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Do Consumers Drive the Healthcare Bus? Fuggedaboutit

WASHINGTON — Think the consumer is going to be in the healthcare driver’s seat for the foreseeable future? Think again, and look toward physician behavior instead, Peter Orszag, former director of the Congressional Budget Office, said here at the annual Health Datapalooza meeting sponsored by AcademyHealth.

“The consumer-driven emphasis of the past decade is misplaced,” Orszag, who is now global co-head of healthcare at Lazard, an investment banking firm in New York, said Wednesday. “Most healthcare [spending] is in very high-cost cases; the top 25% of Medicare beneficiaries account for 85% of total spending. You can do all you want on consumer-driven health for the other 75% of beneficiaries and it won’t move the needle that much because they only account for 15% of spend.”

In addition, “you’re never really going to apply very forceful consumer-driven techniques to the really high-cost beneficiaries because the whole point of insurance is deep third-party insurance against very high costs, and so there’s always going to be a significant degree of third-party insurance … against high-cost cases,” he continued. “So if you really want to influence behavior, in my opinion, you’ve got to be influencing the physicians — why are physicians recommending X or Y? — instead of focusing on what consumers are doing with that information. So I think you’ll see a lot more emphasis of physician variation within vertically integrated entities as a mechanism to improve value.”

Orszag also addressed the issue of a deceleration in the rate of healthcare cost increases. “There is a raging debate on the cause of this deceleration; I’d like to focus on the Medicare numbers because the Medicare numbers are not influenced by the business cycle, so you don’t need to worry about the great financial crisis or other things that are happening in the economy,” said Orszag.

The decline in the rate of Medicare cost growth “is fantastic news for the fiscal future of the country; it’s fantastic news for the fiscal future of states … even though states aren’t directly involved in Medicare, it has spillover effects. And the important point is, it’s continuing” despite forecasts from government economists that Medicare costs will imminently accelerate.

On the other hand, “the bad news is that in healthcare, we’re not experiencing productivity gains that other sectors have; the sector has expanded mostly through employment gains but not productivity gains. The question becomes, can we continue to have slow growth in healthcare [costs] and change the nature of pattern here so we can get more productivity gains? … I think the answer is Yes, but we need to focus on where inefficiencies are.”

Although it’s well-known that there are large variations in healthcare costs across the country, the causes of the cost differences vary. “In employer-sponsored insurance, the bulk is variation in price; in Medicare, it’s variation in utilization,” said Orszag. However, “there is a lingering debate” about the underlying causes of the utilization variations, he added. “There is an opportunity to improve value if it is being driven by things that don’t have to do with how sick patients are in various [geographic] areas. But if, instead, the variation is in how sick people are,” then not as much can be done.

To address this question, two studies looked at what happened when patients moved to another part of the country; did their healthcare costs change? “If that variation in cost is based on the health of the patient, then when they move, there shouldn’t be any change in how much is spent,” but in fact, the researchers found that there was a massive cost change, said Orszag. One issue is whether the patients who moved from a place with lower costs to a place with higher costs, for example, were sicker patients to begin with and gravitated toward a particular geographic area.

To try to remove that possible bias, a third study examined changes in healthcare costs among military families who were required to move to another geographic area, so their move wasn’t their own decision. The families got much of their care in the community, off of the base.

“The short answer is when the military members are involuntarily reassigned from one military base to another, health spending jumps or falls almost immediately upon impact — with a very large share of variation being picked up by that [move] coefficient,” he said.

“To my mind, this suggests a lot of that cost variation is unwarranted variation — ‘It’s just how we practice medicine here,'” said Orszag. “That’s what’s so exciting, because that means value improvement that is possible.”

Research also shows that in Medicare, “a surprisingly large share [of cost variation] seems to reside in post-acute care,” said Orszag. “It looks like there is a positive return to high spending in the emergency room and a negative return to everything that happens outside of it, especially in post-acute care.”

As for increasing patient satisfaction, “Kaiser Permanente plans have 8% of Medicare Advantage members and 81% of the five-star ratings among the Medicare membership nationally, suggesting that there seems to be something around vertical integration that seems to be producing not only cost savings but [also] quality improvement,” he said.

Drug and device makers will soon be asked to step up their game in this area, said Orszag. “Entities will, with the push of a button, be able to do ‘Phase 4’ studies on how drugs are working in the real world, because they will have claims data and pharmacy data so they will be able to figure where a drug or device is working to varying degrees. That will lead to a lot of changes in how pharma interacts with these vertically integrated entities.”