Is Technology a Cost Driver or a Cost Saver in Health Care?

by Stephen C. Schimpff

Pharmaceutical, biotechnology, and medical-device and equipment companies have been extremely effective at producing innovations that have created major benefits for medical care. But the cost of new patented drugs and devices (pacemakers, defibrillators, stents, ventricular assist devices, insulin pumps, laparoscopic surgical instruments, etc.) are high. As a result, many argue that these advances are driving up the costs of health care. This is a distorted view.

In many cases, the cause of rising health-care costs are not the technologies per se; it is a flawed payment system.

Here is an example.

Stomach ulcers are common, mostly caused by a bacterium called Helicobacter pylori, or H. pylori. Discovered about 30 years ago, it lives in the stomach with all of its acid and invades the wall of the stomach. Now we can cure ulcers with antibiotics. A common therapy is clarithromycin and amoxicillin combined with a proton pump inhibitor (i.e., acid suppressor) like Prilosec, Nexium, Protonix, or Prevacid. It is essential to take the three drugs twice a day without fail for 14 days; anything less and the cure rate goes down substantially.

So the makers of Prevacid have come out with a nicely designed package called Prevpac, which contains the two antibiotics and the proton pump inhibitor and clearly labels the morning and evening doses. Frankly, it is a good idea. It cost about $350 at the pharmacy. Not an unreasonable price to pay to eliminate a disease that in the past had been chronic and impossible to cure, a disease that often reduced quality of life and frequently necessitated surgery, right?

Here's the catch: Until recently, Prevacid, one of the drugs in the Prevpac package, was on patent and its price was very high. If one bought the three drugs individually, the price was about $250. (Go figure.) And if one substituted Prilosec (about $30 over the counter) for the Prevacid along with the clarithromycin and amoxicillin, it would bring the price down to under $100. Multiply this by the number of individuals who are found to have stomach ulcerations caused by H. Pylori and you would save some big money nationally.

But that is not the way it works. Your insurance probably has a $15 deductible. So you only pay $15 of the $350, a good bargain for you. If you go the route of buying the three drugs separately for $250, you have to pay $45 ($15 X 3). And if you opt for the Prilosec substitution, the price to you is $60 ($15 X 2 plus $30.)

The point is that our insurance system is full of perverse incentives. So you will choose the Prevpac or your doctor will do so for you to help you save some money. It would be much better if we paid, say, the first $1,000 of our medical bills out of pocket each year and then had insurance kick in. Insurance would be much cheaper and we would become aware of the cost implications, ask our doctor for assistance, and go with the cheaper yet equally effective approach.

The U.S. payment system also impedes the adoption of innovative technologies that could reduce the cost of health care.

For example, distance medicine like telemedicine, teleconsults, telediagnosis, and simple e-mails can reduce the need for visiting the doctor's office and emergency rooms and can prevent unnecessary hospitalizations. These all will obviously reduce overall costs, but currently there is no reimbursement for telemedicine, teleconsults, and the time it takes for physicians to do e-mails. Similarly, there is no reimbursement for tele-diagnostic devices such as the electronic home scale that reports daily weight to the physician's office.

Reimbursement will be necessary if these valuable, cost-saving techniques are to become widely utilized. Or, if you had a high deductible policy, you would save real money by e-mailing your doctor and paying a minimal fee rather than coming into the office.

We can also harness technologies that reduce expenditures by improving safety and quality. Prescribing drugs via e-mail in the office or via the hospital computer (known as computer physician order entry or CPOE) can eliminate illegible handwriting, prevent prescribing to someone who is allergic to a drug, avoid adverse drug interactions, and assist the physician in prescribing the correct dose, number of doses per day, and route of administration (e.g., oral, intravenous, intramuscular injection, rectal, etc).

Other important technologies that can help reduce costs are simulators, robots, and identification devices. Indeed, simulation will profoundly impact the safety and quality of operative procedures, cardiac catheterization, colonoscopy, and many other procedures and, in turn, drastically affect cost management. It can shorten the time it takes to become proficient thereby reducing training time and costs.

These are but a few of the ways technology can actually lead to lower costs.

Questions we need to consider are:

* How can we maximize the value of technologies to reduce costs while improving quality and safety?
* How can we advance the needed evidence to assure that we only select truly useful technologies?
* How can we stimulate physicians to only recommend cost-effective drugs or devices for their patients?
* How can we encourage individuals to select high-deductible health plans and then take an active role in making medical decisions?

Chaos & Organization in Health Care

by Thomas H. Lee and James J. Mongan

One of the most daunting challenges facing the new U.S. administration is health care reform. The size of the system, the number of stakeholders, and ever-rising costs make the problem seem almost intractable. But in Chaos and Organization in Health Care, two leading physicians offer an optimistic prognosis. In their frontline work as providers, Thomas Lee and James Mongan see the inefficiency, the missed opportunities, and the occasional harm that can result from the current system. The root cause of these problems, they argue, is chaos in the delivery of care. If the problem is chaos, the solution is organization, and in this timely and outspoken book, they offer a plan.

In many ways, this chaos is caused by something good: the dramatic progress in medical science—the explosion of medical knowledge and the exponential increase in treatment options. Imposed on a fragmented system of small practices and individual patients with multiple providers, progress results in chaos. Lee and Mongan argue that attacking this chaos is even more important than whether health care is managed by government or controlled by market forces.

Some providers are already tightly organized, adapting management principles from business and offering care that is by many measures safer, better, and less costly. Lee and Mongan propose multiple strategies that can be adopted nationwide, including electronic medical records and information systems for sharing knowledge; team-based care, with doctors and other providers working together; and disease-management programs to coordinate care for the sickest patients

Dynamics in the Current Healthcare Environment

What are the leading dynamics in the current healthcare environment?

I. FINANCIAL UNCERTAINTY:

Partly a by-product of the economic recession; partly of the political debate over health reform (i.e. the expectation that reimbursement for future healthcare will change)

The result:

A- Caution Reigns

B- Cash is King

So selling into an already slow decision-making environment is even more difficult than in ordinary times. Companies whose business model is based on capital equipment commitments from provider organizations (with the exception of HIT/EMR where there are federal subsidies) are likely to show revenue shortfalls.

II. INTEGRATION PRESSURES:

Mostly a by-product of the Administration's and Congress's various reform initiatives, driven by the belief that the immense current fragmentation in this sector adds to expense and poor outcomes.

Pressures to package:

1. Disparate info sources into one : EMR's, HIE's PHR's, etc.

2. Physicians and hospitals into integrated delivery systems (where physicians become employed)

3. All physician care: into multi-specialty organizations

4. Fee for service payment mechanisms into bundled payments for single care episodes, or even global payments, "accountable care organizations", "medical homes"

The result:

A-more vertical integration

B-more provider sector consolidation

III. PREMIUM ON QUALITY/OUTCOMES/CLINICAL EFFECTIVENESS/VALUE:

Mostly driven by the political reform environment, but also by purchasers of health services.

1. Increased recognition of immense variation in standard medical care practices , by geography--unrelated to clinical need or patient differences (e.g. Dartmouth Atlas studies)--as well as to poor outcomes ( various NIH studies)

The result:

1. Efforts to change healthcare payment methodologies to better link payment to actual outcomes, frequently called " value based purchasing":

a. P4P (pay for performance)

b. RAC audits

c. Medicare Demonstration projects, CMS " core measures" program (puts 5% of hospital reimbursement at risk based on outcomes)

d. Re-admission rate payment penalties, etc.

The result:

Companies with tools that help providers to measure quality and outcomes will profit. Better yet, technologies (e.g. next generation telemedicine, possibly robotic surgery, etc.) that can help providers to deliver higher care at lower cost will be highly advantaged. Contrarily, expensive technologies with uncertain/dubious value (e.g. certain imaging tools) may suffer.

IV. INVESTMENT IN HEALTH IT:

Primarily driven by federal govt. policies and subsidies.

The biggest winner, and the most certain, given the release of stimulus funds, is the HIT subsector. Especially EMR/ PHR software systems, but also software that helps providers monitor clinical effectiveness, manage disease across organizational silos, possibly data mining to better interpret patterns amidst growing seas of clinical info.

One of the less obvious results of this dynamic could be a "crowd out " factor, in which IT investments absorb most, or all, of increasingly limited provider organizations' capital budgets.

V. RETAIL MEDICINE GROWTH:

Lost among the inside-the-beltway health debates, and within the policy-centric consultancy groups, is continued growth of consumer influence in healthcare purchases; whether for actual clinical services, for non-traditional health services, for insurance, for medical advice or for long-term care.

More extreme than in any other culture I have experienced, Americans have a fetish for things medical, which is unlikely to be abated in the short run by federal reform, or by employers' continued cost shifting to individuals. Results may include increasingly two-tiered delivery services, special concierge offerings, upper-end packaging especially centered around consumer speed and service, etc.