About every six months, our local media carry some version of this story about Massachusetts healthcare costs, and explain that the problem is we have too many doctors, and that no one is doing enough to control costs. Just this last month, the Commonhealth blog reiterated this claim via a guest contributor as did reports on healthcare from the New England Healthcare Institute and the Boston Foundation.
The label is both facile and inaccurate. Two of the “costs” that are included in the numbers that appear so inflated are the costs of doing research and the costs of caring for out-of-state patients, both activities that bring with them substantial revenue. By any rational criteria these are not a burden but among the benefits of having some of the best hospitals in the country. To label ours as the world’s costliest health care you must calculate that the extraordinary level of funding that Massachusetts receives from the National Institutes of Health is a health care cost and that together with the care we provide to out-of-state and international patients – who often pay the highest rates for that care – these funds are a drain on the Commonwealth’s economy. They plainly aren’t. Life sciences research and out-of-state and international patient care are key elements of the health care economic engine that sustains this Commonwealth in rough economic times and employs 14 percent of our workforce.
Insurance premiums are a better measure of healthcare costs than hospital expenditures. In 2005, single coverage in MA was 6.1 percent above the national average. Family coverage (which covers most of the market) was 6.6 percent higher than the national average. Not only are these differentials far less than the 40% which is commonly cited but they are also not growing at a rate that is higher than elsewhere — Massachusetts ranked 31st out of the 40 states measured on average annual growth in premiums from 1997 to 2004. The fact is that while the cost of living is higher in Massachusetts than elsewhere, the difference is actually less in healthcare than in other sectors:
I am not trying to say that the cost of health care isn’t a problem, in Massachusetts or anywhere else. It is a big problem and we need to do more to manage it. Focusing on the care of the chronically ill will always be the most important step because the sickest 10 percent of Americans account for over 70 percent of health care costs. Learning how best to coordinate care for a population over time in the most cost effective way has been nearly impossible to do in our fragmented payer/provider structure. Instead the focus has all been on individual episodes of care, office visits, tests, hospitalizations, procedures and interventions – where most innovations end up adding cost.
This has to change and a primary instrument of that change is going to be healthcare information technology (IT) which is steadily taking hold in Massachusetts through the efforts of many organizations: government, payers, health centers, hospitals and physician practices. More effective management of information and broad application of decision support enabled by IT will make healthcare safer, better and less costly. There are plenty of other ideas out there to control costs, some will help, some won’t. What clearly doesn’t help is to cast this as a unique local problem and to imagine that we therefore have only ourselves to blame.
David F. Torchiana, MD
Chairman and CEO
Massachusetts General Physicians Organization (MGPO)
[...] World s Costliest Health Care? by David F. Torchiana, MDTo label ours as the world s costliest health care you must calculate that the extraordinary level of funding that Massachusetts receives from the National Institutes of Health is a health care cost and that together with the care we … [...]
In Boston at the Lemuel Shattuck Hospital Geriatric Care Services there are no telephones at confined to bed patients’ bedsides. Nursing stations field calls from families and friends taking a large amount of time when the staff could be doing other things. Telephones set up at patients’ bedsides would result in overall savings by freeing up staff fielding calls from families and friends.
It’s Wrong to Deny or Rationalize High Health Costs in Massachusetts
—A Response to David Torchiana from Alan Sager and Debbie Socolar,
Directors, Health Reform Program, Boston University School of Public Health http://www.healthreforrmprogram.org
23 August 2007
David Torchiana is just plain wrong to complain that we and others have been exaggerating the gravity of high health costs in Massachusetts. And his pejoratives don’t substitute for evidence.
Torchiana tries to cast doubt on the gravity of U.S. and Massachusetts health cost problems. After belittling worries about high health costs, Torchiana insists he really is interested in containing cost. He then proclaims salvation through coordination of care for chronically ill patients and through information technology. He promises technical fixes for real problems. But these promises ring hollow after the failure of virtually all cost controls attempted over the past 30 years. And he offers no evidence to buttress his promises..
For these reasons, the effects of Torchiana’s words—both his complaints and his solutions—are to rationalize and perpetuate our state’s extraordinarily high health spending—and to justify even more money for business as usual in the years ahead.
Health care in the U.S. is twice as costly as in other wealthy nations, and Massachusetts costs are one-third above the national average.
Worse, the Massachusetts excess has been trending higher over the past 25 years—from one-fifth above the national average in 1980 to one-quarter above in 1990 to one-third above in 2004.
The Massachusetts dollar excess amounted to $11.3 billion in higher spending on personal health care in 2004.
Most of the data we use in this comment was prepared for our June 2006 report, Massachusetts Health Spending Soars to $62.1 Billion in 2006: Spending Here Is World’s Highest—33% per Person Above U.S.A. Average, An Unprecedented Excess, http://www.healthreformprogram.org. Much of it rests on widely-cited federal estimates of personal health care costs.
We’ll offer details below but, in summary, two key elements of this evidence on high Massachusetts costs starkly contradict Torchiana’s assertions:
1.Personal health spending in Massachusetts in 2004 was $11.3 billion higher than if it had been at the national average per person. Torchiana does not even try to explain away more than a fraction of this huge sum.
2. These federal government data show that Massachusetts has the highest per capita costs of any state—not only for spending on caregivers in Massachusetts but also for spending on care received by Massachusetts residents. So out-of-state patients cannot account for the state’s high per capita health costs.
Torchiana’s claims about the state’s excess spending and purported solutions rely mainly on words and arguments, not numbers and evidence.
And his one set of numbers is contradicted by other evidence—evidence that is probably more trustworthy and relevant than his own. Torchiana cites a federal survey of insurance premiums which found that family insurance coverage in 2005 in Massachusetts was only 6.6 percent more costly than the U.S. figure. That’s only 7th highest in the nation. So, why worry?
Torchiana’s evidence is shaky for at least five reasons. First, the survey he cites also reported that Texas and Wyoming had higher premiums for family coverage than Massachusetts did. Does that sound right to anyone? Wyoming?
Second, we compared those reported premium figures with actual health costs per person, as reported in federal data. The correlation across the 50 states between family insurance premiums and actual health costs per person yielded an R2 of only 9.9 percent—a very weak relationship between two things that most people would expect should be tied together fairly closely.
The premiums reported in the particular study Torchiana cites may not be accurate. By contrast, the evidence on actual health spending per person is from the nation’s main data set on health costs, reported by the Office of the Actuary at the federal Centers for Medicare and Medicaid Services. These widely-used National Health Expenditure data are compiled year after year from reports by hospitals, physicians, nursing homes, and others across the nation—not from samples of employers.
It is this evidence that shows Massachusetts health spending per person to be fully one-third above the U.S. average. That was average spending of $7,075 in Massachusetts versus $5,313 for the nation as a whole.
It is this gap of $1,762 per person—and $11.3 billion statewide—in 2004 that Torchiana tried to explain away.
(The $11.3 billion statewide excess is calculated by multiplying the excess spending per person of $1,762 by the Massachusetts population of just over 6.4 million. That is the 2004 excess in personal health care spending in Massachusetts—above what would have been spent here had this state’s cost per person been at the national average.)
Third, when Medicare and Medicaid spending are subtracted, the remainder is overwhelmingly private insurance premiums and out-of-pocket spending. Massachusetts premium and out-of-pocket spending in 2004 was actually 34.5 percent above the national average—$4,531 versus $3,370—even greater than the excess in overall personal health spending. (Our state was second in the nation on this measure, $100 per person below Alaska.)
Fourth, Torchiana asserts that heath insurance premiums are what matters—as if it’s appropriate to ignore dental, home care, nursing homes, and other personal health care costs that are largely excluded from private health insurance.
Fifth, data from other sources directly contradict those Torchiana cites. Health insurance premiums in greater Boston are the highest among 14 metropolitan areas studied by Hewitt Associates. And costs per employee in Boston in 2006 were projected at 212 percent of those prevailing only seven years earlier.
Departing from numbers, Torchiana tries to explain away our state’s high health costs with words. He resorts to those two old favorites, research that is financed from out of state, and services to patients who live in other states, nations, and planets.
Unfortunately, he doesn’t even try to quantify this spending. Biomedical research is important to our health and to our economy. And much of it is included in hospitals’ costs. But how much? And what is our state’s net gain from out-of-state patients?
Bent out of shape. Research spending and promoting top-notch specialty care are not pure gains.
Massachusetts health caregivers hope to attract patients, research grants, and other revenue from out-of-state. They succeed, to a large degree, in attracting research funds from the National Institutes of Health, drug makers, and other sources. They do less well in actually exporting health care to non-residents.
Meanwhile, in seeking to push back the frontiers of research and clinical services, and in shaping our state’s health care to try to export care, Massachusetts health services seem to have evolved in directions that are elaborate and expensive.
One-half of the Massachusetts 140 hospitals that were open when President Kennedy was inaugurated have now closed—all of them small or mid-sized community (non-teaching) hospitals. Today, 48 percent of Massachusetts patients are served in teaching hospitals–the fifth-highest share in the nation. Massachusetts teaching hospitals generated two-thirds of statewide charges for inpatient care in 2005. These patterns point to a health care system that is too costly for many of us to afford.
Also, Massachusetts hospital surpluses have soared in the past four years, reaching a total of $3.5 billion in fiscal years 2003-2006. A markedly disproportionate share of the profits were garnered by costly teaching hospitals. In 2006, five large teaching hospitals won $554 million in profit, about one-half of the statewide surplus that year.
And these surpluses don’t yet reflect the higher payments to hospitals authorized by the Massachusetts health reform law, chapter 58 of the Acts of 2006. Under the law, Medicaid payments to hospitals will rise by almost $500 million over three years, and about one half of this money will go to the already-more-prosperous large teaching hospitals.
Service to out-of-staters—health care as an export. The federal government’s National Health Expenditures data provide reasonably good estimates of the share of personal health costs that go to care for non-Massachusetts residents. About 2 percent of all personal health care spending in Massachusetts is for non-residents. For hospital care in Massachusetts, the non-resident share has been about 4 percent. Not trivial, but not overwhelming. While out-of-state revenue in a few Boston teaching hospitals surely does exceed that 4 percent statewide average, for most Massachusetts hospitals the share is even lower.
Most of the out-of-staters served here apparently reside in exotic places like Rhode Island, New Hampshire, Maine, and Vermont. Also Connecticut and upstate New York.
Some industry voices dispute the importance of estimates of health care spending per capita in Massachusetts, arguing that much care provided in Massachusetts is for people from outside the state. Often, however, they neglect to note the off-setting outflow of patients from Massachusetts who receive care elsewhere while traveling, or seek care in Providence or Albany, for example, because they live near state borders. The net inflow of patient and health spending are the important things to learn.
Actually, it is not very hard to quantify spending on health care given in Massachusetts to people from out of state, net of care given outside Massachusetts to Bay Staters.
That is because the federal government periodically develops estimates of spending on health care for the residents of each state, as opposed to the recent estimates of spending on the health care providers in each state.
In 1998, the last year for which such data by residence are available, $29.6 billion was spent—here and in other states—on health care for Massachusetts residents. Spending per resident in Massachusetts was highest in the nation.
In that same year, health care providers in Massachusetts garnered $30.2 billion in revenue.
The difference, $0.6 billion, was care provided here to residents of other states (or nations). The $0.6 billion therefore measured this state’s net export of health care, a modest boost to the state’s economy by earning money from out-of-staters. This $0.6 billion difference equaled just 2.1 percent of the money spent to provide care to residents. Looked at another way, net spending on care for residents equaled fully 97.9 percent of the spending on caregivers in the state. (This relies on Health Reform Program analyses of 1998 state-level health care spending data, comparing spending by state of provider (care given in Massachusetts to residents and non-residents alike) with spending by state of resident (care given to residents of Massachusetts, wherever they receive care). Links to the 1998 data by state of provider and the 1998 data by state of residence can be found at http://www.cms.hhs.gov/NationalHealthExpendData/05_NationalHealthAccountsStateHealthAccounts.asp#TopOfPage.)
Among the 23 states that were net exporters of health care in 1998, Massachusetts ranked 9th in exports as a share of state-of-provider health spending, above Texas but below Colorado. Massachusetts ranks 8th on dollars of exported care.
This measures the export of personal health care. This does not reflect other out-of-state revenues received for conducting research and development financed by the National Institutes of Health or other sources.
The 1998 HCFA data, and previous analyses for 1993, showed Massachusetts per capita costs to be the highest among the states, both for care provided by Massachusetts caregivers and for care provided to Massachusetts residents. So, as noted above, the state’s high per capita health costs could not be explained by use of Massachusetts caregivers by patients from outside the state.
(Unpublished 1993 U.S. Health Care Financing Administration data, and Joy Basu, “Border-Crossing Adjustment and Personal Health Care Spending by State,” Health Care Financing Review, Vol. 18, No. 1 (Fall 1996), p. 226, Table 5.)
If—as in 1998—fully 97.9 percent of 2006 personal health spending in Massachusetts went to Massachusetts residents, net, then personal health spending per resident in Massachusetts in 2007 is $7,877.
Those who pay for health care for Massachusetts residents spend far more than payers do in any other state, 30 percent above the national per capita average. The same federal government data show that spending on the state’s caregivers in 1998, per resident, was 77 percent higher in Massachusetts than in Idaho— the highest and lowest cost states in 1998, respectively, and four percent higher than in New York, the next-highest state.
Actually, we fear that exports have been falling over time as a share of personal health spending in Massachusetts. One reason is that doctors and hospitals in nearby states, such as New Hampshire, have been markedly boosting their own capacity to provide care for which New Hampshire residents previously traveled to Boston. A second reason is that prospective patients from other nations are said to be experiencing greater difficulty than formerly in obtaining visas.
The Massachusetts excess is not just about hospital care. In trying to justify the high costs of Massachusetts health care, Torchiana focuses on hospitals. But only about one-half of the 2004 Massachusetts cost excess was in the hospital sector. Long-term care (nursing homes and home care together) accounted for 22 percent of the excess, doctors accounted for 12 percent of the excess, retail prescription drugs for 6 percent, dentists for 5 percent, and so on. Research and exports can’t begin to justify the higher spending in these sectors.
Overall, unfortunately, Torchiana devotes much more energy to justifying high health costs than to calling for serious attacks on the causes of high costs.
Realistically, it is not possible to sustain the annual increases in health care spending that are required to finance business as usual in Massachusetts health care.
Therefore, failure to contain costs will lead to wholesale denial of needed care and loss of insurance coverage. When a jet plane runs out of fuel and drops below stall speed, it crashes. Without reforms to re-shape health care to make it more affordable, Massachusetts health care will soon approach stall speed because it will lack enough financial fuel to keep it in the air. We all need a soft landing.
For these reasons, Torchiana’s positions hurt everyone who gives, needs, or pays for health care—doctors, nurses, hospitals, other caregivers, employers, taxpayers, and patients.
Further, health care cannot be the “economic engine” that Torchiana claims as long as high insurance costs hinder job creation and boost our cost of living, spurring many talented people and expanding companies to turn to other states.
Since 98 percent of the costs of care provided in our state is given to people who live in our state, we shoulder the disproportionately high cost of care here. As shown above, this remains true even after separating out Medicare and Medicaid revenue.
Torchiana seems more interested in shooting the messengers who urge greater attention to unsustainably high health costs than in solving real problems by addressing their causes.
What reasons are there to believe that his preferred solutions—chronic care management and health information technology—are remotely up to the job of slowing cost increases and making Massachusetts health care affordable enough to allow genuine implementation of the promise of our 2006 chapter 58 law?
He offers no evidence. And there are very few reasons to think those solutions adequate. For example, although he notes rightly that each year’s health spending is concentrated disproportionately on 10 percent of Americans, his focus on the chronically ill ignores many patients with catastrophically-high costs—for new cancer diagnoses, trauma care, and more. Further, coordinated and continuous management of chronic patients is much easier when enough primary care physicians are available and are fairly paid for their hard work. This is clearly not true today.
Torchiana’s does usefully note that, “Learning how best to coordinate care…has been nearly impossible to do in our fragmented payer/ provider structure.” But he offers no proposals for reform of health care financing and payment methods—which remain just as fragmented and likely to spur unneeded services under this state’s new health care law.
Torchiana’s solutions are band-aids because they address symptoms, not causes, with new overlays of programs, experts, and administrators.
It would be far better to focus on the causes of clinical and other waste in health care, to cut fat and recycle it as bone and muscle. We have argued that doctors are best equipped to identify what care is appropriate and weed out clinical waste. Their decisions control almost 90 percent of personal health spending. (Yet current prevailing policies emphasize using high cost-sharing requirements to force patients to mistrust and to second-guess their physicians.)
That’s why we have urged negotiating a peace treaty with doctors, one that would relieve them of finance-related paperwork, fear of being sued, heavy burdens of loans for medical school, and financial incentives to give too much care or too little. Instead, doctors would be liberated to think clinically, not financially or legally, to carefully spend the huge sums already available to care for all of us very well.
Unnecessary care and costs plague the entire nation as a whole, so no one suggests they are “a unique local problem.” But as the state with the greatest cost excess, Massachusetts urgently needs to take leadership in piloting new strategies to put health care on a sustainable footing for us all.
Healthcare costs and cost trends matter very much. In particular, controlling costs is critically important if Massachusetts’ landmark healthcare reform law is to succeed. There are many reference sources available to estimate relative healthcare costs. Many of the measures commonly cited obfuscate the issue because they include expenditures that objectively are benefits, not burdens, like federal grant support, payments for graduate medical education, and care of out-of-state patients. As things stand, Massachusetts physicians practice efficiently by most standards of utilization like the Dartmouth Healthcare Atlas or the Medicare Payment Advisory Commission (MedPAC) relative resource use ratios, Massachusetts hospital margins are low by regional and national standards, and Massachusetts physicians are paid at levels below the national average. In its most recent national survey, the federal Agency for Healthcare Research and Quality (AHRQ) found that there was a 6.6% differential between family health insurance premiums in Massachusetts and premiums in other states.
This difference is modest compared to most other cost of living indices like utilities or housing costs, which are typically much higher in Massachusetts.
This measure is not inflated by the research or teaching support payments that we should be proud of competing for successfully. The premium cost is what Massachusetts residents and businesses actually pay for healthcare and is the real measure of the relative cost of healthcare in our state.
Dr. Torchiana,
The premium appears to be too high for at least 500,000 of us.