so helps gauge a better understanding of trends occurring within benefits, specifically as it relates to health insurance components. As we are keenly aware, what we pay for our health insurance and the healthcare we receive continues to nip at take-home pay and the ability to afford other necessities, such as food, clothing, housing, etc.

A recent study commissioned by 25 local Iowa United Way associations indicated that for almost a third of Iowans (31 percent), the income they receive does not allow them to cover the basic costs of living. In fact, two parents working full-time in this state would need to collectively earn $23.34 per hour over a 40-hour week to cover basic household costs. With cities, counties and states debating what specific minimum wage amount should be acceptable (and affordable), this topic will not go away anytime soon.

Knowing that components of health insurance plans, such as premiums, deductibles and out-of-pocket maximums continue to push northward, this also impacts family budgets and whether they have adequate health coverage. By ‘adequate,’ I am referring to cost-sharing responsibilities that may overwhelm lower-earning Iowans. According to the Kaiser Family Foundation, Iowa happens to have a lower-than-average rate of uninsured (six percent). Nonetheless, even those who do have coverage continue to experience higher cost-sharing arrangements that may cause people to seek less care – which is a plausible reason we see moderation in the growth of health cost spending.

With this in mind, I want to take a quick look ‘back’ on trends for a few health insurance cost components confronted by Iowans with employer coverage. Covering a six-year period (2009 – 2015) from our annual ‘Iowa Employer Benefits Study^©,’ we learn that the average weekly wage from the Iowa Workforce Development (IWD) rose annually by 2.6 percent, while premiums increased during that same period by 9.2 percent prior to any plan designs changes made to lower the increase. Altering plan designs typically result in higher cost-sharing for employees, something that employers are reluctant to do. After alterations, the average annual premium increase was 5.5 percent, still over twice the weekly wage increase.

In addition to premium inflation, Iowan’s with employee-only coverage have experienced increasing deductibles by eight percent annually, from $1,061 to $1,662. The total cost-sharing exposure Iowan’s pay for medical costs (e.g. out-of-pocket maximums) increased by 6.1 percent annually from $2,210 to $3,151. Finally, employees with single coverage have contributed 6.2 percent more annually through payroll deduction for their cost of the employer-sponsored coverage.

Here is a summary of the six-year history.

As payment responsibility for medical costs continues to shift from employers to employees, a new dynamic of patients becoming the ‘new payer’ profoundly impacts the receivables for the provider community, specifically hospitals. Though not new information, this fact can and will change how financing options may evolve from providers to help patients navigate their financial obligations and ensure that patients are well educated about the cost of their care. Insurance companies, for their part, may also explore innovative financial solutions to help their insureds assume payment responsibilities – possibly a foray into a new market of opportunities.

Trends found in this six-year period will most likely continue well into the future, and the evolution of how we pay for our healthcare will require off-the-beaten-path solutions to establish new funding mechanisms for an increasing number of patients.

Over time, the compounding of these trends will affect more Iowans, revealing that many will no longer be faceless and nameless, rather, they may become us.

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The Lure of Opioids

Posted on: 06.21.16 By: David P. Lind

One medical topic clearly on today’s radar is the use (and abuse) of opioids – medications that are often used to relieve pain, such as: hydrocodone (e.g. Vicodin), oxycodone, morphine, codeine and other related prescription drugs.

It is relatively easy to become addicted to opioids. Like many others, I have been prescribed various opioids (typically Vicodin) in the past when having lower back pain or a dental procedure that required pain management. Thankfully, I used only a very small portion of the prescribed pills during each incident, which resulted in the accumulation of many ignored (and expired) bottles in our medicine cabinet.

For many, the continued use of opioids to control pain may quickly evolve into a habit, and eventually, addiction. Without seeking and receiving appropriate rehabilitation for opioid addiction, accidental deaths happen far too often. In 2014 alone, the number of opioid deaths due to overdose in the United States was 28,647, a number that exceeds the size of Marshalltown, Iowa’s 16th most populated city. A 14 percent increase from 2013, this number represents an age-adjusted rate of 9.0 Americans per 100,000.

Iowa Opioid Fatalities

The Kaiser Family Foundation analysis shows that 158 opioid fatalities occurred in Iowa during 2014. With an adjusted death rate of 5.3 Iowans per 100,000, Iowa ranks considerably below the U.S. average. The adjusted rates of fatalities per 100,000 for each of Iowa’s six neighboring states are listed below:

Nebraska – 3.2 (56 fatalities in 2014)
South Dakota – 4.1 (33)
Minnesota – 6.0 (318)
Illinois – 9.4 (1,205)
Wisconsin – 11.1 (627)
Missouri – 12.0 (696)

The below-average rates for Iowa, Nebraska, South Dakota and Minnesota leads one to ask, “What are these states doing differently?” Have these states implemented actions preventing individuals from becoming addicted and treating those who are addicted? Do they have narcotics detectives and emergency medical technicians who help guide individuals to treatment rather than arrest them? Some states have indeed implemented programs to address this emerging topic of national concern.

The Center for Disease Control and Prevention (CDC) recently released guidelines to help physicians prescribe opioids appropriately and responsibly. The opioid crisis should not just be the concern for providers who prescribe opioid medication. In fact, everyone has a role to play mitigating this epidemic, including those addicted and their family members, those who treat the addicted, educators, law enforcement agencies, and the efforts of a well-coordinated community. As two authors commented in a recent Health Affairs publication, the opioid crisis is “a multi-faceted problem [that] requires a multi-faceted solution.”

For each of us, a frequent reconnaissance of our medicine cabinets to ‘search and safely dispose’ is a good first step to eradicating opioid misuse and abuse.

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Medical-Error Fatalities in Iowa? Here’s a Calculated Guess – Up to 4,300 Iowans Annually

Posted on: 04.15.15 By: David P. Lind

…Yes, an’ how many deaths will it take until he knows
That too many people have died?
The answer, my friend, is blowin’ in the wind
The answer is blowin’ in the wind.
Bob Dylan, Blowin’ in the Wind

In healthcare, we have oceans of data but only puddles of useful information. The data comes in various forms, typically from healthcare providers who care for us and from the insurance vendors who enroll and cover us. Without question, the data generated within our healthcare system is abundantly voluminous.

During the last year, I have spent time writing and presenting about preventable medical errors. I recently was asked by two individuals (one representing the insurance industry and the other employed within the healthcare provider community) to render a guess about specific medical error data within Iowa borders – relating to the number of patients who were lethally harmed. I assured them that I could not find anything local – only national estimates were available. With this said, national patient safety experts, such as Dr. Ashish K. Jha, Dr. Peter Pronovost, Dr. Don Berwick and Rosemary Gibson, among many others, confirm that patients harmed in our country is nothing short of a national epidemic.

In a strange way, this request was similar to the Wizard of Oz being asked to provide a heart, brain and invoke courage. But in this particular case, I was asked to unearth local data about the medical errors found in Iowa. I suspect not even the Wizard could provide this treasure trove of critical public information!

But, out of curiosity, what IF we backed into these numbers using national estimates? After all, national data on medical errors are estimations that emanate from available (but imperfect) empirical knowledge.

Yes, many types of national and local organizations are working diligently to make our healthcare delivery system safer. But until we have a true measurement on the actual prevalence of medical errors to serve as a starting point on a local and national basis, how can we possibly improve or assume progress is being made? For example, are we measuring ‘process’ rather than ‘outcomes’? Are study methods rigorously evaluating improved care in a transparent way? To legitimately improve quality outcomes, we must measure what matters most, not just what is most convenient. Easier said than done, but many times we confuse activity with progress, which only prolongs egregious results.

From information found in past studies, reports and evidence, we do know that about 25 percent of all patients are harmed in our country by medical mistakes. The Institute For Healthcare Improvement estimated 15 million medical mistakes occur in our hospitals each year. In 1999, the Institute of Medicine (IOM) released ‘To Err is Human,’ suggesting that perhaps as many as 98,000 Americans die in our hospitals each year as a result of preventable medical errors. In 2013, another report was published in the Journal of Patient Safety conveying that up to 440,000 Americans die in our hospitals due to these mistakes.

So which number is most accurate – 98,000 or 440,000? We simply don’t know. Dr. Lucian Leape, a physician and professor at Harvard School of Public Health and a pioneer on patient safety, was a key contributor to the IOM estimates. Dr. Leape has since acknowledged the 440,000 estimate is more likely to be accurate.

Using federal and state data from the Kaiser Family Foundation website, total hospital admissions in the U.S. during 2012 was 34.8 million. Of this, Iowa had about 340,000 total facility admissions, a number substantiated by Iowa Hospital Facts.

By calculating the death per admissions nationally, using 98,000, 440,000 and an arbitrarily-selected mid-point of 250,000 lives, we can then use each ‘conversion’ factor to determine what the estimated fatalities are for individual states based on each national estimate.*

The slide below illustrates the estimated number of medical error fatalities for Iowa and five neighboring states, using the three national estimates. When factoring the 98,000 fatalities as reported by the IOM, Iowa would have an estimated 959 lives lost annually within our hospitals due to preventable medical errors. This number is similar to the population of the city of Lansing, Iowa. If national fatalities are about 250,000 lives annually, a calculation of 2,444 patients die annually within Iowa, or about the size of the city of Kalona. Finally, the 440,000 estimate equates to about 4,300 Iowans dying annually due to hospital medical errors – roughly the size of the city of Jefferson.

Within the slide, due to the larger populations of Minnesota, Missouri and Illinois, Iowa compares favorably with lower-estimated fatalities. However, the estimated fatality numbers found in Iowa are greater than those found in the less-populated states of Nebraska and South Dakota.

If any of the guesstimates are correct in the next 10 years, Lansing becomes the size of Norwalk, Kalona the size of Marshalltown and Jefferson the size of Ankeny. Isn’t it time to start reporting, measuring and documenting ‘actual’ data and stop guessing and theorizing? Unfortunately, we live with faceless statistics when it comes to medical errors.

Bob Dylan had it right. How many more lives have to be lost before we do the right thing?

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*CAUTIONARY NOTE: Using the same national factor for every state assumes that outcomes from each state are equal to one another, which is a BIG assumption. Thanks largely to the Dartmouth Atlas of Health Care, we do know that care-quality varies wildly in different parts of our country, state and even across town. Healthcare, like politics, is all local, but we don’t know whether using a national norm is better or worse than the Iowa ‘norm’ because fatality metrics due to medical errors within each state are elusive. Therefore, quality-adjusted care was not baked into these estimates.

Healthcare Patients Want ‘Good Value’ for the Money

Posted on: 04.08.15 By: David P. Lind

…we are now entering into a new era in healthcare that appears to alter our behaviors toward the care we are receiving…

Similar to national data, Iowa spending on healthcare and insurance premiums has risen at historically lower rates in the last three years. However, according to the Kaiser Family Foundation, only three percent of Americans said health costs are “going up slower than usual,” and 52 percent said costs are “growing faster than usual.” The other 35 percent say costs are about the same.

The amount that Iowans with employer-based health insurance pay for premiums has risen 167% in the last 14 years, while Iowa weekly wages have risen about 40%* and general inflation 43 percent. As we know, our incomes are suppressed by increasing health premiums, which certainly impact take-home pay and, ultimately, our capability of making consumption trade-offs for other priorities, such as food, shelter, education and retirement savings.

In addition to the premium cost, Americans are asked to pay increasingly more of the medical care they seek, through higher deductibles, copayments and out-of-pocket maximums. With lower-relative income, finding the financial resources to pay is problematic for many employees, causing them to put off receiving care or incur more medical debt.

In a recent Wall Street Journal article, Drew Altman, president and CEO of the Kaiser Family Foundation, wrote that Americans with health coverage care about:

Their premium costs, or the share of premiums they pay if they have employer coverage;
Their deductibles and other forms of cost-sharing, especially when deductibles have been rising steadily;
Their drug costs;
Whether they can go to the doctor or hospital they want without having to pay more;
The hassle and red tape in healthcare and health insurance. People care about getting information to be informed about their health and make smarter insurance and healthcare decisions;
Seniors care a lot about Medicare and sometimes vote on this issue.

Most people would agree to this list.

However, Mr. Altman then mentioned that “Americans don’t care as much as experts do about improving quality and eliminating unnecessary care. In general, people think that quality is good and they want more care not less.”

Perhaps this was true in the past, but we are now entering into a new era in healthcare that appears to alter our behaviors toward the care we are receiving. One prime example is a recent study that says cost is not the most important determinant of the care we seek – it is quality. From this report, when patients are provided hospital safety score grades and cost information together, they will choose safer hospitals 97 percent of the time, REGARDLESS OF COST.

Of course, this may also depend on WHO pays…the patient or a third party.

Making sure that such report cards reflect the most relevant performance measurements will be extremely important – if not critical – to the patient. Unfortunately, we don’t have this luxury at the present time. A March article on the Johns Hopkins Medicine website reports that national rating systems on the quality and safety of hospitals are too confusing because each will stress different measures from each other – sometimes providing a wide variation of grades on the same hospital (study source: Health Affairs).

In my blog last August, I wrote that the Urology Department at Cleveland Clinic received a top score by the U.S. News & World Report, yet received the lowest possible score by Healthgrades for prostatectomy outcomes. This type of reporting will only serve to confuse the general public before seeking care.

As healthcare delivery and payment initiatives continue to morph, look for quality and safety measurements to emerge with the cost component. The convergence of reliable safety and quality information with ‘real-time’ cost information can eventually catapult the healthcare industry into the 21^st century.

Until then, many hurdles must be successfully cleared in order to achieve the desired value we all want.

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*2014 data from the Iowa Workforce Development is not yet available, and therefore, excluded.