Cost Effectiveness in Healthcare

Achieving cost effectiveness of health in the United States is a task that is not limited to healthcare providers – or only to the stakeholders within our nation’s healthcare system, for that matter. It’s a societal challenge, says Jeff Goldsmith, PhD, president of Health Futures Inc.

Here, Goldsmith shares his perspectives on what is needed to address this challenge, and how it relates to efforts that are well underway to reduce cost of care while improving quality, including value-based payment. 

Jeff Goldsmith, PhD

Q

There’s a growing sense among health system stakeholders that the nation has been moving too slowly toward achieving the triple-aim goals of value-based payment. Yet the goals in and of themselves are laudable and seem very much aligned with the goal for our nation’s health system of improved cost effectiveness of health.

How do you square these ideas?

Goldsmith

I think the movement to value-based payment is becalmed, and desperately in need of evidence that it’s worthwhile for either the care system or payers to invest a lot more energy in it. In its Sept. 9 report for 2020, Moody’s reported that the median percentage of hospital revenues coming from capitation was 1.7% (and never reached 2% post-ACA), which means that half the hospitals in the country have less than 1.7% of their revenues coming from capitation.  As late as 2014, only 8% of hospitals had a dime of capitation, according to AHA. The median revenue base for two-sided, ACOstyle risk was 1.1%

That’s not to say I think all that energy that has been devoted to value-based care has been wasted. I think it has been one of the only ways that care systems have been able to connect with their medical communities, a significant percentage of whom no longer used the hospital.  I think value was created by having a conversation that spanned the medical community about how to define and create value.   I’m just saying that empirically, there is no evidence of a movement to capitation or two-sided risk in the actual numbers.

Q

So if value-based payment is not the way to go, what is the way to go to achieve cost effectiveness of health?

Goldsmith

That’s a really hard one. Let’s put ourselves in the position of a hospital CFO. What are they worrying about right now? They’re worrying about all the vacancies that they’ve got in their direct caregiving operations that have been created by the stresses of COVID and by the retirement of the baby boom generation. If you don’t fill those slots, you’re not even going to be able to meet the needs of the people who were scheduled to have surgery at your place, or who were expecting to get chemotherapy for their cancer.

So there’s  a Maslow’s hierarchy problem — where you have self-actualization at the top and just survival at the bottom — in dealing with cost-effectiveness in an environment like this if you’re not sure you can even meet the needs of the people that are showing up that need care because your beds are full of patients with COVID.

So I think cost effectiveness is somewhere up the ladder in the Maslow’s hierarchy of CFOs’ worries about their organizations. And somewhat above survival but below cost-effectiveness  is the concern about whether their organization is generating a rate of return on their capital equal to the cost of the capital. That is, “Am I efficient enough in my care delivery and lean enough in my administrative expense and sensible enough in how I buy things — drugs, devices, IT systems, consulting services — that my organization is viable in the medium-to-long term?”

Those concerns were certainly reflected in Moody’s reports of a not-surprising significant deterioration in hospital financial performance during 2020, even with a big chunk of help from the CARES Act.^a

Looking at things this way, I think cost effectiveness is somewhere in the middle to upper range of those things that CFOs are trying to optimize. I think the typical hospital CFO or chairman of the board’s finance committee is much more immediately concerned about the survival and viability of their organizations.

That said, the question of cost effectiveness is a part of the community obligation for a hospital or health system. Whether your organization is for-profit or nonprofit doesn’t matter: If you’re not focused somehow on making your product safer and more accessible and making the delivery of care easier for the people who are delivering the care, you’re not doing your job as an organization.

Q

One also hears reports about the United States having a less cost-effective healthcare system than other developed countries. What needs to happen to address that issue?

Goldsmith

I have trouble with those international comparisons because you’re not comparing societies that are equally effective in protecting their own citizens. That’s an issue that goes beyond far healthcare. There’s Elizabeth Bradley’s wonderful book The American Health Care Paradox, which looked at where we stand relative to the OECD countries.^b If you sum social care and healthcare spending together, we’re not at the top but in the middle of the spending distribution, because we have grossly under-invested in public health, in mental health, in caring for elderly and families all the rest of it. We have delegated a lot of mental health interventions to our police and prison systems; other countries have far better systems for addressing mental health issues to prevent them from escalating to violence and harm.

So I really have a lot of trouble with inter-societal comparisons that make our U.S. care system look really bad. We do look really bad, but it’s for a very different reason than that our medical care system is ineffective, or that we are paying our hospitals or doctors the wrong way. It’s that our society is failing to adequately protect its citizens, and our safety net tilts expensively toward medicine and away from social care.

Our nation can go a long way toward reducing healthcare expense if it does a more effective job in those areas. And to arc back to your topic, that is a cost-effectiveness issue — one that is a level or two up from the question of whether the healthcare system itself is providing a cost-effective product. The bigger question is whether society is making investments that can help our health system do its job better.

Q

There’s also a need for patient engagement to improve cost effective of health in the United States. And one important consideration is to address social determinants of health and the problem of people coming to the emergency department (ED) as their first choice instead of having a relationship with primary care physician — things that are causing patients to be part of the problem instead of contributing to the solution. What can hospital and health system leaders do to address that issue?

Goldsmith

As the largest employer in many communities, hospitals have a considerable social obligation that isn’t necessarily directly related to their core business. Atul Gawande  wrote a famous piece about “hot spotters” — the tiny fraction of people, mostly uninsured, who come from specific poor neighborhoods who generate the vast majority of health costs in those communities.^c If you’re losing $50 thousand per admission,  and one main reason those folks show up in your ED is that they are homeless and there’s no place for social workers, caregivers or mental health professionals to find them, what’s it worth to you to keep those people out of your ED and reduce the cost of ED admissions to some manageable number?

That argument has caused a fair number of inner-city providers to get involved in finding housing for people. In Charlottesville, we have a very effective program for homelessness called The Haven that helps address this idea of housing first — the idea that if the person is homeless, you’re not going to be able to address any of their other needs, many of which manifest themselves in excessive use of the health system.

Many organizations have been tackling this issue.

Dallas-based Texas Health Resources, for example, has its Blue Zones Project that is working to increase life expectancy in its Fort Worth patient population by reducing health-related risks across multiple neighborhoods served by its facilities. There are a fair number of healthcare organizations that have gotten into that business. And it’s not for PR reasons or political reasons, but for the pragmatic reason that the main problems their patients were facing were not medical in nature. So community interest and enlightened self-interest collide.

So if you’re the largest employer in your community, and you’ve got significant social problems that relate to homelessness or an inadequate investment in public health or mental health, it makes sense to get involved in those issues, whether as a convener of the discussion in the community about what to do about it or by taking action yourself.  I think this is a cost- effectiveness argument. It is more cost effective, for you as well as the community, to find those hot spotters homes than to continue to have them cycling through your ED.

Q

What would you say is the takeaway for health system CFOs regarding the need to address these issues around cost effectiveness of health?

Goldsmith

Now a lot of CFOs will be asking, “How much money am I willing to spend on that stuff if I can’t staff my ED?” You never get to a perfect place here. You do have a broader community obligation, and it isn’t just because you might be nonprofit and you’re foregoing paying taxes in exchange for some presumed societal benefit. It’s that you are a key part of a community that is having problems, and you need to play an active part in efforts to solve those problems. In many cases, it is an investment of scarce C-suite time, not dollars, that is needed.

If I’ve got my CFO hat on, I’m should be saying to myself, “My organization has financial pressures coming from all over the place. But I need to find a way to balance the strategies I pursue to optimize my performance with my effort to optimize my contribution to my community.”

I think that’s the right context to look at cost effectiveness of health.

Originally published on STAT.