Regional insights: Reducing health-care costs without rationing

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Most of the national debate about health-care reform has been about how to provide health insurance to the millions of uninsured and underinsured individuals. But lack of insurance is just a symptom of the real problem. The high cost of health care has led many employers to drop insurance coverage, and that prevents many individuals from obtaining coverage on their own.

How do you reduce health-care costs? Reducing spending on hospital care has to be a big part of the solution. Hospital care has been the largest source of health-care spending growth in recent years, and a study by McKinsey & Co. found that spending on hospitals was the biggest reason that health-care costs in the United States are higher than in other countries.

Reducing spending on hospitals doesn't mean denying hospital care to people who need it. There are several ways in which hospital costs can be significantly reduced while actually making patients better off:

1. Help people with chronic disease stay well enough to avoid hospitalization. One of the largest categories of hospital expenditures is for care of people with chronic diseases. Studies have shown that as many as 50 percent of the hospital admissions for these individuals can be prevented through better care. Here in the Pittsburgh Region, UPMC St. Margaret Hospital, Renaissance Family Practice, Premier Medical Associates and Medi Home Health Agency are currently working with the Pittsburgh Regional Health Initiative (PRHI) to develop the first truly comprehensive approach to reducing hospital admissions and readmissions among chronic disease patients. Their innovative efforts, which will both reduce costs and improve patient outcomes, are already gaining national attention.

2. Reduce the use of unnecessary surgeries and procedures. National studies have shown that many patients unnecessarily receive expensive procedures such as heart surgery, diagnostic imaging and Cesarean sections, and that overuse of these procedures can result in worse outcomes for patients. One major opportunity for reducing costs and improving outcomes is in labor, delivery and newborn care, which is the largest category of hospital spending for people under age 65. A team at Magee Womens Hospital, using "Perfecting Patient Care" training they received from PRHI, reduced the rate of induced labor by 40 percent by avoiding inappropriate elective inductions, which can be more expensive and result in babies spending time in costly neonatal intensive care units. The team won the Fine Award from the Jewish Healthcare Foundation last year in recognition of its cutting-edge work.

3. Reduce infections and other complications of hospitalization. Hospital-acquired infections and other complications are both bad for patients and significantly increase costs for health insurers. Although conventional wisdom held that such infections were inevitable, Allegheny General Hospital used PRHI's Perfecting Patient Care techniques to prove that serious hospital-acquired infections could be completely eliminated. The AGH team also received a Fine Award from JHF.

Even though these approaches can reduce costs and help patients, they aren't being implemented more widely because of problems with the current fee-for-service payment system. For example, Medicare and commercial health plans will pay for a chronic disease patient to be hospitalized, but won't pay doctors to hire nurse care managers who can help them stay well. Hospitals earn less when they prevent patients from getting infections and other complications, rather than being rewarded for providing good quality care.

Fortunately, there are better ways to pay for health care. Episode-of-care payment and comprehensive care payment systems give doctors and hospitals more flexibility to deliver the care patients need and reward them for controlling costs and improving patient outcomes. You can learn more about them from the Center for Healthcare Quality and Payment Reform (www.chqpr.org).

Now it's up to Medicare and local health insurers to use these improved payment methods. If they do, we can reduce health-care costs, make health insurance more affordable and make our region more economically competitive.


Harold D. Miller is president of Future Strategies LLC, and adjunct professor of public policy and management at Carnegie Mellon University. He publishes www.PittsburghFuture.com , an Internet resource on regional economic development issues, and contributes to regional indicators at www.PittsburghToday.org .


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