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Will patient outcomes research lead to major savings in health care spending?

Recent health care policy initiatives in the United States have focused on technology assessment and patient outcomes research in order to contain costs and improve the quality of care. President Bill Clinton has endorsed this focus as an important element in America's health care overhaul. This focus is based on evidence showing wide geographic variations in the per capita utilization of many procedures along with claims that physician uncertainty in diagnosis and treatment is the primary contributor to the variations. Contrary to these views, this author develops the proposition that, although highly desirable, this new direction is not likely to have a major impact on health care costs and medical practice in the foreseeable future. He argues that medical uncertainty and the associated interarea variations in the use of health care services are not the principal causes of the growing share of national income spent on health care.

The rapidly growing costs of health care in the U.S., and concerns about access and quality, have created a policy crisis. As a partial step in resolving this crisis, Congress established the Agency for Health Care Policy and Research to improve the effectiveness and appropriateness of medical practice. To meet its principal missions of improving quality while reducing the growth in spending, the agency, through its Medical Treatment Effectiveness Program (MEDTEP), will expend substantial amounts in the first half of this decade on technology assessment and patient outcomes research.

As emphasized in the agency's March 1990 program note, "(t)his research program is built on studies during the past two decades that reveal wide variations in the type and amount of health care provided to apparently similar patients." The wide geographic variations in per capita rates of utilization (on the order of tenfold differences for some medical and surgical procedures) have led to perceptions that considerable amounts of inappropriate care are being provided. In particular, it is widely believed that large amounts of unnecessary care are characteristic of high use areas. It thus follows from these views that if appropriate rates of utilization can be determined, the quality of care can be improved at the same time a reduction in the growth rate of health care spending is occurring.

Elsewhere, I argue that the interarea variations evidence used to justify MEDTEP is based on a misinterpretation of the relationships that have been found. In particular, scholars have made improper inferences from the data and have also overlooked the importance of patient preferences in accounting for significant portions of the variations.(1) Nevertheless, the variation's literature has been instrumental in highlighting the limited scientific bases for many medical decisions. For example, one leading scholar in the field wrote that: "Medicine is widely held to be a science, but many medical decisions do not rely on a strong scientific foundation simply because such a foundation has yet to be fully explored, developed, and tested."(2) David Eddy, another prominent scholar of medical practice (who is also an M.D.) was even more blunt and succinct when he was quoted as saying that "we don't know what we're doing in medicine."(3)

More Information Needed

There is clearly a need for the kind of research supported by MEDTEP. In principle, there is a considerable potential for improving health care delivery through more complete information about the effectiveness of alternative treatments. There are many who are hoping that MEDTEP's efforts will bring about the establishment of medical practice guidelines for a large number of high variation procedures and causes of hospital admissions.

However, despite its primary mission of improving the effectiveness of medical practice, at least one observer has noted that much of the research conducted by the Patient Outcomes Research Teams under MEDTEP has neglected quality; instead, it has been concentrated on cost issues.(4) This redirected emphasis is undoubtedly attributable to the continued growth in budgets and the share of national income spent on health care. Cost containment has become this nation's primary health policy problem.

However, I argue here that it is with respect to cost containment that MEDTEP is most likely to fall short. This conclusion follows my basic premise that medical uncertainty and the associated variations in use are not the major contributors to the financial pressures from and within the health care sector. I even argue that the agency's research initiatives are unlikely to have a major impact on medical practice, at least in the immediate or near future. The basis for these views is found in the propositions outline below.

1. Regional variations in health use are not new.

Although the modern literature on interarea variations is often traced to studies on tonsillectomy rates in England in the 1930s, evidence of the phenomenon considerably predate this work.(5) For example, there are reports of a study, published in 1850, that dealt with U.S. state differences in the hospitalization rates for the mentally ill.(6) Another recent study showed that significant regional variations in health care spending existed in the U.S. at least as early as 1917.(7) Because the variations seem always to have been present, it is unlikely that either they or their underlying causes are major contributors to the especially rapid growth in the share of national income spent on health care in the U.S. in the past 30 years.

2. The variations are an international phenomenon.

International data lend even stronger support to the hypothesis that variations are not a principal source of spending growth. Those data clearly reveal wide regional variations in the use of health services in many countries.(8) Because the levels and shares of national income devoted to health vary widely across the same countries, and there has been a flattening of the growth rates in spending in most other industrially advanced nations since the 1970s, it is unlikely that the variations per se are the source of the rapid increase in spending rates for health care in the U.S. The variations are also unlikely to be the source of the especially high growth in spending relative to other countries since the mid-1980s.

The increased interest in international comparisons of health spending and differences in health systems is producing valuable evidence about possible contributors to the U.S. spending phenomenon. For example, authors George Schieber and Jean-Pierre Poullier argue that "the two basic endogenous factors driving health expenditure are excess health care inflation and real-increases in the volume-intensity of services per person."(9) In the absence of excess health care inflation (defined as price increases above the GDP deflator) between 1975 and 1987, the authors estimated that 1987 expenditures would have been $390 billion rather than the actual level of $500 billion. Statistical analysis of time-series data within countries and of cross-section data across countries reveals striking relationships between spending and incomes per capita.

Another researcher similarly concluded that "differences in health expenditures |across countries~ is simply found in differences in per capita wealth, as measured by GDP per capita."(10) He further concluded that "health care systems relying on some overall control of spending generally are more cost effective than those relying more on decentralized mechanisms of control." Even though the role of variations and physician uncertainty have not been directly accounted for in this body of work, the evidence seems to discount their roles as major contributors to spending levels and to differences in spending rates across countries or across areas within a country.

As a variant of the growing income explanation for the expenditure increases, there are those who argue that the growth in spending is determined primarily by new technology, although the demand for technology may reflect rising incomes. For example, Joseph Newhouse, one of this nation's leading health economists, concludes that "much of the increase in expenditure is due to new procedures, capabilities, and products--in short to technological change."(11) Recent interarea analysis of Medicare expenditures supports this hypothesis and suggests that the rapid growth of spending in high income areas "may be related to faster adoption and diffusion of new medical technologies in these areas."(12)

Along similar lines, Eli Ginzberg acknowledges the contribution of "high-tech medicine" to spending, but he claims that it is desired by the public and that there is no low-tech option.(13) Furthermore, he suggests that although our emphasis on technology assessment and outcomes analysis can improve the quality of care, it is unlikely to have much impact on total health care spending because "the costs of expanding desirable services that are found to be underutilized are likely to exceed the savings from the elimination of unnecessary procedures."

3. Evidence from utilization review and managed care.

Utilization review and other forms of "managed care" have been the principal means by which third-party payers and businesses have attempted to control utilization and costs. These programs are based on perceptions that considerable unnecessary care is being rendered. For instance, widespread media reports quoting the secretary of the Department of Health and Human Services and others claim that 15 to 25 percent of all procedures may be unnecessary, inappropriate or harmful.(14) (Some reports suggest even higher figures.(15)) These perceptions and claims appear to be supported and fueled by criteria studies that have found substantial levels of inappropriate care for several procedures.(16)

On the other hand, utilization review and other similar programs have found that only 2 percent of care rendered is inappropriate.(17) Although the lack of strong scientific evidence about outcomes could be expected to place a downward bias on the rate of inappropriate care found through those programs, the low claims rejection rate suggests caution in extrapolating results derived from studies that cover a very limited number of procedures to overall health care use. It is plausible that the publicized rates of inappropriate care have been greatly exaggerated. Furthermore, inappropriate care may not account for much of the interarea variations in use. To support this latter proposition, several studies examined inappropriate use of three procedures (coronary angiography, carotid endarterectomy, and UGI tract endoscopy).(18) Although the studies found evidence of considerable inappropriate care, the amounts accounted for little of the interarea variations in utilization.

4. Difficulty of changing physician behavior.

Even if scientific agreement is reached on the relative efficacy of alternatives, there remain problems of disseminating this information in ways that would appropriately modify practice patterns. There is evidence that practice patterns can be influenced when providers are given incentives or are aware that they are being monitored.(19) However, the long-term effects of these programs are not clear. Moreover, there is also evidence that practice guidelines may have minimal effects. Here, one study team reported that even two years after the dissemination of guidelines for the use of cesarean sections in Ontario, the behavior of obstetricians "had changed very little."(20) Another group found that mandatory review programs introduced for 13 Medicare Part B procedures in 1985 and 1986 had only a minimal impact on the rates of medically unnecessary claims that were subsequently filed.(21) With rapid changes in technology and the time-consuming process of evaluating and then developing a consensus on existing treatments, the impact that guidelines would have on practitioners is likely to be further diminished.

5. Questionable record of health care services research.

Just as there is increasing awareness of the limited scientific basis for many medical decisions, equally valid concerns can be raised about the ability of the health services research community to meet MEDTEP goals in a clear and timely fashion. The research under this program deals with extremely complex problems that may not be amenable to unambiguous analysis or easily implemented solutions. Arguably, research on health care delivery has been characterized by excessive levels of expectations created for many earlier attempts to develop effective policies, programs and reforms. For example, the efficacy of second-opinion programs, managed care and even the competitive strategy supported by the last two administrations have been sharply questioned in the face of the unrelenting increases in health care costs.(22)

One issue that clearly exemplifies the conceptual and empirical limitations of health services research is the question of supplier-induced demand (SID). This term refers to the ability of physicians and some other health care providers to manipulate demand for their own selfish motives. This issue is especially important to health economists, many of whom would likely agree with the view that it is "probably the major controversy in contemporary health care policy."(23)

SID originated from the work of Milton Roemer who, thirty years ago, hypothesized that increases in the availability of hospital beds lead to increases in hospital utilization. Economists have focused more on physician supply and consequent changes in utilization because they believe that the efficacy of competitive, market-based strategies hinges critically on the existence of stable demands for care by patients. The ability of physicians to significantly alter patient demands would neutralize the potential of market-based approaches and strengthen, instead, the case for regulatory interventions.

Despite two decades of intense research on SID, the dimensions of the phenomenon remain unclear. In fact, it has been acknowledged that it is probable that economists "will never fully resolve the demand creation/information imperfection question."(24) Although many factors contribute to the difficulty in handling the inducement question, the major reason for the failure is that the seemingly simple idea of physicians as inducers of care under certain circumstances is actually too complicated to be able to model and test in an unambiguous way.(25)

Savings Not Likely Soon

The difficulties in distinguishing among the various possible determinants of utilization are not unique to research on SID and, unfortunately, questions dealing with the appropriateness and effectiveness of medical practice are even more complicated. Indeed, the issue of inducement is only one of many potential factors that influence medical decision-making.

A commentary by David Eddy in the Journal of the American Medical Association highlights the complexities as well as areas of ignorance in the medical decision-making process.(26) Eddy defines two major requirements for every medical decision. The first is to estimate the outcomes of alternative interventions, and the second is to determine the desirability of every option. Furthermore, each of the steps involves several substeps, all of which require considerable information and analysis. Even if the outcomes of alternative therapies can be accurately estimated, and medical science is still in the early stages of achieving this goal, Eddy emphasizes the need to correctly evaluate patient preferences with respect to the alternatives. In light of the overall magnitude of the task, substantial progress in increasing the effectiveness of medical practice will not come easily or without great controversy.

Thus, I believe that it would be naive to anticipate that outcomes research will lead to substantial economies in the delivery of health care in the near future. Even now, after several years of effort, only a small number of patient outcomes research teams are in place. They have been organized at great expense and have produced only limited findings. Thus, whether these prototypes will serve as successful models for a much wider, affordable effort remains to be seen. In any event, the possibility that outcomes research will have a major impact on overall spending before the end of this century seems remote. Those, especially who believe that the "savings" from patient outcomes research will be sufficient to resolve this nation's other major health policy dilemma--dealing with the estimated 30 to 37 million uninsured individuals--are thus likely to be greatly disappointed.

1 Folland, Sherman, and Stano, Miron, "Small Area Variations: A Critical Review of Claims, Methods and Evidence," Medical Care Review, Vol. 47 (4), Winter 1990, 419-465.

Miron Stano, "Further Issues in Small Area Variations Analysis," Journal of Health Politics, Policy and Law, Vol. 16 (3), Fall 1991, 573-588.

2 McPherson, Klim, "International Differences in Medical Care Practices," Health Care Financing Review, Vol. 13 (1), Fall 1989 (Annual Supplement), 9-21.

3 Detroit Free Press, "Doctor's Problem? They don't Know," February 4, 1990, H1.

4 DeFriese, Gordon H., "Measuring the Effectiveness of New Interventions: New Expectations of Health Services Research," Health Services Research, Vol. 25, 691-695.

5 Glover, J. A., "The Incidence of Tonsillectomy in School Children," Proceedings of the Royal Society of Medicine, Vol. 31, 1938, 1219-1236.

6 Copenhagen Collaborating Center, "International Newsletter on Regional Variations in Health Care," No. 4, Spring-Summer 1987.

7 Howell, Joel D., and Catherine G. McLaughlin, "Regional Variations in 1917 Health Care Expenditures," Medical Care, Vol. 27 (8), August 1989, 772-788.

8 Vayda, Eugene, "A Comparison of Surgical Rates in Canada and in England and Wales," New England Journal of Medicine, Vol. 289, 1973, 1224-1229.

McPherson, Klim, P. M. Strong, Arnold Epstein and Lesley Jones, "Regional Variations in the Use of Common Surgical Procedures: Within and Between England and Wales, Canada and the United States of America," Social Science and Medicine, Vol. 15A, 1981, 273-288.

McPherson, Klim, John E. Wennberg, Ole B. Hovind, and Peter Clifford, "Small-Area Variations in the Use of Common Surgical Procedures: An International Comparison of New England, England, ad Norway," New England Journal of Medicine, Vol. 307 (21), November 18, 1982, 1310-1313.

9 Schieber, George J., and Jean-Pierre Poullier, "Overview of International Comparisons of Health Care Expenditures," Health Care Financing Review, Vol. 13 (1), Fall 1989 (Annual Supplement), 1-7.

10 Pfaff, Martin, "Differences in Health Care Spending Across Countries: Statistical Evidence," Journal of Health Politics, Policy and Law, Vol. 15 (1), Spring 1990, 1-24.

11 Newhouse, Joseph P., "Has the Erosion of the Medical Marketplace Ended?," Journal of Health Politics, Policy and Law, Vol. 13 (2), 263-278.

12 Holahan, John, Avi Dor and Stephen Zuckerman, "Understanding the Recent Growth in Medicare Physician Expenditures," Journal of the American Medical Association, Vol. 263 (12), March 23/30 1990, 1658-1661.

13 Ginzberg, Eli, "High-Tech Medicine and Rising Health Care Costs," Journal of the American Medical Association, Vol. 263 (13), April 4, 1990, 1820-1822.

14 THE WALL STREET JOURNAL, "Business and Labor Reach Consensus on Need to Overhaul Health Care System," November 1, 1989.

THE WALL STREET JOURNAL, "Patient Data May Reshape Health Care," April 17, 1989, B1.

15 Chambliss, Lauren and Sharon Reier, "How Doctors Have Ruined Medical Care," Financial World, January 9, 1990.

16 Leape, Lucian L., "Unnecessary Surgery," Health Services Research, Vol. 24 (3), August 1989, 351-407.

17 Rodawig, Donald F., "Open Forum," HCPI Forum, Health Care Policy Corporation of Iowa, January-February 1990, 9-10.

18 Chassin, Mark R., Jacqueline Kosecoff, Constance M. Winslow, et al., "Does Inappropriate Use Explain Geographic Variations in the Use of Health Care Services?," Journal of the American Medical Association, Vol. 258 (18), November 13, 1987, 2533-2537.

Leape, Lucian L., Rolla Edward Park, David H. Solomon, et al, "Does Inappropriate Use Explain Small-Area Variations in the Use of Health Care Services?," Journal of the American Medical Association, Vol. 263 (5), February 2, 1990, 669-672.

19 Wennberg, John E., Lewis Blowers and Robert Parker, "Changes in Tonsillectomy Rates Associated with Feedback and Review," Pediatrics, 59, June 1977, 821-826.

Dyck, Frank J., Fergus A. Murphy, J. Kevin Murphy, et al, "Effect of Surveillance on the Number of Hysterectomies in the Province of Saskatchewan," New England Journal of Medicine, Vol. 296 (23), June 8, 1977, 1326-1328.

20 Lomas, Jonathan, Geoffrey M. Anderson, Karin Dominick-Pierre, et al. "Do Practice Guidelines Guide Practice? The Effect of a Consensus Statement on the Practice of Physicians," New England Journal of Medicine, Vol. 321 (19) November 9, 1989, 1307-1311.

21 Nyman, John A., Roger Feldman, Janet Shapiro, et al, "Changing Physician Behavior: Does Medical Review of Part B Medicare Claims Make a Difference?," Inquiry, 27 Summer 1990, 127-137.

22 THE WALL STREET JOURNAL, "Medical Expenses Resist Controls and Keep Going One Way Higher," September 29, 1987, 33.

THE WALL STREET JOURNAL,: "Revising Second-Opinion Health Plans," May 24, 1989, B1.

THE WALL STREET JOURNAL, "As HMO Premiums Soar, Employers Sour on the Plans and Check Out Alternatives," February 27, 1990, B1.

23 Reinhardt, Uwe E., "Economists in Health Care: Saviors or Elephants in a Porcelain Shop?," American Economic Review, Vol. 79 (2), May 1989, 337-342.

24 Pauly, Mark V., "Is Medical Care Different? Old Questions, New Answers," Journal of Health Politics, Policy and Law, Vol. 13, (2), Summer 1988, 227-239.

25 Stano, Miron, "A Further Analysis of the Physician Inducement Controversy," Journal of Health Economics, Vol. 6 (3), September 1987, 227-238.

26 Eddy, David M., "Clinical Decision Making: Anatomy of a Decision," Journal of the American Medical Association, Vol. 263 (19) January 19, 1990, 441-443.

MIRON STANO, Ph.D., is a professor of economics and management in the School of Business Administration at Oakland University, Rochester, Michigan. A leading researcher in the field of patient outcomes, he recently collaborated with two colleagues in writing The Economics of Health and Health Care (Macmillan, 1993).
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Author:Stano, Miron
Publication:Business Forum
Date:Jun 22, 1993
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