Cheaper & better: medical costs vary by region--why?

A recent article published in the New England Journal of Medicine (October 23, 2003) deserves the attention of both policy makers and a public suffocating under the expense of health care. It reports that during the last decade, the Department of Veterans Affairs (VA) undertook a structural reform designed to reduce its emphasis on hospitals in favor of providing medical care through a comprehensive, high-quality primary-care system. The VA oversees the largest health-care system in the United States.

Analyzing the effect of this change in the VA's medical delivery, researchers found that the number of days spent in the hospital fell by a remarkable 50 percent, and that there was only a moderate increase in outpatient utilization when compared to the period prior to the reform. On top of that, urgent-care services fell by 35 percent, and still more impressive, survival rates were not affected. Those who conducted the study came to the conclusion that the decrease in hospital use did not diminish access to necessary medical care, and that this shift caused no adverse consequences for the health of VA beneficiaries. These findings, coupled with the study's conclusion that more efficient care does not automatically equate with poorer care, bring to mind related research on how the American health-care system fails to utilize its vast resources properly.

Health economists have long noted variations in healthcare utilization by comparing geographic areas. In 2000, Medicare expenditures (a good measure of the utilization of medical services) were $10,500 per enrollee in Manhattan but only $4,823 per enrollee in Portland, Oregon. This difference, it turns out, was not caused by a greater burden of illness in New York, or even to its higher cost of living. Using statistical methods to control for variables, researchers eliminated possibly misleading comparisons, such as using dissimilar populations and/or variations in the cost of doing business, and they were able to document that the differences were real. They found, for example, that the gap in expenditure persisted even after population characteristics (age, sex, race, and burden of illness) and the price of medical services had been taken into account.

Clinical researchers had been concerned that, ipso facto, these differences meant populations using less medical care would be more likely to suffer poorer health outcomes than populations receiving more care. The startling thing is: Evidence is mounting that less utilization does not translate into worse care. At least when it comes to such common and important conditions as hip fractures, colorectal cancer, and acute myocardial infarctions (heart attacks), Medicare enrollees in higher-spending regions do not have better health outcomes than similar patients in lower-spending regions. In fact, there is no difference in their five-year mortality rates, their functional status, and their patient satisfaction when it comes to care received.

These studies have begun to resonate with noted healthcare experts. In response to the research, Dr. Kenneth Shine, former president of the Institute of Medicine of the National Academies, wrote: "Excellent outcomes for patients can be achieved in regions that do less, but do it right." And prominent health economist Charles Phelps commended the quality of the new research, saying there is now solid evidence "that increased treatment intensity does not bring with it commensurate gains in health."

The economic import of these findings is enormous. If all regions in the country could reduce use of medical services to the level of the lowest-spending regions, national healthcare spending might eventually diminish by as much as 30 percent. Since we currently spend almost twice as much per capita on medical care as any other country, discussion on reducing our unnecessary utilization is critical, if only in our overall economic competitiveness.

Why is there such a wide disparity in the utilization of medical resources in the United States? Medical policy analysts do not have a definitive answer to this question, but there is evidence that different patterns of practice develop in large part because of capacity--the "If you build it, they will come" syndrome. The more medical services available, the more they are used. The implication is that, in areas such as Boston and New York with a relatively high number per capita of hospitals and doctors--many of them in cutting-edge teaching facilities--utilization of medical services is, to some extent, unrelated to actual patient need.

How did such excess capacity develop? The answer requires an understanding of the fundamental structure of health care in our society, and how, particularly over the past fifteen years, there has been a major policy shift in medicine from a social-service model to a business model. Increasingly, the business model has eclipsed the traditional service model, and as might be predicted in a business model, the marketing of medical goods and services has become an increasingly larger part of the nation's health budget. In 2000, for example, the promotion of prescription drugs by the pharmaceutical industry accounted for more than $15.7 billion of our national health-care expenditure alone. In addition, the mandate to compete in the marketplace leads to expenses that, while perhaps serving some stockholders, do not equate with better or more efficient medical care. The need to compete and to survive in the marketplace, implicit in the business model, gives health-care providers a powerful incentive to concentrate on the services that are profitable, with less emphasis on services that are needed. Researchers have found, in one example, that the increasing supply of neonatology services throughout the country no longer meets a real medical need. There is little correlation by region between the increase of such services and the proportion of newborns with a very low birth weight--the single greatest indicator of need for neonatal services. In addition, there is no consistent correlation between the greater supply of neonatal services and better outcomes. The critical factor in the increased number of neonatal intensive-care units and of neonatologists is that care for sick neonates is handsomely reimbursed (see, the New England Journal of Medicine, May 16, 2002). In today's health-care system, medical need is only an incidental consideration in determining what services are available.

There is strong evidence that our medical-care system is burdened with an overuse of resources serving no real health need. It is also true that health-care providers, forced to operate in a free-market paradigm, create medical goods and services that are profitable but may have little relationship to actual need. Hyperutilization of medical goods and services that provide good reimbursement tend to be built into the system. These are facts our politicians and policy makers must examine. The imperative for fundamental reform of our nation's bloated health-care system becomes ever more compelling.

RELATED ARTICLE: Edge

1.

Sit right at the edge, legs dangling over. Learn to love the air's empty decisions, having nothing to do with you. Heels bouncing heartbeats off the cliff wall: that's the edge. A little copper-colored lightning braceletting the sky: that's chatter, gone missing quickly in the cobalt. A few weedy shrubs pushing out of the rock gaps, what are they? Blood noise. The industry of breath.

2.

Did you know: the alleged edges and surfaces of things consist of electromagnetic fields only. Unplug them and your hand goes right through, nothing much mixing with nothing much else. Physical, but not the way you'd thought. Like the human heart: a heuristic for what? A helluvan appetite.

3.

Be opened, but don't tell anyone, Christ kept saying. It spills over, however. I can't not tell. No edges is my name for God, while I must ride the raw edge, the this-minute, the vegetal light, the seems.

Jean Gallagher

James P. Whalen, MD, is adjunct associate professor of clinical medicine at the University of Illinois College of Medicine in Chicago.