More Health Care Plays

With rapidly escalating health care costs, state and local governments are suddenly confronted with tough budget choices: cut health care programs, increase taxes, or reduce spending elsewhere. While fighting to ensure that the most vulnerable Americans do not bear the brunt of budget cuts, it is imperative that New Democrats modernize programs to get more value from current health care spending.

Lower costs and higher quality can go hand in hand. For example, the high quality care at the Mayo Clinic costs 15 percent less than the national average, according to a study of Medicare data by researchers at Dartmouth Medical School. Areas with similar care like Salt Lake City and Portland, Oregon, cost nearly one-third less. In those places, medical providers use information technology to keep track of patient care. They give patients a medical "home base" -- a doctor to coordinate all their health care. And they reject the current fee-for-service payment system that pays for care by volume not quality.

To improve quality and lower costs, the state of Rhode Island has created the Quality Institute. Its purpose is to work collaboratively with every health care constituency to develop innovative solutions and promote changes in ways that cannot be done through individual institutions. One of its successes has been to increase the use of computers to submit prescriptions in order to avoid the mistakes and expense from pharmacists misreading poorly written prescriptions.

"I refuse to accept that the only strategy left to employers is to either shift significant costs to employees or make substantial reductions in health care benefits. It is time for bold, innovative strategies that address the parts of health care delivery that are clearly not working." -- County Executive Ron Sims, King County, Wash.

Another long-standing effort to cut costs by improving quality is the Midwest Business Group on Health, a coalition of private and public employers in 11 states that has charted a new course for purchasing health care. In its landmark 2003 report, "Reducing the Costs of Poor-Quality Health Care Through Responsible Purchasing Leadership," this employer group acknowledges that "purchasers of health care benefits bear some responsibility for poor quality."

The report identifies the causes of poor-quality health care as under use, overuse, misuse, and waste of medical services. It estimates that 30 percent of all direct health care outlays today are the result of poor-quality care. A 2004 report by the RAND Corporation reinforces this point, as it finds that American patients receive proper care only 54 percent of the time.

Traditionally, doctors and hospitals receive the same payment for procedures without regard to their performance. Such reliance on this old reimbursement system is misplaced at a time when patients receive the right care only one-half of the time.

The connection between high quality and low cost is readily observable. Patients who have heart surgery done at reputable medical centers, for example, are more likely to survive and will receive care at a lower cost. That is because surgeons who perform at high volume get better at what they do and can do it more efficiently. Another example is doctors who use computers to order prescriptions rather than pen and paper. Computer-based systems are far more reliable, preventing costly mistakes that occur when patients get the wrong drugs. A 2001 study in the Journal of the American Pharmaceutical Association found that for every dollar spent on prescription drugs, $1.50 is spent on curing ailments caused by erroneous prescriptions and other drug-related problems.

The Midwest Business Group on Health has proposed that purchasers jointly follow the steps below to reduce poor-quality care:

• Analyze current health care data to identify high-priority problems;
• Measure the performance of your plans and providers, and engage them in continuous improvement programs;
• Educate and share performance information with your employees, beneficiaries, and the public at large; and
• Reward high-quality (and penalize poor-quality) plans and providers through direct incentives (or sanctions), public recognition of best performers, incentives for consumers to choose quality, shared-savings contracts, and/or selective contracting.

The report includes different strategies for accomplishing each step. For example, the fourth step can be pursued directly by paying doctors and hospitals more for higher quality care or indirectly by rewarding high-quality one with public awards or report cards, which can drive business toward quality providers.

One of the most aggressive, direct efforts underway is in the Seattle area, where County Executive Ron Sims of King County, Wash., has created the Puget Sound Health Alliance. The alliance includes employers of all sizes, health care professionals and medical groups, various health plans, as well as the state's lead health care agency. The partnership aims to improve the quality of care and reducing costs by collaborating on evidence-based clinical guidelines, performance measures that will be publicly reported, digitization of health records, and best practices for delivering high-quality health care. Other health alliances, such as the Pacific Business Group on Health in the Bay area, and an effort in the Twin Cities, have also been formed to confront the challenges of cost and quality, but the Puget Sound Health Alliance is unique because it includes not just insurers, but an array of private and public representatives and also because it is the first health alliance organized by an elected official.

Taking the Puget Sound Alliance's efforts statewide, Gov. Gregoire has announced the Healthy Washington Initiative that proposes a host of measures that aim to improve quality, address costs, and increase access to care. One part of the strategy is to reduce emergency room visits. With millions of ER visits to Washington hospitals, much money can be saved by improving prevention and access to care. The state will work with community health centers and local hospitals to reduce unnecessary emergency room visits.

An initiative in New York has focused on the use of information technology as a proxy for quality. Empire Blue Cross Blue Shield has joined with four large employers -- Xerox, IBM, PepsiCo, and Verizon Communications -- to offer financial bonuses to hospitals that use computerized order forms for prescriptions or that staff intensive care units with specialists known as intensivists. Similarly, a program called Bridges to Excellence, which includes many large employers, pays doctors extra for high-quality care for chronic illnesses. For diabetes care, after paying doctors up to $80 per patient annually, it produces a net savings of about $175 per patient per month by preventing hospitalizations and other unnecessary measures. Medicare has also begun to experiment with pay-for-performance for doctors and hospitals. While the results are not yet in, Medicare's leadership may embolden other employers and insurers to accelerate and intensify their pay-for-performance efforts.

State elected officials should explore these and other quality innovations in their Medicaid, SCHIP, and state employee benefits programs. Officials can start by collaborating about quality improvement with private employers, insurers, and health professionals, just as the Puget Sound Health Alliance has done. Notably, Massachusetts has incorporated this strategy into its landmark 2006 health insurance reform legislation. The legislation calls for the establishment of a Health Care Quality and Cost Council, which will include public and private officials from a variety of fields who are given the singular directive of reducing costs by improving quality. Governor Kathleen Sebelius of Kansas has created a similar commission in her state. Local officials in large cites can also capitalize and expand on these innovations since they often have a large workforce. And, as a bulk purchaser of care, Medicaid is also in a good position to negotiate contracts with plans and providers that reward high-quality, cost-effective care. Minnesota has also passed comprehensive legislation to address rising costs as well as the uninsured. Unfortunately, Gov. Tim Pawlenty (R) has threatened to veto it.

One way or another, rapidly escalating health care costs mean state and local governments have to make tough choices. It will be those state and local officials who intensify their efforts to improve health care quality who will be able to offer constituents more cost cutting and less care cutting.

Resources for Action

Rhode Island Quality Institute
http://www.riqi.org/

"Reducing the Costs of Poor-Quality Health Care Through Responsible Purchasing Leadership," Midwest Business Group on Health
http://www.mbgh.org/templates/UserFiles/Files/COPQ/copq%202nd%20printing.pdf

The Puget Sound Health Alliance
http://www.pugetsoundhealthalliance.org/

Healthy Washington Initiative
http://www.governor.wa.gov/news/news-view.asp?pressRelease=477&newsType=1

Health Care Transformation Task Force, Minnesota Department of Health:
http://www.health.state.mn.us/divs/
hpsc/hep/transform/

Pacific Business Group on Health
www.pbgh.org/programs/negotiating_alliance.asp

Leapfrog Group
www.leapfroggroup.org

American Health Care Quality Association
www.ahqa.org

Bridges to Excellence
www.bridgestoexcellence.org/

Additional Reading

Peter Lee and Debra Ness, "Build Health Care Value," IdeasPrimary.com, January 24, 2008
http://www.ideasprimary.com/?p=441

"Whither State Health Care Reform?" Health Policy Wire, Progressive Policy Institute, April 3, 2008
http://www.ppionline.org/ppi_ci.cfm?contentid=254608
&knlgAreaID=111&subsecid=900033#item1

Eitan Hersh and David B. Kendall, "The Puget Sound Health Alliance," Progressive Policy Institute, January 26, 2006
www.ppionline.org/ppi_ci.cfm?knlgAreaID=111
&subsecID=298&contentID=253694

"The First National Report Card on Quality of Health Care in America," RAND Health, 2004,
www.rand.org/pubs/research_briefs/RB9053-1/

Karen Davis, "Taking a Walk on the Supply Side: 10 Steps to Control Health Care Costs," Commonwealth Fund, March 2005
www.cmwf.org/aboutus/aboutus_show.htm?doc_id=264016

"Priority Areas for National Action: Transforming Health Care Quality," Board on Health Care Services, Division of Health Care Services, and the Institute of Medicine, 2003
www.nap.edu/books/0309085438/html

"Crossing the Quality Chasm: A New Health System for the 21st Century," Institute of Medicine, 2001
http://books.nap.edu/catalog/10027.html?onpi_newsdoc030101

"The State of Health Care Quality," National Commitee for Quality Assurance, September 2003
http://www.ncqa.org/Communications/
News/sohc2003.htm

"Health Plans To Increase Funds for California Pay-For-Performance Programs," iHealthBeat, December 20, 2004
ihealthbeat.org/index.cfm?Action=dspItem&itemID=108086

Contacts

Rachel Quinn, MPH MPP
Health Policy Liaison
Office of King County, Wash., County Executive Ron Sims
Bank of America Tower
701 Fifth Avenue, Suite 3210
Seattle, WA 98104
(206) 296-4165
(206) 296-0194 (fax)
rachel.quinn@kingcounty.gov

David B. Kendall
Progressive Policy Institute
4021 Heritage Way
Missoula, MT 59802
(406) 543-2265
(772) 679-0652 (fax)
dkendall@ppionline.org