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Dallas sees no relief in health care expenses

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What health care overhaul mean for providers?

What would a health care overhaul mean for providers?Author: Individual Health Insurance Guests from Medical Mutual of Ohio, University Hospitals, The Cleveland Clinic and NPR discussed the possible impacts of health care reform legislation pending in Congress on today's Sound of Ideas call-in show on 90.3 and ideastream's David Molpus has ...

Medical care in Dallas is delivered in a broken market where doctors, hospitals and other providers shower patients with services of diminishing value but staggering cost.

Dallas sees no relief in health care expenses as competition drives up costs

The spending is rooted in the city’s proud entrepreneurial culture. Dallas is home to many competing hospital systems and physician practices. But this competition raises costs rather than lowering them, because it rewards those who do more procedures and tests and offers no incentive to spend less.

Scott & White Healthcare in Temple, by contrast, dominates medical delivery in Central Texas yet provides care for far less money. “Logically, the more competition, the lower the price. It doesn’t work that way in health care,” said Scott & White president and CEO Alfred Knight. “Competition increases the price.”

Neither of these business cultures is getting much attention in America’s divisive health care debate.

President Barack Obama and Democrats in Congress are struggling to find a model that insures all Americans against catastrophic medical expense.

The effort has worried and angered many who see it as a large, costly welfare program that will either deepen the federal deficit or pare back medical care for those who are currently insured, particularly seniors under Medicare (despite Obama’s vows to do neither).

Broadening insurance could help Dallas. The state’s demographer projects that nearly 36 percent of Dallas County residents under 65 will be uninsured next year.

The major players in Dallas’ health marketplace agree that it is flawed. So far, Obama administration and congressional attempts to overhaul health care only nibble around the edges of those flaws in Dallas and across the country. The Lewin Group, a research firm owned by the insurance giant UnitedHealth Group, estimates medical spending will grow twice as fast as salaries over the next two decades, even with the overhauls proposed so far in Congress.

Locally, insurers, providers, businesses and governments are exploring whether they can work together to lower costs and raise quality of care. If they can do what Scott & White has done, they can save $1 billion annually without hurting quality of care, according to the Dartmouth Institute for Health Policy and Clinical Practice. Some argue that North Texas risks losing its appeal as a business location if medical costs aren’t lowered.

Dallas spending

Dallas spends more for health care than almost any other big city in America, and the bill is climbing fast. In 1992, Dallas was well below the national average in Medicare spending – much less than Fort Worth, Houston and 121 other hospital regions across the country. By 2006, spending in Dallas had soared. The Dartmouth Atlas on Health Care now ranks Dallas 13th in the nation, well ahead of Fort Worth and Houston.

Medicare is a federal health insurance program that provides coverage for all Americans over the age of 65, as well as some disabled Americans. It accounts for 22 percent of the money spent on health care in the U.S. Physicians and hospitals across the country provide detailed patient treatment reports to the U.S. Department of Health and Human Services to gain reimbursement for treating Medicare patients. For several years, Dartmouth researchers have used this Medicare data to study regional disparities in health care spending to learn why some parts of the country spend more than others to treat the same types of patients and illnesses.

BlueCross BlueShield of Texas, the area’s largest insurer, says hospital prices in Dallas have gone up more than 10 percent a year for the last five years. Area doctors are seeing patients more often, ordering more tests and doing more procedures. These doctor services are up more than 20 percent in five years.

Diabetes patients see Dallas doctors nearly twice as often as they do in Houston. Dallas doctors charge an average of $6,992 annually per patient with Type 2 diabetes, compared with $2,079 in Austin, $3,067 in El Paso, $1,578 in Fort Worth and $2,226 in Houston, according to a study by Pennsylvania researcher SDI Health LLC.

To cover all these services, insurance costs doubled in the last decade, and may double again in another 10 years. For an average Dallas family of four, medical care and health insurance this year will cost nearly $17,000, according to a survey of Dallas employers by risk management firm MHBT.

“In 2020, 41 percent of a family’s wage base will likely be set aside for health care,” said Princeton health economist Uwe Reinhardt.

Higher spending doesn’t mean better care. Years of academic research have shown just the opposite. Medicare spending in Texas is among the nation’s highest, but Texas ranked 46th in overall quality of care in 2007, according to a scorecard based on 32 variables sifted by the Commonwealth Fund, a health care research group.

In the same scorecard, Texas ranked 48th in the number of patients whose hospitalizations could have been avoided by preventive care.

Dartmouth researchers say Medicare spent $10,103 for each of its roughly 300,000 enrollees in the Dallas area in 2006 – without counting the prescription drug benefit that took effect that year. The national average was $8,304 per enrollee.

John Goodman, president of the Dallas-based National Center for Policy Analysis, is among those who say the Dartmouth findings overstate medical spending in Texas and the possible national savings from curbing Medicare overuse. The average amount spent for each Texan on medical care is well below the national average, Goodman noted.

Dartmouth researchers say their Medicare research shows Dallas is a high-spending area even by Texas standards. BlueCross BlueShield of Texas has found the same result among its insured customers.

U.S. health care spending will probably hit $2.5 trillion this year, or one in every six dollars spent in the economy. In 1990, health care took in one in eight dollars.

Peter Orszag, the White House budget director, says medical costs have already forced states to limit spending on higher education and other services. “We are oriented toward more, rather than better, health care. That’s one of the key things that has to change,” he said.


In other businesses, competition tends to drive prices lower as companies jostle for customers. Not in health care, and not in Dallas. Competition drives up spending, as demand is stimulated by health providers, not necessarily by patients.

Dallas has seen an explosion of entrepreneurial medical investments for imaging centers, home health care and hospital outpatient treatments. But greater supply has not lowered the cost. Medicare spending in Dallas for these services is among the highest in the nation.

“The laws of supply and demand are not working,” said Darren Rodgers, president of BlueCross BlueShield of Texas. “We have lots of hospitals, lots of doctors and lots of demand.”

Since the early 1990s, Dallas has experienced a boom in hospital construction. Hospital administrators argue they are only trying to keep pace with a surge in the population. David Toomey, regional president for health insurer CIGNA HealthCare, says it’s an economic system turned upside down. “When you build it, they will come,” he said.

Toomey has initiated cost discussions among area insurers, health care providers and businesses. Researchers from Dartmouth and the Brookings Institution are helping him make the case that the city risks losing its appeal as a business destination if it doesn’t get a handle on medical spending.

Past attempts to turn this around involved cutting reimbursements from private insurers and federal programs like Medicare. Physicians and hospitals warn they cannot absorb any more cuts in their reimbursements. “There is NO more room to cut. Nada. Zilch. Down to the bone,” Dallas gynecologist David Fein warned in an e-mail. “Cutting any more payments to doctors, will, for the first time, cause walkouts, strikes, work slow-downs, etc. I guarantee.”

Seattle experience

Toomey’s effort to curb health care spending in Dallas is not his first attempt. Five years ago, while working for Aetna, he saw how an insurer, several employers and a hospital could work together to cut treatment costs.

At Seattle’s Virginia Mason Hospital, patients with back pain were given physical therapy instead of costly magnetic resonance imaging tests, or MRIs. Migraine sufferers got “rescue” medications to ward off their next attacks. Heartburn sufferers were treated with less-expensive generic drugs.

The approach pleased Aetna and big customers. It improved the quality of care and outcomes for the patients. But it left the hospital with less revenue. Aetna agreed to share some of the savings with Virginia Mason.

Hospital administrators say the savings and rewards are still accumulating. “Many medical organizations, when dealing with health [insurance] plans, are trying to get the most revenue per unit of service, irrespective of quality. That leads to an upward spiral of cost,” said Robert Mecklenburg, medical director of Virginia Mason’s center for health care solutions.

“As you keep getting rid of waste, the quality content improves, and the cost goes down for both the provider and the purchaser. So we can use that model in any type of marketplace.”

Toomey says it took years to work out this collaborative approach. The first step, however, was for Aetna and its customers to tell the hospital, “I’m not paying for that,” Toomey recalled.

Dallas employers haven’t reached that point. “We’ve always focused on quality improvement rather than the cost side,” said Marianne Fazen, executive director of the Dallas-Fort Worth Business Group on Health, which represents 145 of the region’s big employers. “Perhaps because we have such large employers that are spending that kind of money on their employees anyway. Maybe that’s why they haven’t picked up that bloody flag and waved it in front of the hospitals.”

Rodgers, the BlueCross BlueShield of Texas president, said employers are unwilling to do without any of the big Dallas hospital chains. Texas Health Resources, Baylor Health Care System and HCA North Texas split about 60 percent of the acute care hospital beds in the Dallas-Fort Worth area. The chains have told insurers that they cannot pick and choose among their hospitals but have to accept all as a package.

Cost shifting

Dallas hospital administrators say cost cutting by the federal government is a major reason that costs have gone up for the privately insured.

The hospitals in the Dallas metropolitan area reported losses of $148 million on Medicare patients in 2007, according to federal data sifted by American Hospital Directory, a Medicare data mining company.

Gary Brock, chief operating officer of Baylor Health Care System, said the government reimburses Baylor just 80 percent of its costs for Medicare patients. To make up the difference, Baylor charges privately insured patients 150 percent of its costs.

Texas Health Resources CEO Doug Hawthorne said his group does roughly the same. The hospitals compare this cost shifting to squeezing a balloon. When the government forces down its Medicare costs, it causes costs to bulge for other patients.

Jeff Schaub, a bond analyst in New York with Fitch Ratings, said cost shifting is a fact of life in hospital economics. “With Medicare, you get what you get. On the commercial side, there’s a lot of room to negotiate,” he said.

Yet the federal Medicare Payments Advisory Commission says hospitals that are denied cost shifting by recalcitrant private insurers manage to make money on Medicare’s payments. Hospital margins – what’s left of revenues after all the costs are subtracted – averaged 6 percent in 2007, the highest in a decade.

“Where private insurers can fight back, Medicare reimbursements are adequate,” said Dartmouth’s Elliott Fisher.

Schaub agreed, but noted that hospitals do what’s necessary to stay in business – even if it means cutting back on service.

Uncoordinated care

A broken market also helps explain a second cost culprit in Dallas. Patient care is not well-coordinated. Once a patient enters a hospital, family doctors say they are left out of the loop. Lots of doctors start duplicating one another’s tests, ordering drugs that may interact in dangerous ways and leaving the physician who best knows the patient in the dark.

“We are not a very organized medical community. It’s pretty much the Wild West,” said BlueCross Blue-Shield’s Rodgers.

In the last six months of life, thousands of Dallas Medicare patients are seen by 10 or more doctors dozens of times. Medicare statistics from 2007 sifted by Dartmouth show that at Texas Health Presbyterian Hospital in Plano, 49 percent of dying Medicare patients were seen by 10 or more physicians. At HCA’s Medical City Dallas Hospital, it was 44 percent.

Twenty years ago, it was assumed that the family doctor was in charge of care coordination. When employers rebelled in the 1990s at the cost of medical care, insurance companies turned to a model called the health maintenance organization. HMOs manage care through the insurance company, a practice loathed by doctors and patients who want nothing to interfere with their choices of care.

“What it’s done is cause most practicing physicians, especially those in primary care, to do all kinds of things that are not right,” said Robert Kramer, a retired pediatrician who is a principal with DocOnomics, a Dallas physicians’ financial advice firm.

Doctors who care for families over generations are rare. Some turn to salaried positions with large hospitals. Others join medical groups that invest in imaging centers, hospitals or home health care.

Kramer said many physicians have either overloaded their appointment calendars with patients or overdone medical treatments. “You can’t charge what your time is worth, so you can’t spend enough time with each patient,” he said. “The overuse of diagnostic testing has been horrendous.”

Kramer is vice chairman of Texas Health Resources’ institutional review board, which oversees human research projects.

“I see orthopedists making hundreds of thousands above and beyond the operating room by being consultants and speakers for drug companies that make artificial hips, knees and shoulders,” he said. “It’s a huge conflict of interest.”

Dr. Robert Fine, an internist who also heads palliative care for patients at Baylor University Medical Center, said business pressures are strong in group practices. In an e-mail, he described pressures at his own group.

“Any physician in our group who spends a longer amount of time coordinating care, or takes the time to really listen to the patient in the office, or who talks to the patient on the telephone rather than have the patient come to the office, helps lower the overall costs of care, but loses significant amounts of money in the process and is not productive from the point of view of the group,” Fine wrote. “Perverse incentive to say the least!”

Marketing health care

These types of practices have drawn scrutiny from Dartmouth’s Institute for Health Policy and Clinical Practice for more than 30 years. Dartmouth research shows cities like Fort Worth, San Diego, Phoenix and Seattle spend far less on Medicare patients than places like McAllen and Dallas. Their patients often get better results.

Gil Welch, a physician and Dartmouth researcher, says part of this disparity stems from competition for patients and the marketing that goes with it. “The easiest way to expand market share is to create more patients,” he said. “There’s been a progressive effort to expand markets into the ranks of the well.

“The technical prowess we have with things like CT scans and MRIs allows us to find a lot more abnormalities. Health is now defined as the absence of abnormalities. But everyone has abnormalities.”

Welch says patients need to recognize this when doctors urge them to get screenings for illnesses like breast and prostate cancer, diabetes and high blood pressure. The tests may be beneficial, he said, but they also create many false positives leading to unnecessary spending and anxiety.

Many physicians argue that the threat of a malpractice lawsuit prods them into ordering extra treatments and tests. Texas addressed this in 2003 with a constitutional amendment capping noneconomic damages in malpractice suits at $250,000. Malpractice insurance premiums have dropped, but the cost of medical care hasn’t. Dallas doctors are still ordering extra treatments.

Health economist Mark McClellan, who heads the Engelberg Center for Health Care Reform at Washington’s Brookings Institution, said Dallas can slow the rising cost of health care without draconian cuts in reimbursements. Pay doctors and hospitals extra for quality and efficiency, he argues, instead of paying for volume, and spending will fall.

Today Medicare and private insurers pay doctors and hospital outpatient clinics a fee for each service, so the incentives are aligned toward overuse of medical care.

McClellan is urging a different system known as an accountable care organization, in which all the medical caregivers working on a patient are paid a lump sum defined by the patient’s ailments, and are accountable to one another for staying within budget. He’s advising Dallas leaders on how such a system could lower costs.

“I don’t think any community can afford to wait for the federal government to act,” he said. “There are too many problems to solve.”

(ArticlesBase ID #1258424)

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Dallas sees no relief in health care expenses
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