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The Dose - JK Wall

Welcome to The Dose, which tackles the finances behind local health care and life sciences and points to the most interesting national analysis. Your host is J.K. Wall.

Health Care & Life Sciences / Life Science & Biotech

The moving target bedeviling attempts to cut health care costs

December 11, 2014

In health care these days, everyone is trying to hit a moving target.

I’m not talking about the rapid pace of change coming from Obamacare and other financial pressures—though my metaphor would be equally apt for that topic.

Instead, I mean the strategy du jour for reducing health care costs: trying to identify the big spenders in health care and getting them to spend less.

Insurers like Indianapolis-based Anthem Inc. are working with scores of hospital systems across the country to identify high-cost patients and help them get healthier—so they need less care—or get the care they need in less-expensive settings (read: not the hospital or the ER).

In Indiana, Anthem is working with the Franciscan Alliance hospitals statewide and Indiana University Health in Goshen to reduce costs in this way.

The federal Medicare program is doing the same thing with 11 accountable care organizations around Indiana and more than 360 ACOs nationwide.

In a similar way, employers are trying to identify their least healthy employees and help them get well, in order to avoid big health care bills.

At the state level, Rep. Tim Brown, a Crawfordsville physician who is also chairman of the House Ways and Means Committee, proposed this summer that the Indiana Medicaid program launch a pilot program aimed at Medicaid patients who rack up more than $1.5 million in expenses in a year.

A committee of lawmakers drew up draft legislation that would authorize such a pilot program for kids and for those suffering from mental health issues.

In the same hearing where Brown presented his idea, Milliman Inc. actuary Rob Damler unveiled fascinating data on so-called “super utilizers” in the Indiana Medicaid program. It shows which conditions these patients have, exactly how much they cost the state and where those dollars go within the health care system.

For example, non-disabled adults in the Hoosier Healthwise program—the folks managed by private insurers like Anthem and MDwise—spend an average of $2,452 per year on health care.

But the top 5 percent of non-disabled adults spend an average of $16,281 per year on medical care.

What conditions do these patients have? Well, 53 percent of them have a psychiatric disorder, 36 percent of them have heart conditions and 32 percent of them have lung problems.

From a business angle, all these efforts make sense. All business executives are taught to identify the biggest buckets of spending and then try to reduce them.

But these efforts keep bumping up against a stubborn fact: the 5 percent don’t stay the same from year to year.

In the Milliman data, the second-most-common “condition” among non-disabled adults in the Medicaid program—38 percent of patients—is maternity. And while some women have babies in back-to-back calendar years, many do not. Also, 10 percent of adults had an infectious disease, which likely won’t be repeated year after year.

But the moving target nature of these patients is even more pronounced than those examples suggest. It appears that even patients who aren’t in great health still don’t tend to rack up big bills year in and year out.

A 2012 study by the federal Agency for Healthcare Research and Quality found that most of the biggest spenders one year won’t be the next year. The study used data from the national Medical Expenditure Panel Survey for the years 2009 and 2010.

The top 1 percent of spenders account for 22 percent of costs in a year—at an average price tag of more than $87,000 per person. But four out of five of the top 1 percent spenders in 2009 did not rank that high the next year.

The top 5 percent of health care spenders accounted for nearly 50 percent of the costs in 2009. But by 2010, two out of three of the previous year’s top 5 percent had fallen out of that ranking.

The top 10 percent of spenders in 2009 accounted for 65 percent of the costs. But three out of five of them had fallen out of that ranking by the following year.

This doesn’t mean that patients go from really sick to really healthy from year to year. The study did find that half of patients accounted for 97 percent of total costs, and that three out of four of those patients were still in that top half of spenders the following year.

But it does mean that health care costs, over time, are coming from half or at least one-third of the total population—not just 5 percent or 10 percent.

That means targeted interventions—like those being tried by insurers, hospitals, doctors, employers and governments—are likely to keep struggling to hit the target.

Health care spending, meanwhile, will likely keep going up.

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