Skip to content

The Health Care Economy: New Questions About Costs, Quality And Care

Friday’s employment report showed a sharp slowdown in private sector hiring, raising the specter of a lackluster recovery or even a double-dip recession. A closer look at the job numbers, though, reveals that happy days are here in the nation’s physician offices-at least for now.

Ambulatory care settings created 8,700 new openings in May, according to the Bureau of Labor Statistics, or one of every five new private sector jobs added to the economy. Health care as a whole added 13,100 jobs, or one in every three non-government positions.

The health care industry is bulletproof when it comes to increasing spending or creating jobs. Growth rates that are often double the rest of the economy have allowed the nation’s hospitals and physician offices to add nearly 1.5 million jobs over the past decade, a period when other private sector employers were shedding 2.8 million jobs, largely the result of the banking and financial crisis. In fact, there hasn’t been a single month in the past decade when health care providers as a group didn’t increase employment opportunities for job-hungry Americans.

In most American cities, health care has become the single largest industry with hospitals providing opportunities for job seekers once found in local factories. “This used to be a rubber town,” said Robert Harrigan, president of Akron’s Summa Health System, whose 10,000 employees at seven hospitals make it the dominant health care provider in its metro area. “Now we’re the number one employer in town.”

It’s a global phenomenon among the aging societies of the industrialized world, and transcends differences in how payments are made or care delivered. John Cassidy, writing about the social accomplishments of Great Britain’s defeated Labor Party in the June 24th issue of The New York Review of Books, said the government-run National Health Service added 89,000 nurses and 44,000 doctors since 1997. “If you walk around a typical British city today, you will encounter numerous new schools, hospitals, and day care centers-all of them government-run,” he wrote.

Oh, No, Canada!

The growing government role in providing health care-in the U.S. as elsewhere around the world-is the single largest contributor to an emerging global fiscal crisis. Canada, long touted in the U.S. as the system to mimic, is facing new fiscal challenges. Its provincially run single-payer health care systems, growing at 6 percent per year, are scrambling to find ways to cut costs as the central government in Ottawa begins cutting subsidies to bring its budget in line.

Ontario, which is the largest province by population, has a health care budget projected to become 70 percent of the provincial total in a dozen years. The Ontario Finance Minister Oscar Duncan last month told Reuters that “there are difficult decisions ahead and we will continue to make them.”

The debate over how to control rising health care costs nearly derailed the Obama administration’s efforts to enact health care reform, whose primary goal was to provide health care coverage for most of the nation’s nearly 50 million uninsured. The final legislation called for wringing nearly a half trillion dollars in savings out of projected Medicare spending over the next decade to help pay for reform.

Writing in last week’s New England Journal of Medicine, administration consultant Jonathan Gruber of the Massachusetts Institute of Technology countered critics who fret Congress will back away from making most of those cuts when push comes to shove. Those critics point to the soon-to-be-enacted hike in physician payments, which will roll back scheduled cuts that have been postponed by Congress every year since they were enacted in 1997. “Congress has passed many Medicare cuts during the past 20 years, and the physician-payment cut is the only one that has not taken effect,” Gruber wrote.

Yet those other Medicare “cuts” have not slowed the overall rate of health care inflation, and even Gruber admitted most of the cost-cutting in the reform legislation is back loaded. The Congressional Budget Office says reform will increase health care spending by 1 percent over the next decade compared to previous projections.

Gruber said the elements in the legislation that make a “significant step toward fundamental cost control” include the tax on high-cost insurance plans that will reduce consumer demand; a “depoliticized board” that will make up-or-down recommendations to Congress on changes in Medicare provider payments; and “dozens of pilots to test various approaches to revamping provider-payment incentives and organizational structure.”

Accountable Care-Does it Really Work?

The pilot project drawing the most attention these days involves so-called accountable care organizations (ACOs), which are already being put in place by some communities without government assistance. Late last month, California’s largest insurer, Anthem Blue Cross, and two of Southern California’s larger physician-led medical groups launched an ACO that promises to hold down health care costs while improving quality.

The California ACO project is being led by the Brookings Institution’s Mark McClellan, chief of the Center for Medicare and Medicaid Services during the middle years of the Bush administration, and Elliott Fisher of the Dartmouth Institute for Health Policy and Clinical Research, whose Atlas of Health Care maps Medicare spending disparities across the U.S. Researchers have used its data to suggest those spending differences don’t affect health care outcomes or quality.

Obama administration officials have also used that research-to suggest that 30 percent of health care spending could be eliminated without affecting quality. They pushed hard to put the ACO pilot projects in the health care reform legislation.

“The ACO seemed like an ideal approach for dealing with the problem of regional disparities,” said Jonathan Skinner, an economist affiliated with the Dartmouth Institute. “The idea is that you will measure outcomes and spending at the organizational level and hope they will organize themselves to gain efficiency, improve quality, and reduce costs.”

Previous Medicare pilot projects have also tied payments to improved quality. But none tied payment reform to organizational change. ACOs “are about giving providers more financial support when they take steps that improve quality and lower costs,” said McClellan in an email exchange. “They require clear (if individually incremental) steps to get these changes.”

The long-term hope is that most Americans will get their health care from integrated systems that mirror Kaiser Permanente or the Geisinger Health System, which meld physician group practices and hospitals together in a payment unit where everyone benefits if costs are lowered and quality raised. “There are hospitals and physician network groups lining up to learn how to do this,” Skinner said. “The institutions are saying we can save a lot of money and we’ve never been rewarded for this before.”

But the approach and the analysis behind it continues to draw complaints from hospital officials and physicians in high-cost areas of the country, who claim the Atlas doesn’t fully take into account their higher prices or the quality of care. Their critique received front page coverage in The New York Times last week. The story questioned claims that low-cost regions deliver comparable quality. “Measures of the quality of care are not part of the formula,” Reed Abelson and Gardiner Harris wrote. “As any shopper knows, cheaper does not always mean better.”

The article drew a heated rejoinder from Elliott and Skinner on the Dartmouth Atlas website. They accused the Times reporters of making at least five factual errors and several misrepresentations. Postings by bloggers quoted Times sources who claimed they were misrepresented or their words taken out of context.

The brouhaha over journalism quality aside, it remains an untested proposition whether higher health care quality ultimately lowers costs. It stands to reason that fewer repeat knee operations or stent insertions should reduce expenditures. But better care for a heart attack patient today might translate into treating more costly second heart attacks later on. The net effect of ACO’s impact on either improving quality or lowering costs won’t be known for years.

“We can do a pretty good job of measuring costs but I think we have a longer way to go to do a really good job of measuring quality,” Dartmouth’s Skinner said. “The quality measurement industry is still in its adolescence.”

One thing is for certain, the nation’s physician lobby is doing everything in its power to ensure the impact of the quality improvement movement doesn’t hit their bottom lines anytime soon. Congress this week will shovel another $1 billion to physicians in the form of higher pay on top of restoring $23 billion in projected cuts. While most of the nation remains mired in a jobless recovery, the great American jobs machine in the nation’s physicians’ offices rolls on unhindered.

Merrill Goozner is the author of “The $800 Million Pill: The Truth behind the Cost of New Drugs.”

Related Topics

Cost and Quality Health Industry